Funding Local Food Systems to Meet the Impacts of a Changing Climate
Above: Short Creek Farm was started by high school friends Jeff Backer and Dave Viola in 2015.
The COVID-19 pandemic showed the US the fragility of our national food supply chain, with shocks to the system from farm production to food processing to transportation to store shelves. This was particularly acute for meat and poultry products, with effects that rippled from producers to farmers and consumers alike.Benefits and Challenges of Local Food Production
According to the Maine Department of Agriculture, Conservation and Forestry’s 2023 Agricultural Overview, there are approximately 7,600 farms in Maine, mostly diversified, with nearly half of those farms (47%) working less than 50 acres. Value-added producers are also smaller scale, with a statewide average of 21 employees per business.
The diverse nature and small size of Maine’s food ecosystem reduces environmental impact and concentration risk. But these same qualities, especially in the low-density geographically remote areas that make up much of rural Maine, make it more difficult to coordinate transportation, processing, and distribution.
Filling these infrastructure gaps can mean the difference between a thriving local food system and one at risk of collapse. Coastal Enterprises, Inc. (CEI), an economic development nonprofit and Community Development Financial Institution based in midcoast Maine, has been focused on building Maine’s food system infrastructure for decades through provision of capital and entrepreneurial support for businesses in the food system, as well as through policy for increased state and federal government investment.
How the Sausage is Made
Meat processing is a highly concentrated business in the United States, with the four largest firms in the country handling 85 percent of all steer and heifer purchases and 67 percent of all hog purchases1. This can make it hard to find a processor taking new clients, let alone one who will process a smaller number of animals. In Maine, custom processing facilities (non-USDA or state-inspected) are booked six-months to a year in advance. The wait is even longer for inspected facilities or specialty processing like organic or Halal.
Short Creek Farm was started by high school friends Jeff Backer and Dave Viola in 2015. After college, they found their way into farming and artisanal meat processing, respectively, and quickly saw an opportunity to bring their skills together to build a business processing pork into sausage, bacon, pork cuts and salamis.
Initially, Short Creek focused on processing their own livestock, but as sales expanded beyond farmer’s market scale into wholesale, they began to purchase pork from other responsibly managed small farms. Their growth also necessitated a more robust production capacity. CEI, alongside the New Hampshire Community Loan Fund, invested in the start-up of a USDA-inspected facility in Kennebunk, Maine in 2021, which gave Short Creek Meats, as the new facility is called, the ability to offer co-packing services.
Building a new meat-processing facility is an expensive endeavor with a slow return on investment. To meet health and safety requirements, new facilities must use specialized equipment and install specific types of materials, temperature-controls, and rail systems throughout the building. Furthermore, like many agricultural businesses, meat processors face a disconnect in the timing of their business’s cash flow, in that they generate significant upfront costs that cannot be recouped until the end of the growing/processing season several months later. This disconnect, combined with the high startup costs make finding long-term, affordable capital key.
In 2024, CEI was able to consolidate and refinance Short Creek Meats existing lines of credit and loan in a new, less expensive line of credit with funds from various sources, including the USDA Meat and Poultry Intermediary Lending Program. This financing package provides the company with additional working capital and provides a low-cost solution that will create $98k in annual savings, providing much needed flexibility as they look to further expand.
While it’s true that data on certain industrial meat production shows contributions to climate emissions, we see meeting demand for meat through local food sources as an investible alternative, one that reduces the carbon footprint from a meat-based diet through reduced transportation emissions and shortening the wait times until animals are processed, which means fewer direct emissions from the animals and from the feed required to maintain them. Smaller farms with corresponding small herd/flock sizes are also more likely to be raised in conditions that retain/sequester carbon in the soil and have more opportunities to manage waste in ways that reduce manure-based emissions.
Today, Short Creek Farm products are carried in specialty stores across the US, as well as at Hannaford Supermarkets in Maine. Last year, Short Creek processed 102,000 pounds of pork under their own label which was sourced from Short Creek’s own farm as well as two other New England farms. Additionally, they co-packed 90,000 pounds of pork for 14 farms across Maine, Massachusetts, New Hampshire and Rhode Island, providing a much-needed processing outlet in the region
To Market, To Market
For farmers, or local food producers like Short Creek Meats, the challenge is not coming up with a quality product, it’s getting that product to customers.
Farm stands, farmer’s markets, community-support agriculture (CSA) subscriptions and other direct models can work for both farms and value-add producers but is limited in scale and geography. For businesses that want to grow, how do they do they take the next step and get into the produce aisle or the shelves of grocery stores? How do we make it easier for consumers to buy local?
Grocery shelf space is perhaps the most competitive real estate market there is. Profit margins in the grocery store industry are notoriously thin, and the industry is reluctant to use expensive retail space as a product testing ground, particularly when 70-80 percent of new grocery store products fail 2. Instead, store owners pass some of that risk onto producers via “slotting” or “shelving” fees. In 2015, Goldman Sachs says consumer goods companies paid more than $200 billion to retailers in placement fees.3
For this reason, while it might be tempting to aim directly at distribution via the large national or regional chains – it’s often not best strategic or financial decision for a business. Slotting fees may be much lower, or nonexistent, at local or specialty markets and can help a business build a customer base and sales story that makes them more attractive to larger stores in the future. Specialty and small-locally owned markets are key piece of an economically sustainable local food system.
Business owners Sarah Morneault and Lindsey Levesque, co-owners of Tiller & Rye, are passionate about increasing the demand for local food. Located in Brewer within Maine’s second largest metropolitan area in the state, Tiller & Rye was founded on the idea of offering high quality products and building relationships with the producers, farmers, and craftsmen who make them. To turn their idea into a business, Morneault and Levesque turned to the Maine Small Business Development center hosted at CEI, where a certified business advisor helped them create a business plan and consider financing options.
As a start-up with the tight profit margins typical of retail groceries, finding a lender was challenging, even as the town of Brewer contributed a $50,000 Community Development Block Grant to the development. Seeing the potential of a local food sales hub in the Bangor/Brewer region, CEI provided a startup loan for inventory, fixtures and equipment and later provided additional financing when the business needed to make improvements to the electrical system in the store.
“Compared to national chains, local businesses like ours have a smaller carbon footprint and bring substantially more money to their community,” says Tiller & Rye co-owner Sarah Morneault.
“We hope that with every dollar spent at Tiller and Rye, it is used to uphold the often-lost connection between farmer and eater, make it easier for the next entrepreneur to start a business, help make the air cleaner, the world fairer, and our bodies healthier.”
Since opening in 2015, the business has helped customers connect with locally farmed and produced goods, not just with shelf space, but with tastings, demonstrations, and events. Currently, the store hosts a roster of products from 350 Maine-based farms and producers and was named the Maine Woman-Owned Small Business of the Year for 2024 by SBA.
Article by Leah Batt and Bradley Russell, Coastal Enterprises, Inc. (CEI)
Leah Batt is the Director of Marketing & Communications at Coastal Enterprises, Inc. (CEI), a Maine-based community development financial institution with a mission to build just, vibrant and climate-resilient futures for people and communities in Maine and rural regions by integrating finance, business expertise and policy solutions in ways that make the economy work more equitably.
Bradley Russell is the Sustainable Agriculture & Food Systems Program Director at Coastal Enterprises, Inc. (CEI), where she works to grow the resilience and profitability of Maine and regional agricultural and food businesses while supporting sustainable agriculture production, processing, marketing, and retail systems helping create access to safe, affordable locally produced foods, especially among low-income communities.
Footnotes:
[2] How To Prepare For Slotting Fees And Effectively Promote Your Product With A Retailer (forbes.com)
[3] How Grocery Shelves Get Stacked : The Indicator from Planet Money : NPR