Food Value Chains

Local food markets are driven by consumer and buyer demand. Producers have a relationship with the people buying their food, whether it is someone from their community or an online buyer or with a regional buyer. These relationships are established because of a shared value system between the producer and the buyer. In our global food system large volume buyers value low cost, uniformity and quantity, which is the type of food production that ends up in our grocery stores and on our school lunch trays. However, consumers are changing their food values and asking for a variety of qualities including local, Organic, non-GMO, grass-fed, sustainable and fresh, among others. Local food growers are able to meet these demands by listening and responding to customers, creating a shared value system or food value chain.

Food value chains can foster collaboration on new market enterprises, mitigating risk for the farmer, supply chain partners and buyers. By creating stable markets, farmers and food entrepreneurs are finding new opportunities in the marketplace. This new model of organization for merging social missions with business objectives is a rapidly growing sector of agribusiness. Food value chains can provide an effective means for overcoming the economic challenges of innovation in food production.

Food value chains are strategic alliances between farms or ranches and other supply-chain partners that deal in significant volumes of high-quality differentiated food products and distribute rewards equitably across the chain.”

Smaller farms are often founded on the basis of a particular set of values (generational, organic, humane) but the farmers themselves have many roles in the business: grower, processor, packer, distributor, food safety inspector, marketer, salesperson and accountant. Their farm values may find plenty of buyers in the local food marketplace, but may be limited to the seasonal farmers' market. They are challenged to sell in to markets where price is the deciding factor for a buyer. Their buyers are those with whom they build a relationship of trust and shared values.

Key Distinguishing Factors Among Traditional and Value Supply Chains

Food Value Chains

  • Strategized business relationships to benefit all parties, constructed on collaborative principles and mutual trust
  • Farmers and other producers viewed as partners with highly valued responsibility and roles in decision making
  • Commit to welfare of all partners, applicable to trade, profits and contract length
  • Location can vary according to local, regional, national and international coordination
  • Unique in strategic operation strategy as well as product differentiation methodology

Traditional Supply Chains

  • Competition-based business relationships with heavy emphasis on economic advantage
  • Farmers and other producers viewed as interchangeable and exploitable; contracts are short-term
  • Uneven distribution of benefits across the supply chain, skewed in favor of marketers
  • Large scale operation and management, with location based on the prospect of economic gain
  • Deal with commodity products as well as “value added” products

How Does Each Strategic Partner Benefit in a Food Value Chain?

Participating in such a shared value system truly provides a benefit to all parties involved.

  • Farmers/ranchers/input suppliers – exert influence in price negotiation, retain greater share of profit, receive ongoing exposure to information about consumer purchasing habits
  • Aggregators/processors – are enabled to provide specialized products that can command higher prices, often can sell directly to vendors and circumvent middlemen
  • Distributors – regularity and stability in business partnerships
  • Restaurants, food service and food retail – sources have a greater degree of accountability, can more intimately interrelate with sources and communicate needs
  • Consumers – enjoy differentiated products on the basis of individualized values as well as heightened degree of trust
  • Waste disposal – often a reduced need due to the opportunity previously market-less items for profit

Food value chains also create natural opportunities for partners to build on precious business successes by exploring product launches, marketing strategies, and more.

What Are the Key Principles That Make Food Value Chains Effective?

For the collaborators:

  • Coupled economies among parties to concentrate marketing efforts
  • Emphasis on high levels of performance and accountability
  • Emphasis on shared vision and information
  • Commitment to participant welfare at all levels

For the individual:

  • Familiarity with economic trends and the ability to negotiate prices based on acceptable profit margins
  • Honoring contracts and agreements and timelines and communicating throughout
  • Ownership of brand identity, and co-branding when applicable
  • Active participation in value chain proceedings, such as conflict resolution or direction of chain performance

For More Information about food value chains and how they work, read this pub.

For more information on Value Chain Coordinators and the pilot project of USDA FoodLINC, read here.

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