Producers and consumers can choose to participate in community supported agriculture. Under this business structure, the burden of risk for producers is reduced. Additionally, CSAs can allow the producer to increase profits through add-on purchase options. This is the fifth article in a series about CSAs, and it will focus on add-on options. To read the other articles in this series, click here.
Background on CSA
CSA is a farm business model that allows consumers to fund a producer’s growing season by purchasing a membership in the farm prior to its start. Under this model, the CSA members will receive a box of farm products on a periodic basis once the harvest begins. This structure is particularly beneficial for the producer because it allows them to share the burden of risk with the consumer. This is beneficial because unlike in the traditional business structure, CSA producers get paid no matter the conditions that might befall their growing season. The contents of farm boxes will vary depending on the time of year or the type of membership purchased by the member. Additionally, some CSAs can have options for a consumer to purchase what are called “add-ons.”
What is an add-on?
Once a member has purchased a CSA share, they might have the opportunity to purchase add-ons. An add-on is an additional product that the member can purchase to add to their regular CSA box. Add-ons could include items like meat, eggs, dairy products, fruits, baked goods, jams, jellies, or canned foods. Sometimes, the add-on could include an option for “pick-your-own” flowers or vegetables that allows the CSA members to self-harvest from the CSA fields. A CSA could choose to provide a variety of products as add-ons; however, there are two categories of add-ons – those produced by the CSA and those outsourced through third-party vendors. Like the usual farm product boxes, the add-ons are typically delivered on a periodic basis. Some might be delivered weekly with the farm product boxes, distributed on a bi-weekly schedule, or it could have its own pickup schedule that is entirely separate from the CSA box. For example, a member who has purchased a share of the summer growing season at a hypothetical “Honey Apple CSA” has the option of also purchasing an egg add-on. This means that in addition to the farm product box delivered to the member each week, a member who purchases the egg add-on would also receive a dozen eggs every other week.
Third-party vendors
Often, a CSA will provide add-on options by partnering with other local businesses or farms. For example, in addition to its egg add-on, Honey Apple CSA offers a loaf-of-bread add-on through Sourdough Café, a local bakery in town. In this example, Honey Apple handles the add-on signups, but Sourdough has a delivery separate from the weekly baskets members receive from Honey Apple. Each CSA and third-party vendor will have to determine a pickup/delivery schedule that works best for their partnership and operations. This is why it is important that CSA’s partnering with a third-party vendor for add-ons create a contract to detail the parameters of their partnership. The following are examples of details that should be considered in a partnership contract:
Logistics of delivery
As mentioned earlier, the logistics of delivery are important to clarify with a third-party vendor. The delivery logistics include both the delivery of farm products and add-ons to the members and the handoff of add-on products from the third-party vendor to the CSA. First, the CSA will need to establish a schedule for transferring the add-on product to the member. This could look like the member going to the third-party vendor for distribution, could require the third-party vendor to deliver the add-on to the homes of members, or could require the third-party vendor to deliver the add-on to the CSA’s typical distribution location, whether that’s the farm or an off-farm location. This is important because the third-party vendor might have a varying level of involvement in product delivery depending on what the product is. For example, Honey Apple CSA decides to start selling a milk add-on from a local dairy, Bessy’s Dairy. Honey Apple has never offered a milk option before and thus does not have the proper equipment for keeping the milk cold during distribution. In this situation, it might be best for Bessy’s Dairy to come to the distribution location with their own equipment to store the milk and pass it out to members themselves.
Second, if the CSA is solely responsible for distribution, the CSA and third-party vendor will need to discuss where the handoff of the add-on product will take place. Since the third-party vendors could be other farmers, who might be a town or two over, the CSA will have to think through the process of picking up the add-on product. For example, Honey Apple CSA has an egg add-on with third-party vendor, Chick’s Farm. Chick’s is located about an hour from Honey Apple; thus, it might not be feasible for Honey Apple’s operator to drive an hour each way every week to pick up the eggs. Honey Apple and Chick’s could reach an arrangement to meet halfway, or to rotate weekly who has to make the hour-long drive.
Price breakdown
Another detail that should be mentioned in the contract between a CSA and third-party vendor is the price of the add-on. This includes certain factors that the CSA should consider prior to negotiating with the third-party vendor about a potential partnership. A CSA will need to determine the cost of including add-ons and the profit that will make it a beneficial endeavor. Even when a CSA is partnering with a third-party vendor and therefore, not growing or manufacturing the add-on products themselves, a CSA will still have the costs of driving to pick up the add-on, managing the member’s purchases, or even sometimes separating the add-on into quantities to include in the farm product boxes. All of these actions require time and labor that the CSA operator could be devoting to something else. Thus, it will be important for a CSA to determine the amount of profit it needs to make from the add-on for the investment to be financially worth it. Additionally, the CSA will need to determine a minimum quantity of add-on products at that price point that it needs to sell to be a successful venture for both the CSA and its partnering third-party vendor. All of these factors, in addition to the profit expectation the third-party vendor has for the product, will determine the price the CSA chooses to charge members for the add-on subscription. Overall, the CSA and the third-party vendor will need to include in the contract the amount the CSA is charging the member to purchase the add-on and the cut of that price that the CSA is keeping.
Vendor payment schedule
In a typical CSA structure, one of the greatest benefits is that the farmer is paid prior to the growing season and can use the members’ payment to fund the costs of the upcoming season. When partnering with a third-party vendor though the CSA will need to decide if this is the best method of payment to follow. Paying the vendor the entire payment upfront could be risky, so some CSAs may choose to pay vendors in increments throughout the season. For example, Honey Apple CSA’s egg add-on is with a third-party vendor, Chick’s Farm. Though Honey Apple requires members to purchase the egg add-on at the same time they purchase the traditional membership, Honey Apple pays Chick’s for the eggs in three-week increments. Regardless of what a CSA decides, it is important to be clear in the contract vendors about when payment will occur.
Customer Grievances
Another factor that should be included in the contract between a CSA and a third-party vendor relates to the party responsible for handling issues that arise with the add-on products themselves. For example, Honey Apple CSA has a pecan add-on with local pecan farm, Sunshine Orchard. Under this partnership, Sunshine Orchard will deliver the pecans to Honey Apple already divided into individual bags– meaning that all Honey Apple must do is place the bags into the weekly farm product boxes. Under this arrangement who is responsible for handling any member grievances? For instance, if members who purchase the pecan add-on have an issue with how many pecans are in their bag, do the members contact Honey Apple or Sunshine Orchard? It is important that Honey Apple and Sunshine determine this process prior to forming their partnership. Further, in a situation like that, the parties will need to determine who might bear the financial burden of handling member grievances. If Honey Apple decides to financially compensate the member for the shortage of pecans in their box, do they expect Sunshine to pay them back or cover a part of those costs? A process for handling these types of situations needs to be outlined in the contract between the two parties.
If the third-party is unable to perform
Another term that should be included in the contract between the CSA and a third-party vendor is what happens if the third-party vendor is unable to fulfill their end of the contract. To prepare for this, a CSA should consider including a clause in the contract to address expectations for both parties. From the earlier example, Sunshine Orchard is the victim of a tornado that devastates their pecan crop for that season, thus they are no longer able to provide pecans for the add-ons previously purchased by Honey Apple’s members. In this situation, does Honey Apple still owe Sunshine Orchard the money members paid at the beginning of the season when they purchased the add-on? Specifically, if Honey Apple was paying Sunshine Orchard in increments spread out through the season, are they required to give Sunshine Orchard the remaining increments, or does Honey Apple refund the money back to the members? These are situations that the CSA and third-party vendor should discuss and include in a contract. Additionally, it is important that the CSA and third-party vendor considers expectations if either business were to go bankrupt. To learn more about the options for a business in bankruptcy, click here to visit NALC’s Bankruptcy reading room.
Liability
A factor that should also be considered when a CSA and a third-party vendor are entering into a contractual relationship is liability, or who bears the legal responsibility if something goes wrong. This is crucially important especially when the product is a food item that if improperly handled could make members sick. It would be beneficial for the third-party vendor and the CSA to establish and include in the contract a list of best practices that the CSA should follow when handling the third-party’s add-on products. In addition, to limit its liability, a CSA could include a limitation of liability clause in the membership agreement that members sign prior to purchasing a CSA share. For more information on membership agreements, click here to read NALC article “Community Supported Agriculture: A Field Guide for Producers and Consumers (Formation and Contracting with Members).”
Along with liability for the product itself, there might be liability concerns that arise with the delivery schedule or method the third-party vendor chooses to follow. There are a few distribution instances where a liability question may arise. For instance, with Honey Apple’s egg add-on which it partners with Chick’s Farm to provide, members must go on Chick’s property to pick up the eggs. If a member is injured on Chick’s property, does Honey Apple bear any legal responsibility? In another example, Sourdough Bakery, the local bakery that Honey Apple partners with to provide a loaf-of-bread add-on, has a separate distribution schedule than Honey Apple’s weekly product box distribution. Sourdough Bakery has a person deliver the loafs to member’s houses every other week. If their delivery person is injured on the job, is Honey Apple liable? Honey Apple and Sourdough Bakery could specify in their membership contract that the delivery person is not acting as a Honey Apple employee in this situation. Likewise, Honey Apple and Chick’s Farm could include in their contract that Honey Apple is not liable for injuries that occur to members that pick-up eggs on Chick’s Farm. However, liability in these situations is often dependent upon the factual circumstances and can be hard to preemptively contract away. Nonetheless, it is beneficial for the CSA to be aware of and prepare for liability through contracting and insurance. For further information on limiting a CSA’s liability, here to read NALC article “Community Supported Agriculture: A Field Guide for Producers and Consumers (Limiting Liability).”
Producer manufactured Add-ons
In addition to working with outside vendors to provide add-on options for their CSA members, a CSA operation might seek to create or manufacture their own add-on products. This could look like a producer with extra crops post-harvest seeking opportunities to utilize the excess. For example, a CSA producer grows tomatoes, and from the extra produce each year, she makes salsa. Another option is a producer could manufacture food products separate from the crops they harvest. For example, a CSA producer makes bread in her home kitchen and wants to provide a loaf-of-bread add-on option to CSA members. Ultimately, if a CSA producer chooses to include self-manufactured add-on products, they will have to first think through two questions: what do I want to make and who do I want to sell it to? These questions are significant because the answer will determine the regulatory requirements the food’s production must follow.
Cottage Foods
Most states have provisions for food products made in a home kitchen which allow the food product to be excluded from compliance with certain licensing, labeling, and inspection requirements. These food products are typically called “cottage foods.” Cottage food laws vary from state to state, but the laws will typically limit what products can be made, where they are made, and where they are sold.
It is most important for a CSA operator to know if the add-on product they wish to manufacture would qualify as a cottage food. The definition of cottage foods varies by state, so the CSA operator will need to research their state’s provisions. Traditionally, cottage foods are those that are not potentially hazardous and shelf stable. Specifically, cottage food products are not “time/temperature control for safety food” (TCS). TCS is defined by the FDA Food Code as “foods that require time/temperature control for safety to limit pathogenic microorganism growth or toxin formation.” Under this definition, the traditional category of cottage foods excluded foods that required a specific time or temperature constraint to be deemed safe for consumption. Because TCS foods could pose a food safety risk if not handled properly, most cottage food provisions do not allow them to be excluded from licensing or inspection requirements.
However, as mentioned before, the provisions outlining what is considered a cottage food will vary from state to state. For example, Arkansas’ Food Freedom Act excludes time/temperature control for safety food products from being cottage foods. Under its definition of TCS, the Arkansas law specifically lists several foods, such as cut tomatoes or mixtures of cut tomatoes, that are classified as TCS. However, the Arkansas provisions also clarify that pickled cucumbers and other acidified vegetables, typically thought of as TCS foods, are considered non-TCS and afforded cottage food exceptions if they have a pH of 4.6 or less and meet a list of other requirements. Ark. Code Ann. §§ 20-57-501-507. Conversely, Connecticut does not allow cottage food exceptions for foods that “require time and temperature control for safety to limit pathogenic microorganism growth or toxin formation.” Conn. Gen. Stat. Sec. 21a-62b.
The classification as a cottage food is important for a CSA operator to be aware of because cottage foods will be excluded from certain requirements that a non-cottage food product will be subject to. For example, a cottage food will have labeling requirements that are less stringent and require less information than a non-cottage food product. However, cottage foods are typically limited in the places where they can be sold. Generally, cottage foods are only allowed to be sold directly to a consumer and are prohibited from being sold for wholesale. If a CSA operator is manufacturing a cottage food product for the purpose of including it has an add-on option, then it would fall under the requirement of being sold directly to a consumer. However, this rule is something for a CSA operator to be aware of.
Non-cottage food value-added food product
If an add-on product manufactured by the CSA does not qualify as a cottage food product, then there are different rules the CSA will have to comply with. When a farm product has been transformed from its original form and increased in value by labor to be sold at a higher price, it is called a value-added food product (VAFP). A VAFP could include jams, jellies, sauces, dried herbs, or pickles. Technically a VAFP could be a cottage food, if it qualifies under a state’s cottage food provisions, but if it is not, it will be regulated under a different set of rules. For non-cottage food VAFP, a CSA producer will likely be required to manufacture the food product at a facility that is permitted for that use from the state’s Department of Health and will require compliance with USDA and FDA regulations. Often these facilities will have certain structural requirements such as a floor drain, surfaces that can be sanitized, and three-compartment sinks. This means that to produce non-cottage food VAFP, a CSA producer will have to rent, build, or share a facility that meets the specifications. Obviously, this adds an extra cost to the CSA’s operation. However, in contrast with a cottage food product, VAFPs made in these facilities are typically permitted to be sold in any commercial market, so it could expand the CSA producer’s markets beyond just including the product as an add-on option.
Conclusion
No matter if a CSA chooses to use an add-on that is self-manufactured or sourced from a third-party vendor, add-ons can be a beneficial way for CSA operations to make extra profit. If a CSA chooses to partner with third-party vendors for add-on options, it is in its best interest to think through certain factors and form a contract with the vendor prior to entering into the partnership. If the CSA chooses to manufacture its own add-on options, there are certain food safety and cottage food laws it will need to be aware of.
To learn more about cottage food generally, click here to view NALC’s cottage food state law compilation.