Community Supported Agriculture (CSA) is a great opportunity for agricultural producers looking to add value to their operation and for consumers looking to support the local economy through their food purchases. This article is the second installment in a series focused on the legal issues that arise with CSA. Specifically, this article will discuss CSA formation and contracting with members.
Background
CSA is a farm structure where consumers sponsor a producer’s upcoming growing season by purchasing a membership in the farm, and in return, receive a share of the season’s harvest. In this business model, the consumer will purchase the membership prior to growing season and will share the burden of risk with the producer. Once farm products are harvested, members will receive a box on a periodic basis, either by traveling to the farm to pick up or meeting the CSA at a local distribution site. A CSA box will include a variety of farm products and could vary depending on several factors like the agreement with the farm, the time of year, or the type of membership purchased. To learn more about CSAs generally, click here to read the first article in this series “Community Supported Agriculture: A Field Guide for Producers and Consumers (Intro).”
CSA Formation
CSAs could be initiated in a few ways. They could be initiated by producers, members, or pre-existing community organizations. Sometimes, the CSA is formed by multiple producers who decide to come together and provide a variety of products to members. Though there are multiple ways it could be initiated, most begin with the producer, thus that will be the focus of this article. With a producer-initiated CSA, the most important element in formation is recruiting members to join.
Recruitment of Members
Finding members to join the CSA is vital because the entire farm business model hinges upon their financial contribution. If there are no members purchasing a share before harvesting, the producer will not have funds to finance the season nor the benefit of reducing risk. Therefore, it is important that a producer initiating a CSA creates a marketing strategy to inform local consumers about the CSA’s formation. The University of Tennessee’s Extension Service has a great resource on how to market a CSA. In this resource, they encourage producers to identify “target consumers,” that is the consumer who desires to be involved in a CSA and is willing and able to purchase the farm product. Then, the producer should develop a marketing strategy that reflects the values of identified target consumers.
There are a few specific marketing techniques a producer could incorporate in their marketing plan. This could include the promotion of the CSA on social media or listing their CSA on a registry website like Market Maker. Word-of-mouth marketing to local groups or organizations is another technique. This technique might require extra time and effort from the producer, but the in-person appeal might compel consumers whose CSA interest stems from a desire to connect with their local producers. Additionally, some CSAs have been successful in partnering with organizations or businesses to recruit members and offer a drop-off site at their business location in exchange for a discounted share.
Creating a business plan
Along with the recruitment of members, a CSAs next important step is formulating a business plan. If a producer is already operating as a commercial farm entity, the CSA could operate under their predetermined business structure. However, if the producer is not already a commercial farm entity, then they might need to consider what type of legal entity they wish to be. There are multiple business structures the producer could form the CSA to be – a sole proprietorship, general partnership, limited partnership, limited liability partnership, corporation, or limited liability corporation. Each of these business structures has different requirements for formation such as required forms to file with and fees to pay to the Secretary of State. Additionally, the business structures have different tax, bankruptcy, and liability implications. For example, if a producer chooses to operate his CSA as a sole proprietorship, then he will not have to complete any legal filings; however, the producer could also be held personally liable for both the actions and the debts of the business. This means that if the CSA gets into legal trouble, the producer’s personal assets could be used to pay for it. Conversely, a producer operating her CSA as a limited liability corporation (LLC) will have to file formal paperwork and pay a filing fee, but she will be protected from personal liability. This means if the CSA is in legal trouble, the producer’s personal assets are safe. The business structure a producer chooses will also be important if the CSA has other employees. The business structures that require legal filings will typically require annual reporting or fees to maintain registration; therefore, it is important for the producer to consider whether they can afford the upkeep. To learn more about each of the business structures, click here to view NALC’s Business Organizations reading room.
Along with determining the legal structure of the business, a producer will need to decide the organization of the CSA. Many CSAs will establish a “core group” of members who help the producer make operational decisions and carry out certain responsibilities. Generally, the core group is comprised of the farmer and a few members. The core group has responsibilities, but it typically does not deal with farming determinations. A core group’s responsibilities may include helping with crop selection, member payment schedules, the organization of box distribution, special events hosted by the CSA, or member recruitment activities. However, the non-producer members of the core group do not involve themselves in the daily decisions impacting the growing and harvesting of farm products. Those decisions remain the producers alone. For example, a producer may work with the core group to organize the CSA’s annual fundraiser, but decisions about when to harvest squash is solely up to the producer.
Another important organizational component that producers should consider when forming a CSA is whether they wish to create a work-share membership option. This membership option will require the member to work a certain number of hours on the farm per week either as an alternative to or in addition to their payment. Some CSAs require working hours for membership, while others allow it as an option for payment. Either way, if members are working on the farm, it will have different liability implications for the producer and the farm business. If the CSA has a work requirement, there is greater opportunity for an injury to occur on the producer’s property – the liability implications of that is something a producer should consider before deciding upon a business structure. There are additional labor concerns that arise with a work requirement such as compliance with wage and hour laws and worker’s compensation. Work requirements will be discussed later in the member agreement portion of this article, while potential CSA labor issues will be the topic of a later article in this series.
It is also important while creating a business plan for producers to consider the seasons they want to be growing and harvesting, and the share options the operation will offer. For example, many CSAs offer different season sessions that members can purchase. A CSA might have a summer session for a set number of weeks offering crops that are in season during the summer, and it might offer a separate winter session for a set number of weeks with crops in season during colder months. Having two separate sessions will impact the planting and harvesting schedule of a producer and will require a planned strategy for land and time management. Along with this, the producer will need to think through how long the sessions will last, and how many distribution periods there will be.
Budget
After developing the business plan, the next big step a producer must take is to budget for the growing season. This step is vital because, under the CSA model, members pay for growing season prior to it beginning. Therefore, it is important for the producer to plan out the costs, so it may be appropriately communicated to members. Ideally, the budget should be enough to meet the costs of production, organizational costs, and still provide a fair salary for the producer. Questions about the length of seasons and types of seasonal sessions will need to be determined to create an appropriate budget.
Another important factor that impacts budget is the cost of membership. The cost of membership is often referred to has the “share price,” and it will usually be impacted by the number of members in the CSA and the costs of production. The most common method for setting the share price is selling at market price. This is determined by comparing the amount of farm products received in a box with the equivalent price of buying it somewhere else. Usually, the comparative price point is what it would cost to purchase the same amount of farm products at a farmers’ market. Though most CSAs require full payment at the beginning of the season, some offer payment plans to open membership to lower income individuals. Additionally, some CSAs offer “half-shares” for members to purchase a membership for only half of the season. Overall, to properly budget, a producer must calculate the costs of production, think about how many shares the land can produce, determine their salary, choose a share price, decide on payment plans, and determine the length of seasons and sessions. After producers determine these budgeting factors and properly recruit members, they will need to formulate a contract with members to properly convey expectations and risks of the CSA.
Contracting with Members
While not all CSAs in operation have member agreements, it is in the best interest of the producer to create one. The biggest benefit a producer receives from operating under the CSA model is that the typical risks of agricultural production are shifted off them and shared with the consumer. However, to best operate in this system, a consumer needs to fully understand the risks and expectations for the CSA prior to growing season. The following are several terms that could be included in a pre-season agreement, or contract, between the producer and member.
Particulars of growing season
This term would include the length of the growing season and the farm products available. Included with these terms should be the disclaimer that the length of growing season and the products available are subject to change because of production factors like weather, pests, and disease that are outside of the producer’s control.
Payment plans
The member agreement should include a term that outlines the cost of a share, and the payment expectations for a member. For example, if payment is due at once prior to growing season, or if the member is paying in installments. If the member is paying through installments, then the payment details should be stated. This could include how the payment is accepted (credit card, PayPal, cash), what the repercussions are for late payments, and if the installments are made on a weekly or monthly basis.
Delivery/distribution
Another term that should be included in the member agreement is the delivery or distribution method. A CSA can distribute farm product boxes to members either by requiring members to travel to the farm to pick up, by offering distribution at a designated location, or by delivery. The member agreement should clearly set out the method of distribution that the CSA will use.
Reuse of box
If CSA requires members to return boxes or bags for reuse, the agreement should include a term outlining the requirement.
Work Requirements
If a CSA has a work requirement associated with membership, or if the member has opted to repay their share though working on the operation, it will need to be included in the member agreement. The requirements of the work will need to be laid out. This could include the hours of work expected and the type of work expected.
Harvest benefits
The member agreement should explain how the producer chooses to handle the benefits of a successful harvest. Actionable steps for dealing with a surplus of food should be discussed. Members can have the option to receive the extra food, choose to donate it to a local food bank, or share the extra with farm workers and their families.
Harvest risks
It should be clearly communicated to members that they share the risk when participating in a CSA. In the member agreement, a term should be included to note the member bears the risk of a partial or total crop failure. The agreement should state that the producer will use reasonable efforts to generate a successful harvest, but the producer will not be liable to the member for the value of their share if there is crop failure.
Forfeited products
The member agreement should state that farm product boxes will be forfeited if they are not picked up during the specified distribution period. The producer could include an option for alternative distribution methods but should specify these arrangements must be made prior to distribution.
Communication
In the member agreement, the producer should specify what method of communication they will use to contact members.
Conclusion
Though CSAs are both an incredible option for producers looking to add value to their operations and consumers looking to support their local producers, there are many factors that require consideration in CSA formation. When forming a CSA, producers should identify target consumers, determine a marketing strategy, develop a business plan, and create a budget. Once the producer has completed those steps, he should draft an agreement between himself and members so risks and expectations are established prior to growing season. The next article in this series will look at landowner liability and the legal considerations of picking a distribution location.
For another resource on CSA member agreements, click here to view University of Maryland Extension’s article “Understanding a Community-Supported Agriculture Agreement: What Should Be Included in a Good CSA Membership Agreement?”
For a resource on CSAs generally, click here to view North Carolina State University’s Extension’s article “Community Supported Agriculture (CSA) Resource Guide for Farmers.”