Farmers' markets or the supermarket? Channel selection in small farming businesses

Abstract

Purpose – Despite the abundance of small-scale farms in the USA and their importance for both rural economic development and food availability, the extensive research on small business management and entrepreneurship has mostly neglected the agricultural context, leaving many of these farms' business challenges unexplored. The authors focus on informing a specific decision faced by small farm managers: selling directly to consumers (i.e. farmer's markets) versus selling through aggregators. By collecting historical data and a series of interviews with industry experts, the authors employ simulation methodology to offer a framework that advises how small-scale farmers can allocate their product across these two channels to increase revenue in a given season. The results, which are relevant for operations management, small business management and entrepreneurship literature, can help small-scale farmers improve their performance and compete against their larger counterparts. Design/methodology/approach – The authors rely on historical and interview data from key industry players (an aggregator and a small farm manager) to design a simulation analysis that determines which factors influence season-long farm revenue performance under varying strategies of channel allocation and commodity production. Findings – The model suggests that farm managers should plan to evenly split their production between the two distribution channels, but if an even split is not possible, they should plan to keep a larger percentage in the nonaggregator (farmers' market/direct) channel. Further, the authors find that farmers can benefit significantly from a strong aggregator channel customer base, which suggests that farmers should promote and advertise the aggregator channel even if they only use it for a limited amount of their product. Originality/value – The authors integrate small business management and operations management literature to study a widely understudied context and present practical implications for the performance of small-scale farms.

Keywords

• Small business
• SME
• Agricultural entrepreneurship
• Farming
• Simulation