Vermont herb growers form cooperative to develop reliable markets
By Kristen McPhee, Nutritionist & Clinical Herbalist
Business is blooming for the herb industry, but growers can find it challenging to access markets. One alternative that is gaining ground is forming a cooperative to source herbs from local, small-scale organic farms and aggregate orders to larger buyers. The Vermont Herb Growers Cooperative (VHGC), which had its first collective harvest last year, can serve as a model for the development of other herb grower cooperatives around the country.
VHGC supports its farmers by developing reliable markets at a scale individual farmers would not be able to serve; providing technical assistance on all aspects of growing, from quality control to cultivar specifications to post-harvest processing techniques; supporting innovation and adoption of tools and technology; and supporting research and development through grants and loans. The VHGC practices and standards ensure that herbs meet a high quality, pharmacopeial-grade standard as defined by the FDA. In addition to meeting top quality standards, VHGC’s herbs are grown and processed in accordance with monographs provided by each buyer. Prices are based on cost of production, with the goal of supporting a living-wage to smaller-scale diversified farms.
The cooperative’s roots formed in March 2014 when Pamela Hathaway, now general manager of the VHGC, first met Jeff and Melanie Carpenter, owners of Zack Woods Herb Farm and authors of The Organic Medicinal Herb Farmer. They immediately recognized they had a common vision for creating an herb growers cooperative. Over the course of nine months, this leadership team recruited advisors in agricultural economics, business, and cooperative development and secured a $19,000 USDA Specialty Crop Block Grant through the Vermont Agency of Agriculture Food and Markets. Once the grant was awarded, the team selected key established farmers and convened their first steering committee meeting where they discussed cooperatives as a business model and reviewed the grant timeline goals.
One of the first goals of the grant was to conduct a market and feasibility study. The research considered five aspects: (1) profitability of growing herbs in Vermont, (2) identification of target herbs, (3) identification of potential markets, (4) capacity of Vermont farmers for herb growing along with the capacity to provide training and technical assistance to farmers and, (5) determining operating costs for the cooperative. The study concluded that farmers in Vermont could profitably grow medicinal herbs with the support of the cooperative’s marketing and technical assistance.
Following the approval of the steering committee, the leadership team moved into the next phase. This phase began with official incorporation as a cooperative in the state of Vermont. Cooperatives are for-profit businesses that rely on members’ one-time equity payment to leverage working capital in the start-up phase of the business. Once the business is generating revenue, the profits are distributed back to its members as a dividend based on the quantity that each farm grows. The equity payment is refunded to members when they leave the cooperative.
The VHGC structure consists of a board, with a president, vice president, treasurer, secretary, and at-large member. The current staff consists of a salaried general manager, and contracted employees for bookkeeping, accounting, website and communications, and warehouse and shipping. Most work occurs from home offices, except for quality assurance and shipping, which took place in the first year at Zack Woods Herb Farm.
A business plan guides the operations of the cooperative, and provides a structure for assessing financial and operating goals and objectives.
The acting manager posted an announcement with the Vermont Vegetable and Berry Growers Association to gauge farmer interest in growing medicinal herbs for the VHGC; the initial announcement generated many responses, bringing the total of interested farmers to 85. The leadership team developed selection criteria, which included assessing the capacity and readiness of prospective farmers. After a round of emails and surveys, the number was reduced to about a dozen farmers, and then down to the total of eight that are currently the VHGC grower members.
Membership criteria included organic certification, three years of experience marketing and selling certified organic products, capacity to produce greater than $10,000 of marketable material for the cooperative in 2016, having appropriate agricultural equipment, having capital to invest in their own drying structure or convert a pre-existing structure, and having appropriate storage space for dried herbs.
In addition, members are required to pay a one-time equity payment that solidifies their commitment and covers some of the initial start-up costs of the VHGC. The members decide what herbs and quantities they want to grow through a collaborative process after being informed of the buyers’ specifications by the VHGC staff. Members also serve on the board of directors and board committees, including quality assurance, by-law, and finance.
The VHGC’s first harvests and sales occurred during the 2016 growing season. The commission rate was based on the cooperative’s projected annual operating costs and the farmer’s total sales, ensuring that the rate covered the operating expenses of the cooperative. With increased sales, the commission rate for the cooperative will decline, allowing more revenue to go to the farmers. Farmers are also not required to pay a commission rate for the sales to the markets that they share with the cooperative.
This year, members are exploring shared milling facilities. They also are developing a lot tracking system. They will look at the capacity of founding members to meet developed market demand over time to decide when and how to invite new members. Members are actively involved in determining whether to invite more farmers, to contract with non-member growers, or to expand existing contracts—the best response to market demand is decided by discussions with all involved.
Kristen McPhee is a nutritionist and clinical herbalist practitioner in Michigan whose background includes working on and managing sustainable farms.
From the May | June 2017 Issue