by: Abigail Lewis-Go, Shaun MacChesney, Lavon Boening-Wong
Introduction
About: Good Food Community (GoodFoodCo.) is an alternative food system from the Philippines which aims to create a more ecological and ethical process within the food produce value chain. Its mission is to grow a sustainable food system whereby consumers’ commitment to eating healthy meets farmers’ commitment to grow nutritious food.
The Farmers: Right from the beginning of the food production, GoodFoodCo. partners with local communities or farms and educates them on the farming practices of organic produce. As these high yield crops tend to have higher capital investment, the purchasing model from the consumers helps to mitigate the risk of taking on the highest cost of production.
The Customers: Customers sign-up for a 12-week organic vegetable basket subscription which enables a steady demand to the producers. They pick up their veggie baskets, together with a few suggested recipes, every Saturday at designated pick-up points or opt for door-to-door delivery through additional fees. The customer benefits from a lowered cost of organic produce by cutting away the intermediary distribution channels such as supermarkets, transparent production method and an overall reduction environmental footprint by purchasing local grown produce.
Education: Overall, GoodFoodCo. has an added benefit of education for both the farmers and the consumers. For the farmers, Good Food Co. lends expertise in terms of setting up and production of the organic product. For the consumers, there are trips to the farms to learn more about the farming practices and understand the food supply chain better.
Overall, we believe that such a model should become the overall dominant mode of consumption in the future as it reduces the cost for consumers, improves the welfare of the producers within the supply chain and overall promotes sustainable consumption habits.
UN SDG Goals
GoodFoodCo was appealing to us as we felt that it hit many of the key UN SDG goals as illustrated below. We wanted to think about the way in which the business model explicitly contribute to certain goals and target set by the UN as well as come up with targets that the company could set or measure to quantify impact.
8. Decent Work and Economic Growth
- Promote development-oriented policies that support productive activities, decent job creation, entrepreneurship, creativity and innovation, and encourage the formalization and growth of micro-, small- and medium-sized enterprises, including through access to financial services
- Protect labour rights and promote safe and secure working environments for all workers.
The business model overall aims to use an innovative business model to help the growth and sustainability of small-sized farmers. Previously, the way of financing for these small farmers was through “loan sharks” that acted as both the lender as well as the distributors for their products. This was not a fair and safe environment for the farmers but due to lack of access of other forms of financing, this became the only model the farmers could work with.
Through GoodFoodCo initial upfront financing and steady demand of produce, the farmers are able to grow their business in a sustainable and safe environment.
Measurement of Progress: Continuous survey and support on the business growth and access to finance for the farms
10. Reduced Inequalities
- By 2030, progressively achieve and sustain income growth of the bottom 40 per cent of the population at a rate higher than the national average
In Philippines, 35% of farmers are at or below the poverty line. GoodFoodCo’s model which eliminates the middleman and passes on the profit margin to the suppliers itself, along with its promotion of higher yield and organic crops will bring about higher income growth for the farmers who are part of the program.
Measurement of Progress: Cross checking of new income level of farmers along the poverty line
12. Responsible Consumption and Production
- By 2030, achieve the sustainable management and efficient use of natural resources
- By 2030, halve per capita global food waste at the retail and consumer levels and reduce food losses along production and supply chains, including post-harvest losses
Working alongside organizations such as SIBAT, the farmers are taught sustainable agriculture methods. Other initiatives include 6 months of organic farming training, using natural materials that reduced sickness from pesticide poisoning and working with farms that take into account the natural ecosystem of the surroundings for their farms. All of these initiatives support a more sustainable way of food production.
On the consumer side, the steady stream of vegetables might actually prevent food wastage on food items that are unsold in grocery stores. Furthermore, the lack of choosing only the “most attractive looking” vegetables is one of the key movements to reduce food waste which the subscription model encourages.
Measurement of Progress: Cross-checking of sustainable practices against well-researched sustainability factors. Try and get consumer surveys on potential waste for the subscription vegetables and then benchmark against supermarket food waste
5. Gender Equality
- Undertake reforms to give women equal rights to economic resources, as well as access to ownership and control over land and other forms of property, financial services, inheritance and natural resources, in accordance with national laws
On one of their farms, due to the nature of the vegetables grown and the “backyard” approach, they successfully manage to have a predominantly women workforce. From 11 farmers in 2011, the cooperative has grown to 24 of mostly women. This particular model can be scalable to other communities that are well positioned for backyard farming.
Measurement of Progress: Take gender ratio of all their farms currently and longitudinally to see if there’s an overall progress to gender equality
Value Proposition
Below are the key value proposition of the business that gives GoodFoodCo a competitive advantage.
Value for Money: The overall business model attempts to improve the process of the value chain by cutting down the cost barrier of the middle man and additional agents. This cost saving is passed on to the customers and to the suppliers
Reliability: Suppliers are presented with a more reliable and steady stream of demand, which will encourage them to make necessary initial capital investment for better goods and reduce overall risk of production.
Transparency: Customers are given transparency on their goods that they’re purchasing.
Surprise: The ability for customers to try various products due to the “surprise” nature of the boxes
Ethical: Overall, the business model is one that is seeking an ethical and sustainable route to create the product, which would make it a more viable and long term option on both the producer and consumer side.
Potential Goals
Sustainability
- To scale the ethical and sustainable farming practices to more farms (it is currently at 16 farms)
- To implement measurement and continuous tracking of the farming practices to ensure long term sustainable practices
Financial
- Growth of new customers and existing customers through improve awareness
- Continue to create efficient and productive operations, so as to pass on financial savings to the suppliers and consumers
- Ensure cost and viability of scale
- Expand the “Farmers Market” concept which is currently only in Manila to more cities
- Continue to create ancillary programs for revenue, such as cooking classes and tours
- Consider if there’s a market for B2B (restaurants, catering services)
Traditional food distribution model & GoodFoodCo.’s model
Traditional fresh produce value chains in Metro Manila begin with the farmers raising capital to purchase seeds, fertilizers, irrigation, and other technologies to begin the planting cycle. However Filipino farmers are constrained by lack of capital and limited access to credit with reasonable rates. Anecdotally, farmers borrow money from local players, who as the buyer of the final produce at the end of the cycle, control the interest rates and produce prices. Farmers capture little of the value. The produce is transported to Manila in a series of handoffs between middlemen, distributors, and retailers, until it is bought and consumed by the end user.
GoodFoodCo’s business model features resequencing of key activities in the value chain. Consumers subscribe for 3-month weekly delivery of produce, for which they pay upfront. Smallholder farmers then use the capital raised to purchase the necessary goods and equipment. Since demand levels are clearly defined (committed weekly kilograms multiplied by the number of current subscribers), farmers can then plan and implement their planting and harvesting schedules to fit commitments. The farmers harvest and GoodFoodCo transports the produce baskets to select pick-up points in the city every Saturday. Consumers can either pick up their produce basket, or pay additional for a courier service to deliver straight to their doorstep.
The features of GoodFoodCo’s business model can be outlined in the business model canvas below.
Some notable elements of the business model:
- GoodFoodCo.’s mission is to contribute to a more sustainable food system, part of it is community-creation, in which consumers, who have been disconnected from the sources of their food, have the opportunity to meet the farmers and learn more about organic farming. The organization occasionally organizes weekend trips to the farms. This is part of the enterprise’ value proposition.
- The organization’s three major costs are: farming inputs (variable cost), salaries (fixed cost), and transportation (mixed cost). It’s necessary to determine and drive at the optimal amount of produce baskets to drive down the fixed cost per produce basket.
- Because many intermediary players are eliminated in the chain and because GoodFoodCo maintains good relationships with all involved parties, consumer preferences and feedback can easily reach the farmers, who can then use this growing pool of data to inform their decision-making to improve their output (ex: which crops to prioritize, which kind of vegetable variety is preferred; quality issues).
Alignment of Sustainability and Financial Goals
In GoodFoodCo,’s business model sustainability and financial goals are aligned and reinforce each other. More subscribers not only means bigger revenue, but also that more consumers take part in responsible consumption (SDG 12). A larger number of subscribers translates to a steady demand, which then assures the farmers of regular income (SDG 8) Increased demand and revenue will allow GoodFoodCo to include more farms within the enterprise, who are then assured of capital and training.
As it continues to scale, the business fosters an awareness of the labor and the people who bring food to our table and helps build a cultural mindset of mindful eating and consumption.
Information and Incentive Risks
GoodFoodCo provides an excellent example of aligning the incentives between different players. Consumers want healthy, organic, ethically sourced produce and farmers want to have access to capital. Incentive alignment is baked into the consumers’ value proposition. In their website, they share their principle:
The resequenced business model has changed the value chain’s risk profile. In GoodFoodCo’s model, producers have ready access to capital and know exactly how much vegetables they will need to produce. Moreover, farmers have easier access to consumer feedback and preferences. However, the model is particularly vulnerable on two points.
- The risk for natural disasters (ex: drought, pestilence, disease, typhoon, etc.) that destroy crops has not disappeared in this model. In the traditional system, the farmers absorb the loss in that event; in this scenario, the consumer bears the brunt of the risk.
- Eventually, the offering’s value proposition might not offset its inconveniences and consumers might not renew their subscription plans.
Both risks can be mitigated if the organization achieves a large pool of subscribers and farmers.
The damage of natural disasters can be mitigated if there are enough geographically dispersed farms in the enterprise. Should a typhoon affect the yield in a few farms, other farms could pick up the slack and deliver the committed goods. Anticipating this, farms should always target to produce more than the forecasted demand.
A wide or growing consumer pool will allow the business to lose some subscribers without causing critical disruption to the business. In addition to this, the business should seek to continuously refine the offering to make it more convenient and attractive(ex: more pickup points, selection of goods, cheaper, supplementary goods) to retain consumers.
While the business furthers many socially laudable goals, it generates some negative environmental consequences in its use of plastic bags to distribute the veggies and the inefficient transportation (in cases where the vehicle load is not optimized). Improvements can be made by transitioning to use of other renewable packaging materials and by efficiently scheduling harvest/pickup and optimizing routes between farms and delivery points.
GoodFoodCo’s continuing operations in the past few years demonstrate that it has a viable and sustainable business model. Its challenge in the next few years is to scale enough to achieve stability.
GoodFoodCo can test for viability by…
… experimenting to clear the primary uncertainty around value proposition to consumers…
Experimentation of this business model can be achieved with relatively little investment. The greatest uncertainty lies in the subscription model and its perceived value to consumers beyond the cost/value adding aspect. Initial testing of the concept can be achieved by engaging a local farm and buying an adequate supply of organic vegetables at regular intervals and asking friends and family to subscribe. An example of information that may be useful from such an experiment can be in the choice of product. It may be an idea to categorize the offerings as completely randomized, partially randomized, and fixed/standard. A completely randomized basket would be most resilient to supply shocks and therefore the preferred product. However, a completely randomized product may be a significant deterrent from the customers point of view due to uncertainty around end-use of the vegetables. Therefore, the experiment would help validate the product through feedback/surveys from the participating friends and family.
GoodFoodCo can scale and grow its business by…
… achieving a base of subscribers through marketing to a niche, geographically concentrated and sustainability/health-conscious consumer-base through local partnerships…
Once buy-in from local farmers is achieved, a bottleneck is likely to exist on the demand-side, leading to an inability to cover necessary operational costs. Assuming limited resources, focused marketing aimed at an eco-forward, health-conscious customer-base in a metropolitan city such as Manila may prove efficient, as these customers are more likely to quickly realize and buy into the company’s product and ethos. A key advantage to starting with a concentrated customer-base is the reduced distribution costs associated with delivery which are likely to be substantial to begin with. In terms of mode, reaching this base can be achieved by partnering with other natural/organic-oriented businesses to engage their current customer base. Incentive-wise, once GoodFoodCo has reached a critical mass of subscribers, the partnership becomes reciprocal and mutually beneficial as, for example, GoodFoodCo can start to promote their partner’s products through the weekly baskets (along with the recipes provided).
…increasing supply by reaching out to farmers that are geographically diverse from the current suppliers to further de-risk supply and expand product offering…
Once a healthy subscriber-base and therefore revenue is achieved, the supply of vegetables/fruits will need to grow accordingly. It is prudent at this stage, if not already achieved, to reach out to additional farmers that are geographically diversified from the current pool of farmers, particularly if the current pool is highly concentrated. The benefits of diversification include –
(1) reduction and distribution of risk associated with external shocks disrupting the supply-chain, such as abnormal weather/droughts that often plague farmers.
(2) potential to diversify the product offerings in the weekly baskets. Farmers from different regions are likely to have vegetables/fruits of different characteristics such as size, color and taste. Expansion of product variety may increase the value-proposition to customers and fuel further growth in demand.
Geographical diversification of farmers will however create additional challenges, particularly around distribution, such as increased delivery distances and costs. Assuming the initial mass of customers are concentrated in a metropolitan city, engaging farmers equidistant/close to the city but far from the current pool would be ideal for this reason. Alternatively (site to aggregate produce before distribution can be implemented) – location dependant on concentration of farmers.
As far as assessing risk, historical data around weather events that adversely affect green stock can be compared (timewise) with the current pool – the lower the correlation of these events the better.
Next steps include…
…educating and onboarding local farmers…
As outlined at the beginning of this post, engage farmers and educate them on the potential value this type of business model can have; particularly around organic farming techniques, understanding demand (and changes) to drive crop decisions and more ideas around improving capability. This education should be bilateral in that it can also be used to better understand the plights and challenges faced by local farmers which can in turn be used to educate the consumers and potential customers. Onboard a small number of farmers / suppliers, ensuring variety in the produce to meet potential demand for different consumer preferences.
…seeking finance from similarly aligned institutions…
Seek sustainability-focused funding options; in the Philippines LANDBANK for example is well-known for providing preferential loans for enterprises focused on Small Farmers and Fishers (SFFs), with the end-goal of achieving certain social and environmental sustainability goals.GoodFoodCo’s goal of addressing challenges faced by local farmers in the Philippines completely aligns with that of LANDBANK and would therefore be worth the attempt to garner financing from. Initial funding will need to go towards securing a distribution mode and channel, initial purchasing of organic produce and towards marketing to generate demand.
…and establishing the brand through efficient marketing.
Identify potential partners in businesses which share similar social and sustainability values, and where incentives can be created around these values instead of strictly monetary to begin with. Conflict of interest / agency problems arising from these partnerships can be mitigated by ensuring minimal overlap in product offering with respect to their consumers.