Deep Root Co-op Going Stronger by Serving Northeast Growers
Johnson, VT, lying along the Lamoille River about 40 miles south of Canada, is central to a number of NOFA’s large organic vegetable growers. That is where, right on Route 15, they have located the facilities of their marketing cooperative, Deep Root, which includes an office, three large coolers, and several loading docks.
Tony Risitano, sales manager for the co-op, explains its purpose: “Our function is to give growers access to markets they couldn’t otherwise reach by themselves. Our theory is that here in Vermont there are a lot of small organic farms and we have reached local market saturation. We have to find a way to pool our produce and reach larger markets. We have to help each other out to keep the organization as a whole thriving so we can all benefit. That gives me the ability to go to a buyer like Whole Foods and get them produce from the small family farms that are still thriving in the hills of New England.”
Bruce Kaufman, grower at Riverside Farm in East Hardwick, has been with Deep Root since it was organized in 1985. He seconds Tony’s explanation: “In the beginning, back in the 1970s, there were a lot of growers up here needing markets. There wasn’t enough local organic consumption and we needed to ship to the urban areas. But they were far away and hard to reach. For awhile we made deals and shipped stuff out with companies that sold items here and had empty trucks going back – we could get inexpensive rates for backhauling.”
But such early attempts by growers to band together and market collectively fell flat. With the expansion of the Bread and Circus chain in Massachusetts and the formation of Northeast Coops, however, reaching the cities became easier.
By the time Deep Root was organized many growers had some experience with this kind of marketing. They knew quality and uniformity were important to wholesale buyers, and had a rule that every new grower had to have a mentor who could deal with questions about both the crop and the co-op rules for quality and packaging.
“We started small,” Kaufman recalls. “We grew out of NOFA and Vermont Organic Farmers, with a lot of folks from Western Mass. Our first year we grossed under $100,000. There were fluctuations year to year, a lot based on weather, but we have been growing slowly. Our growth pretty well tracks Whole Foods growth in their number of stores.”
Deep Root, as a cooperative, is of course owned by the members. Membership is renewed every year. But not anyone can join.
“We are at 24 members right now,” Bruce explains. “It varies by a few each year. We don’t accept any member just because they want to grow a crop. You can only join if we have room in crop production for you. If you can find a crop that no one else is producing, and we have a market for it, you can join. It has to be a certified organic crop, of course. We have a seniority system that guarantees people the right to produce what they have been producing. It is an annual system based on last year’s crops and selling this year again as much as our sales manager says we can sell.
“Joining starts off,” he continues, “by letting anyone who hasn’t been a member, but wants to raise something we have room for and can sell, grow the first year as a non-member. It is sort of a speculative year to see if you can grow it to our standards of packaging, quality and quantity, and if we can sell it. If all that works out, you can join for a $750 equity fee. That is a one-time fee.
“Then yearly,” he concludes, “as a member you pay a $100 membership fee for the year.”
Until 2010 Deep Root didn’t have a building and worked out of member farms. But in 2010 they bought their current site from one of their large growers and built the office and warehouse there. So the growers all have equity shares in that property. The way it works is that for every box you sell through the co-op, 40¢ comes off the top to the co-op and goes to a revolving fund to pay the mortgage on the building, which cost $400,000. That fund doesn’t revolve yet, but when the mortgage is paid the idea is that it will start to revolve, paying off the oldest members first with current payments and rotating in the new members so they end up owning the facility. It is all based on volume, so the more you sell the more you own of the building.
This ownership model for the building, while fair, of course means that the co-op needs to keep accurate records of who paid in what and when, and where they are now, so that it can keep track of what will have to be paid out many years in the future!
At the end of each year the cooperative has a big meeting in November and invites all the members to talk about the past year. Then at another meeting in January they have an informal discussion of what people want to do in the new year: “I’m thinking of getting out,” or “I want to grow what I did last year”. Then they have an annual production meeting in February where the members actually commit to what they are going to grow: “Twenty units of this for every week for 50 weeks, five of this”. By that time Tony has given back to members a list of what he thinks they can sell: “We have a market for so many thousand cases of this, so many thousand of that.”
These numbers all translate into money, and the co-op creates a budget. Then, at a third meeting of all the members in March or April, they vote on the budget and elect a board of directors for the year. Five to nine members have sat on the board, historically. After that meeting the board runs the business and the members have nothing more to do with managing it that year. The board gets together monthly or bimonthly, sometimes in person, sometimes by phone, to make decisions.
Currently, says Jen Hirchak, finance manager, Deep Root does about $3.2 million a year gross sales. Members (some of the co-ops largest are in Quebec) range from producing just $25,000 on a couple of acres (one only does parsley for them, not a huge crop but a steady one) to some large growers who sell over a million dollars in produce.
“For most of our farms, however,” says Tony, “for twenty of our twenty-four, wholesale is just one component of their marketing. I think for only four is Deep Root their primary market channel – maybe 90% or more of their business. So we don’t really know what their other operations are – CSA, farmers market, retail stores, farm stand – and how much the co-op is of their production. Most of our Quebec farms also market through a Montreal co-op.
Bruce, who has been part of other co-ops that failed for one reason or another, estimates that Deep Root growers are generally larger than was the case in those other co-ops, which may be why it has survived.
Of course a lot has changed in the 34 years since Deep Root was organized.
“Product mix has changed a lot since then,” says Kaufman. “I started growing kale when it was mostly sold as a garnish to decorate the plate. Now it is a major crop that people eat. That’s a big change! Asian vegetables are a big factor now – daikon, bok choy, mizuna. But the biggest change has been that 40 years ago there just weren’t very many organic vegetables. Mostly you could get carrots. Now you go into a produce section and you can get anything organic. It has been a gradual change, but I remember the Alar scare in 1989 being a big factor.
“And look at squash,” he continues. “Mostly then it was buttercup and butternut. Now we have dozens of different ones. And peas – shell peas. No one wants to buy them anymore. No one has time to shell them. The whole concept of sitting down with the family to shell peas has gone by. In Deep Root we don’t sell mesclun, we still sell lettuce. But there is a whole trend toward produce that requires less processing, so mesclun ready to put out as salad is gaining ground over lettuce that has to be washed and trimmed.”
Deep Root doesn’t have a program to educate growers about changes in the market. They have had speakers on food safety requirements and on the Real Organic Program’s concerns about organic integrity. But not about the market – what is new and popular.
The strong commitment of Whole Foods to organic food has been crucial to Deep Root’s success over those years.
“We sometimes started out with a market,” recalls Bruce, “and then they get bought out or a key person there leaves who was pushing a local or organic program. And the relationship just collapses. We have been in and out of other supermarkets: Shaws, Wegmans, Stop and Shop. We have tried other wholesale markets. But not many will carry the organic banner and pay the price! You know, carry the 65 items that we have. But the corporate philosophy of Whole Foods has been there since day one to support us.”
That support has resulted in Whole Foods being by far the co-op’s largest customer. Tony estimates that 75% to 85% of Deep Root’s produce goes there, with the balance shipping to Albert’s Fresh Produce at their Chesterfield, NH office and a few other buyers. He thinks most of their vegetables are served in New England homes with some ending up further down the East Coast.
“We ship 52 weeks a year,” explains Tony. “Twice a week from June to December, when we go to Whole Foods in Cheshire, CT and in Landover, MD. We are typically shipping once a week to Maryland, twice a week to Connecticut. Sometimes we will ship as far as Florida. If we have a crop that is just coming in when another region is finishing, that gives us a market and we’ll try to get our stuff down there. In the winter we ship once per week, primarily root crops.
“While Montreal might seem like a natural market for us,” he continues, “especially since half our growers are in Quebec, there are good reasons it doesn’t make sense to sell there. For one, a couple of very big organic growers totally saturate that market right now. They have a big co-op outside of Montreal. Also, it is not easy to sell into Canada. We have to get phytosanitary permits to move US produce there, which is a hassle. They protect their agriculture in Canada! Third, the Canadian dollar is worth less than the American, so if they sell something down here they get more money for it. They deposit a US dollar up there and it becomes $1.20 in Canadian money. Lastly, there are 10,000 acres of black dirt land south of Montreal where some of the best production on the whole east coast takes place. So we’ve never sold into Canada. Canadian agriculture has it all figured out. But we always buy our equipment up there and take advantage of the US dollar!”
Deep Root carries just vegetables. Fruit is excluded primarily by the trucking requirements. They can’t mix apples in, for instance, because of the ripening gases like ethylene that they give off and which will affect the vegetables. Meat, dairy, and other products require extra refrigeration or special handling. They do carry a few processed things that members make – tomato juice and sauerkraut, for instance – but generally feel keeping it simple is the way to succeed.
Also, buyers tend to specialize so Tony would have to develop new relationships for just a few products.
“When I’m working with a produce buyer,” he says, “I’m working for all our members. But if I’m working with a specialty product buyer, then I have to spend time for just one member. That isn’t really fair. The grocery world is different from the produce world: different packaging, different paperwork, different marketing requirements. In order to keep our system administratively lean, it is important to focus on one kind of product.
Although management at Deep Root recognize they the co-op is highly vulnerable to changes at Whole Foods, especially since its purchase by Amazon, it is not such an easy situation to change. Even if another account came along as committed and supportive as Whole Foods has been, could the co-op take it on?
“Between the two Whole Foods regions we work with,” says Risitano, “they have maybe 130 stores. That keeps us pretty busy. If we wanted to take on another big account? We just can’t double production overnight. So for me to go to Hannafords wouldn’t make sense. I couldn’t supply them. You have to be careful who you are pursuing!”
Most of the co-op’s competition comes from California, but there is some from other large operations in the northeast – in the Hudson Valley it is Hepworth Farms and in the mid-Atlantic it is Pennsylvania Growers out of Lancaster. Of course there is also Paul Harlow in southern Vermont – a Deep Root founder who is almost as big as all the other Deep Root growers together. He markets his own stuff now because it doesn’t make sense for him to pay the co-op commissions.
One of the concerns that has occupied Deep Root growers recently has been the pressure to meet food safety requirements. All of them selling to Whole Foods have to have a certificate, similar to GAP certification, that Vermont is now issuing. Whole Foods has insisted on that. Their Canadian growers can also get that certificate.
Of course organic growers wanting healthy production must respect crop rotations. Given the need for growers to maintain their rights to certain crop bids, however, that can be somewhat complex.
“It takes you years to get your bid,” emphasizes Bruce, “and then to grow your bid and to tool up so you are competitive in the big market places for your bid. Once you are in there you have to ride that wave and you would be a fool to give it up. Hopefully we all raise five or six or seven crops that we rotate on our farms, usually of different families. That enables us to still keep bidding rights for the same crop each year while rotating where they are grown.”
It is one of the reasons most of the farms have other marketing outlets besides the co-op. You can also give up a crop for a year if you want, and get it back the next year. That lets you take a year off from that vegetable, or even from farming as a whole, without losing your rights. But the way the co-op manages crop bid guarantees has also been of concern lately, as older growers begin to leave farming.
“The biggest issue in the co-op is succession,” Kaufman asserts. “What happens to crop bids when one grower goes out? Does the bid stay with the farm? Many of us don’t have family who want to take over. So if we sell the farm, does the new owner get the old one’s crops? For a lot of people that is the only way they could afford the farm and get a mortgage – if they had a guaranteed market. So for now we keep the bid with the farm. Us old guys have seniority on production and we only give it up if we want to. Or of course if our quality sucks Tony will give it up for us! I’m getting older and I’m getting smaller now, giving up crops. But I’m cherry picking the ones I want to keep!”
The way in which the cooperative pays the costs of doing business is of course vital to members. The office takes 8%, on average, of the gross for each unit of sales to cover expenses. Different growers have different rates, with larger growers paying a little less than smaller ones. But the rates range from 7% to 9%, mostly. Then two dollars and 55 cents goes off each box for the trucking – lease, driver, gas, etc. – and then the 40¢ to the revolving fund for the mortgage.
Those figures are based on boxes as units, which of course are standard sizes for an item, but different sizes for different items. Some are heavier, some lighter. Some are worth more than others. That way of charging, by the box, resulted from long discussions among the growers, each wearing the hat of his or her own farm.
“When you have commissions based on gross sales,” Bruce clarifies, “and have someone selling burdock at $45 a box, a 10% commission on that is $4.50. Compare that to someone else who is selling pearl topped turnips at $20 a bag. Then at 10% they would be paying $2.00, not $4.50. It isn’t equal. It can’t be equal. Some crops are more profitable, and some growers get those crops. Some crops are less profitable, but you have to have them all to sell to the markets. Our case average is $28, but we have many items and they range all over. Some guys only sell $18 items, others only sell $40 items. When you charge a percentage commission, some pay a lot more than others. So we have tried to adjust the various commissions for the costs involved. It has taken a lot of negotiating!
“Anyway, with our revolving fund method for the mortgage,” he continues, “every 40¢ you pay in you will get back out. Or maybe your kids will! The other amount is $2.75 a unit for your trucking. That covers the trucking coming to pick up your produce at the farm and then running it to market. For our average $28 unit, that comes to about 22% or 23% off for marketing all told, and the rest to the grower. Anywhere under 25% is pretty good.”
The co-op also has a rule that if anything can’t be sold because of quality the grower still pays the costs on that item – the 8% for the co-op and the 40¢ for the building and the $2.75 for trucking. They figure the co-op had those costs before the item was rejected. So quality is important to each grower.
As a cooperative, Deep Root is of course owned by the member growers. But as farmers they are independent by nature, and as owners with a large financial stake in what happens they are particularly wary and attentive to every detail.
“If you have ever gone to a Pioneer Valley Growers Association meeting,” laughs Kaufman, speaking of the Massachusetts conventional produce co-op, “it is unbelievable! They have 130 members and can’t make a decision. It all has to be run by a board.”
Similarly, Deep Root is run by an annually elected board. For the last 30 years, however, there have been 5 of the same growers on the board.
“We normally bring in one or two new people,” Bruce asserts, “but they often get overwhelmed and drop off. The board tends to be the biggest growers. After 35 years with the same growers, you trust one another. That trust factor is important! Some of our biggest growers are in Canada and we have bilingual problems sometimes. Not all speak English. We have translators at the meetings, but it is easier if our Canadians are represented by English speaking growers, which doesn’t always happen. We try to have half and half, Canadian and American. We try to keep our president American to deal with legal issues involving the co-op, borrowing money, stuff like that.”
Because it is a co-op every decision of any significance goes to the members. The board runs the day-to-day end of things, but the members guide the whole co-op. All two dozen members have to decide the big questions. Last year, for instance, Deep Root had an $80,000 to $90,000 profit, after expenses. They had to decide if that was going to go to the member’s pockets, or back into the business for equipment or personnel. It is the growers who own it.
“In 1993, recalls Kaufman, “we tried to save on insurance when we had our own truck by getting a $5000 deductible on accidents. We figured we could afford $5000. Well, we had two $5000 accidents within a few months! It cost us $10,000 and we were only a $90,000 co-op then. We lost money and we all had to kick in. We went from 18 growers down to 9 growers very quickly! Some just turned around and said: ‘I’m out of here. I’m not going to pay $2000 to keep it going.’”
Running a $3.2 million business with only two full time staff and a part-time driver may seem risky, but so far it has worked well. Twice a week in the summer everyone emails Tony what they have, Sunday night by 6 pm and Tuesday night by 6 pm. He aggregates that and enters it upon his price lists to send to the buyers. They order through him and he allocates those orders out to the growers. He sends out a final manifest to each grower saying what he wants from that farm.
The farmer boxes it, labels it, palletizes it, wraps it. They know the look and quality required for each product and put that in the boxes. The mentor program makes sure those are understood. Zucchini is dark green, not light green or speckled, for instance. Then Tony prints his bills of lading, too. All this is done in a 10-year old software program called “Shipper’s Office”.
“I couldn’t imagine doing it,” Tony insists, “without that kind of software. It still has a lot of features that we don’t use – like inventory or payroll or accounts payable or receivable. You can sort by grower, by crop type, by date, by purchaser, it’s amazing! Like most businesses, we started off on Microsoft Excel but we got to a certain point and needed something better. We ended up getting this one that is designed specifically for produce.”
The advent of smart phones has also proved them to be a key helpful technology.
Tony says: “I’ll reach out to a buyer and say I have squash available and they’ll say: ‘Can I get a picture?’ I can take a picture right then and send it. I basically run this job on my phone and my computer. They used to do this on fax machines! Imagine!
“Having a real staff had made all the difference for us,” he continues. “True the Whole Foods account is most of our business, but we still have another 15% of other accounts. We have to really work for those, and then collect the money once the sale is made. To have full time staff working on this is wonderful.”
Tony sells the produce and arranges for shipping it. But Jan handles all the financial aspects of the co-op, including collecting from accounts, figuring the commissions and charges each grower owes for the building, trucking, and co-op itself, and then paying the growers what is due them.
One important detail, Tony stresses, is that they do not hold inventory at the co-op.
“We have three coolers here,” he admits, “the main one we keep at about 34 degrees, which is for anything that is iced, like lettuce. The second cooler is about 38 degrees for yellow squash and things like that. The smallest is for tomatoes, peppers, eggplants, etc. that we keep around 52. In the winter a lot of winter squash stays at 55 or 60. But any product coming into the building has already been sold. So the primary function of this building is just to aggregate product a couple of times a week and ship it out.
‘Transportation,” he continues, “which is much of what we do, is a challenge. Compared to a single large farm that has its own packing house and coolers, we have a lot of smaller growers. Having that kind of diversity in geography can sometimes work in your favor, but adds a challenge to collect and distribute all that product. We have growers within at least a hundred mile radius. A lot of our biggest growers are up in Canada, certified by Ecocert ICO.
“Canadian trucks are coming down,” he concludes, “with Canadian product to here, with loops by us picking up more pallets from American growers. It all gets assembled here and shipped out that night. The co-op pays for getting it from the point of origin (the farm) to the market. That is sort of inherent in the co-op – some people make out better than others on something: on shipping, on commissions and sales units, on value of rights to crops, etc. But in the end it all is a wash.”
Tony’s job title is sales manager, but he claims he spends about 30% of his time selling and about 70% on moving stuff around and getting it organized!
One aspect of marketing that Risitano wishes he could improve is branding Deep Root produce all the way through to the final consumer.
“We have a few product bags for carrots and potatoes,” he says, “and twist ties that are branded by Deep root for bunches of things. They often actually make it to the retail shelf. But we also have branded boxes, which must be used for shipping, that usually don’t make it through to the retail shelf where the customer can see it.
“This is a two pound carrot bag,” he continues. “This is really one of our only connections to the end user. Carrots are an interesting product. When you talk about the wholesale markets, California carrots tend to be the Imperator variety, like Sugar Snax would be. That is a long and skinny carrot. We in the Northeast traditionally grow Nantes varieties. They tend to be shorter and stubbier, with wider shoulders. Ours look funny in displays with the California carrots. So for us to do well in carrots we felt that retail packaging was the way to go. We emphasize the fact that our product has been hit by a frost before harvest, which will increase the sugar content. It’s a more flavorful carrot.
“We don’t get many calls from end users,” he concludes, “but invariably when we do it is something like: ‘I bought your carrots at the Whole Foods in Medford, Massachusetts and I’m going to tell you I’ve been eating carrots for 65 years and your carrot is the best carrot I’ve ever had.’ Our carrots are a different product that consumers are used to, but we feel they stands on their own as far as terroir.”
Keeping product properly contained is one of the functions the co-op plays as a distributor. Their bags and boxes have to have the country of origin on them, so they say ‘product of USA’ or ‘product of Canada’ and the co-op has to keep both types available.
Also, everything that they ship out has to be lot-traceable back to the source. Whole Foods got behind this and pushed it forward on all their suppliers. It is called their Product Traceability Initiative, or PTI.
Deep Root supplies a blank label to the farm as well as a printer, enabling the farmer to print their own barcode as they pack. Each box will have product, harvest day, the farm that it comes from, a lot number, and the Deep Root brand.
Since the decision by the National Organic Program to allow hydroponic production as ‘organic’, there has been a lot of soul searching among growers who still grow in soil: Will they be able to compete with industrial scale hydroponic, which that decision has unleashed?
“All our stuff is soil grown,” affirms Bruce, “but hydroponic growers are now throwing up greenhouses and will be selling tomatoes and cucumbers that are certified organic but grown without soil. They will compete with our growers. We will have to have a conversation with Whole Foods – are they going to differentiate hydroponic product from soil grown? Soon many other vegetables may also be brought online without soil!
“With the controversy over hydroponics,” he continues, “it would be to our advantage if we could get more recognition for Deep Root as the ‘Real Organic’ produce, grown in dirt and on small farms. Unfortunately, we don’t have a lot of opportunity to brand product at Whole Foods. Sometimes our twist ties or bags stay on bunches of vegetables, but mostly our boxes do not make it to the display that the customer sees. They have done a good job of insulating the customer. We would like to get more of our message — about what we believe organic is — out to those customers.”
Tony is a little more optimistic that their message will get through: “I think the new owners of Whole Foods will ultimately be driven by their customer base. If they can convince their customers that they are still interested in quality and organic, not just dollars, that is what they need. They have to recognize the customer base that made Whole Foods what it is. If they don’t cater to that customer base, that is a real risk for them. There are a lot of other people ready to step up and hold that mantle of organic if Whole Foods fails to do it.”