The authors investigated the possible barriers to marketing fresh fruits and vegetables to the institutional sector of the food service industry.Agribusiness, Marketing,

Epperson, James E.

McHugh, Robert C.

English

Research Papers in Economics

OPPORTUNITIES FOR MARKETING FRESH PRODUCE
TO THE INSTITUTIONAL SECTOR OF THE
FOOD SERVICE INDUSTRY
by
Robert C. McHugh
Former Graduate Research Assistant
and.
James E. Epperson, Associate Professor
Agricultural Economics Department .
University of Georgia
Experiment,
Experiment Station
Georgia
The authors investigatedthe pssi--
ble barriers to mrketirq fresh fruits
and vegetables to the institutional
sector of the feed service industry.
Prior to the developmmt of the
railroad, tl~e U.S. fresh fruit and
vegetable industry had been described
as a spatially diffuse production and
marketing system. Technologicalad-
vances in transportation,refrigera-
tion, storage, and packing brought
about specializationand concentration
of production and marketing (Free) .
Such advances in technology also
encouraged the developmentof mass-
retailing of fruits and vegetables.
Retailex requirementsfor large volumes
of fresh praiuce prccured in a timly
efficientmanner contributedto the
evolution of large specializedpro-
ducing areas of the U.S. Consequently
many producers have faced a mket
access problem because they are 1o--
cated outside the major producing
areas such as California and Florida.
However, changing economic forces of
recent years may result in yet another
shift in the production and marketing
pattern of fresh produce in the U.S.
The forces of change include: 1)
higher transportationcosts as a result
of OPIW, 2) a shift in the population of
the U.S. frcxnlJorth to South, and 3)
a national txend towards a greater aware-
ness of nutrition, diet, health, and in-
creased pex capita consmnptionof fresh
prcduce.
These forces of change may allow the
reversal of the tendency toward concen–
trated production of fresh produce in
regions of prior ccxnparative advantage.
If this reversal is actually occurring,
or if there is real potatial for such
a reversal, prducers and potential
prcducers in other regions of the U.S.
may have opptunities for entering the
major fresh fruit and vegetable markets
of the Us. Such potential has keen
explored recmtly for major food chain
market channels (Free,et al.; Ellerman
and Law; Solverson and Ellerman; and
Brooker, et al). However, the expanding
focal service markets have been lugely
ignored.
Journal of FocxlDistributionResearch September 84/page 11The purpse of this research was to
ascertain ~ssible market access bar-
riers and opportunitiesfor marketing
fresh fruits and vegetables to the
institutionalsector of the fmd ser-
vice industry. A questionnairewas
developed and administer in 1981 to
62 buyiiig agents representingcounty
correctionalinstitutions,state cor--
rectional institutions,school systems,
and military installationsin Georgia
to determine the origin of fresh pro-
duce for this ~rtion of the feed
service industry. Reasons were as-
certainedwhy present sources of
supplies are used and why other pOten-
tial sources are not. Requirements
for market entry by southeasternpro-
ducers who wish to supply fresh pro-
duce for the institutionalnm.rket were
also discovered.
AnaPysis
Source of Prtiuce
The surveyed institutionalbuying
agents representingcounty correctional
institutions,state correctionalinsti-
tutions, schcol systems, and military
installationswere asked to identify
current sources of prcduce. Anmng the
sources of supply identifiedwere in-
dependent wholesalers, the Defense
Personnel Supprt Center (DPSC),field
bqers, retail stores, state farmrs’
markets, inde~nc%entproduce markets,
and local growers (Table1).
The independentwholesaler category
includesmarketing firms that axe cap-
able of performing such wholesale
functions as receiving, storage, and
forward physical distribution of pro-
ducts. The DPSC is an agency of the
Depar’tIKent of Defense which supervises
the activities of Defense Subsistence
Offices located in key areas throughout
the U.S. These offices are res”pcmsible
for the acquisition,storage, distribu-
tion and inspectionof fresh fruit and
vegetable supplies acquireii wholesale for
military services. A field buyer is an
individualwho is employed. to visually
examine quantities of fresh prcduce
normally acquired from growing areas,
or storage and packing sheds. Field
buyers normally take title to prcducts
themselvesor in behalf of the organiza-
tion they represent.
In general, nmst buying agemts re-
Prted independentwholesalers as “he .
major source of supply for fresh fruits
and vegetables. As expcted, the DPSC
was also a major source of supply for
military installations.
Utilization of Georgia-grownprcduce
by institutionalunits seems to be
greatest anmng schml systems with 30.77
percent of the buying agents reprting
grcwers in Georgia as the secondary
source of supply. However, the greatest
barriers to marketing fresh produce to
the surveyed institutionalrepresentatives
aFpear to involve state correctionalunits
where purchases frcn. growers were not
indicated. Georgia growers, nevertheless,
play a direct role as suppliers of fresh
prcduce to county correctionalunits and
military installations. Buying agents
for 23.08 prc~emt of the county correc-
tional units and.11.76 percent of the
military installationsreported partially
obtaining fresh produce supplies directly
fr~ Geoqia growerS.
pr~uce purchased from
Georgia Growers
Identificationof the types of prcduce
purchased, the frequency of purchases,
and the ~rcentage of total annual volume
purchased frcm Georgia growers is of par=
ticulax concern in determining the rela-
tive imprtance of Georgia-grownprcduce
to buying agents operating in the insti-
tutionalmarket sector.
The most obvious indicationof an
access barrier is reflected in the large
~rcentage of buying agents reporting
that Georgia-gro’dn prcduce is not
Septenber 84/page 12 Journal of Feed DistributionResearcil*
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September 84/page 13 Journal of Focal DistributionResearchpurchased (Table2). But, for those
who did buy locally, a variety of
corrmtii’ties were purchased.
Iflethcd of Produce Purchase
In a further attempt to determine
the source of barriers to entry for
fr~it and vegetable growers to insti-
tutional mrkets, the n_&hcd of pro-
duce purchase was analyzed. Since a
purchasing contract with current
handlers would prevent direct sales
of produce from grcwers to buying
agents servicing institutionalmarkets,
buying agents were asked if contract
bids were utilized when purchasing
fresh produce from current suppliers
(Table3).
Of interest was the ~rcentage of
state correctionalinstitutionsand
military installationsengaged in con-
-&act bidding. All state correctional
units utilized contract bids in pro-
curing fresh produce, In addition,
approximately59 Rrcent of the buying
agents for military installationsre–
ported the use of contxact bidding in
accpiring fresh produce.
Products Handled
In an atterpt to measure the
marketabilityof Georgia-grownpraluce,
buying agents were asked to identify:
1) the three nmst importantprcducts
handled, and 2) the percentage of
total annual volume which the three
most important it- ccanprise. The
results are presented in Table 4.
‘i’he annual volune of the three top
prcducts handled averaged 76.15 percent
for county correctionalinstitutions,
74.15 percent for state correctional
institutions,53.21 percent for schcol
systems, and 35.11 percent for military
installations (Table4). Based on
these estimates, it would appear that
buying agents representingschocl sys-
tems and military installationsare
nmre diversified in prcxluce purchases
than either county or state correctional
institutions, This is further substan-
tiated by the large number of buying
agents for schcol systems and military
installationsrepxting purchases of a
full line of fresh prcduce (Table4).
Such apparent diversity in prcduce
purchases reported by sch~l system
and military installationbuying agents
indicatesgreater opportunity for exist-
ing and ptential prcducers in Georgia. .
Such opportunity is reflected in a wide
range of production alternatives in
which to engage. Based on the top three
prduce items reported in greatest de-
mand by institutionalbuying agents,
production alternativesincorporating
apples, cabbage, cucumbers, peppers,
potat~s, squash, and tcxmtoes appear
to offer the greatest ~tential for
Georgia producers in penetrating insti-
tutional fresh product markets.
Factors InfluencingPurchases
From Cuxrent Supply Sources
IWying agents were asked to identify
factors or conditions which influence
their decisions to purchase fresh pro--
duce from current supply sources. Key
factors discover&1were convenience,
availabilityof suppliers,god service,
variety, quality, volume, dependability,
packaging, and the ~rceived stipulation
requiringmilitary installationsto
purchase directly from the DPSC (Table5).
Upn further investigationof tili-
tary buying procedures, it was found
that the Department of Defense is par-
ticularly “anxious” to establish con-
tracts with smll business firms, dis-
advantagedbusiness firms, and firms
in labor surplus areas. Ftrcthermre, it
was found that the Department of Defense
is ready to do business on a competitive
basis with competent firms which can
supply the prcducts or services needed.
fiowever, it was further acknowledgedby
tie Department of Defense that purchases
are generally for small quantities of
itmsr or for specific services needed
September 84/page 14 Journal of FocalDistributionResearchm.-!
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Journal of Food Distribution Rese=ch Septenter 84/page16by the installationinitiating the
purchase (U.S.Department of Defense).
The written preference by the Depart-
ment of Defense is in contrast to pro-
cedures followed by military installa-
tion purchasing agents. Increased.
sales of Georgia prcduce to military
installationcould be anticipated if
buying agents adhere to standard oper-
ating procedures encouragingpuxchases
of lcoally grown prciluce.
The lack of available suppliers as
re~rted by sane institutionalbuying
agents indicates further op~rtunity
for producers in Georgia to gain entry
and.supply increased amounts of fresh
prcduce to institutionalmarkets. The
desire by nmst institutionrespcmdents
for gccd service, quality, volume,
variety, and dependabilityreveals the
importanceof prcducer initiative in
developing itiividualmarketing exper-
tise for sustainedmrket penetration.
Factors InfluencingPurchases
From New Supply Sources
Surveyed buying ag-ents were asked
to rank factors or cotiitionswhich
influencedecision to purchase frcm
a new supply source. Overall, the
greatest @ential barrier in supply-
ing fresh prcduce to nmst institutions
is tie ability to provide consistent
quality at a competitiveprice (Table
6). Although county correctionalin-
stitution representativesranked the
availabilityof suppliers as the nust
irprtant considerationwhen purchas-
ing frcm a new supply source, consist-
ent quality was the most frquent
respcnse.
The requirementsof gocd service and
dependable supply surfacd as pctential
barriers for mny grcwers. These fac-
tors indicate the inprtance of tie
need for prducers to develop goodwill
and a depaikble reputation for q~ality
and service.
Schcol system @ military installa-
tion r~irements for a prepackaged
prcduct and adequate volume may present
additionalbarriers for Georgia prcducers.
In order to overcome barriers to market
entry, producers may have to invest heav-
ily in state-of-the-artpacking and
storage facilities to insure quality and
reduce waste while providing adequate
velure over a longer season.
CONCLUSIONAND IMPLICATIONS
Perhaps the rmst stirring finding
was the small percentage of institutional
buying agents purchasing fresh produce
directly from Georgia growers. In fact,
the sttiy revealed that less than 1.2
percent of the fruits and vegetables
utilized by institutionalentities
studied in Georgia were puchased direct-
ly frcm Georgia growers.
.
Lv!St Prcduce it- rel@rtd as p~-
chased through current suppliers could
have been obtained in Georgia. Items
grown in Georgia which ap~ar to have
the greatest @x2ntial in penetrating
institutionalmarkets are apples, cabbage,
cucumbers, onions, peppersf ~tatoesf
squash, and tomatoes. These products
were reprted as importantprahce it-
and are purchased locally by some insti-
tutions.
Market opportunitiesexist for
Georgia-grownprcduce in institutional
markets. However, exploitationof
these opportunitieswill depend on pro-
ducer initiative in developing indivi-
dual mrket outlets. If producers wish
to access institutionalmarkets, they
must meet the requirements for trading
with institutionalbuying agents. Re-
sults indicate that major factors in-
fluencingpurchases of fresh prcduce
frcm current suppliers are capabilities
of providing god service, variety,
volume, quality and dependabilityat a
competitiveprice.
A factor reported by some institu–
tional buying agents, which fwther
emphasizes the importanceof prcducer
Journal of Feed DistributionResearch September 84/page 17initiative in developing individual
maxket outlets, was the response that
current supply sources offer the only
prcduce supplies available. sane 38.46
percent of the county correctionalin-
stitutionbuying agents reported the
lack of other sources of supplies as
a mjor factor for purchasing from
current supply sources. This seems
to indicate that competitionmay be
lacking anmng current suppliers to
these institutionalunits and further
indicates the need for prcducers to
contact potential buyers prior to
production to determine the state of
existing competitionand market channel
requirements for sustainedmarket en-
@.
Results indicate that the greatest
barrier for new suppliers attempting
to access institutionalmrkets is
the ability to provide consistent
~qualiti~ at a competitiveprice. All
res~ndents required gmd service,
while most indicatd the importance
of a dependable supply with adequate
volume. These factors indicate the
imprtance of developing godwill and.
a reputation for dependability if sus-
tained market access is to be realized.
School system and military instal--
lation requirements for a prepackaged
product and adequate volume may pre-
sent additionalbarriers for Georgia
prcilucers. In order to overcome such
barriers, producerswill likely have
to invest heavily in state-of-the-art
packing and storage facilitiesto
insure quality and reduce waste while
providing adequate volme over a
longer season.
Prevalent use of contract bidding
by state correctional institutionsand
school systems may constitute an ac-
cess barrier for sore producers. Pur-
chasing contractswith current handlers
would prevent direct sales of Georgia-
grown proiuce to buying agents ser-
vicing institutionalmarkets.
Increasedmarket access for Georgia--
grown prcduce to buying agents servicing
institutionalmarkets could be enhanced
via independentwholesalers if prcducers
can adequately satisfy market channel
requirements. Further opportunitiesfor
increased sales of Georgia produce to
nsilitary installationscould be anticipa-
ted if buying agents were to adhere to
standard operating procedures encouraging
purchases of locally grown prcduce.
NW op~rtunity for Georgia prcducers -
to develop inroads into institutional
markets and,.indeed, the entire focal
service industry through changes h the
form of fresh produce items for nmre
convenient consumptioncould significantly
increase the demand for Georgia-grcwn
produce. The feed service industrymay
prefer receiving fresh prcduce in pro-
cessed form if the vegetables are pre-
pared for salad bar facilities. A wind-.
fall advantage for producers would be
substantialincreases in per acre yield
and variety of useable prciiuct~ lower
cull rate at the packing facility, and
reduced harvest cost ~r unit of prduct.
Implicationsfor the focalservice industry
include substantiallyrduced cost of
fresh produce and a wider variety of
prcduce items for salad bar utilization.
References
Brcoker, John R., James E. Ep@rson,
Jerry M. Law, and @my Bateman.
1983; ~~ket Access &siderations
Regarding Prduce Sales from Growers
to Wholesale Handlers. Sou. COOP.
=ries Bull. 295.
Ellerman, John E. and Jerry M. Law.
1982. “The Limited IWrket Access
Problem of Small Scale Fruit ati
Vegetable Growers to Terminal Whole-
salers and Brokers - A Iouisiana
Case Study.” Sou. J. Agr. Econ.
14(1):169.
Free, Joe N. 1979. “The ~Snall Farmers
Marketing Needs in the South.”
%rketini Alternatives for uSinall —. ——
Septerher 847page 18 Journal of FocalDistributionResearchFarmers, Fruits, and Vegetables.
Tennessee Valley Authority Na-
tional Fertiliz& Develo@ent
Center Bull. Y’”148, pp. 10-14.
Free, W. J., R. M. Banks, Paul
Colditz, and R. H. Gibson. 1976.
A Feasibility Study of Fresh
Vegetable Production and Marketing
in Northwest Georgia. Tennessee
Valley Authority lJational Ferti-
lizer DevelopmentCenter, Bull.
Y-109 .
Journal of Focal D@tribution Research
Solverson,Lyle and John E, Ellennan.
1979. “Earriersto Direct Marketing
of Fruits and Vegetables in Union
and Jackson Counties of Illinois - A
Case Study.” Marketing Alternatives
for Small Fmrs, Fruits and Vege-
tables, TVA National Fertilizer Deve
Center, Bul. Y-148, pp. 75-78.
U.S. Department of Defense. 1979.
Selling to the NMitary. U.S.
@v-t. Printing Office, Washington,
lx!.
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A Feasibility Study of Fresh Vegetable Production and Marketing in Northwest Georgia. Tennessee Valley Authority lJational Fertilizer DevelopmentCenter, Bull.

Earriersto Direct Marketing of Fruits and Vegetables in Union and Jackson Counties of Illinois - A Case Study.” Marketing Alternatives for Small Fmrs, Fruits and Vegetables,

ket Access &siderations Regarding Prduce Sales from Growers to Wholesale Handlers.

Selling to the NMitary.

The ~Snall Farmers Marketing Needs in the South.” %rketini Alternatives for uSinall —.

The Limited IWrket Access Problem of Small Scale Fruit ati Vegetable Growers to Terminal Wholesalers and Brokers - A Iouisiana Case Study.” Sou.

OPPORTUNITIES FOR MARKETING FRESH PRODUCE TO THE INSTITUTIONAL SECTOR OF THE FOOD SERVICE INDUSTRY

OPPORTUNITIES FOR MARKETING FRESH PRODUCE TO THE INSTITUTIONAL SECTOR OF THE FOOD SERVICE INDUSTRY

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