Economic Viability of a Food Hub Business: Assessment of Annual Operational Expenses and Revenues

Abstract

Food hubs—aggregation and distribution entities with social missions that include localization of food production and distribution systems—are receiving increasing attention from the public and foundation sectors as a means of catalyzing economic development in rural and peri-urban areas. Funding proposals for food hubs are often couched in terms of initial start-up capital, with all involved parties expecting the hub to become self-sufficient of outside funding within 5 years. In this paper we comprehensively assess the annual operational revenues and expenses of four food hubs operating in North Carolina in 2014, and use these as a basis to estimate the model annual operating budget for a food hub business serving as an intermediary between small and midscale farmers and grocery stores, restaurants, and institutional food service. This analysis focuses on annual operational expenses and the ability of established food hubs to function independently of outside funding. The analysis of business operations also includes sensitivity analysis to estimate required revenues based on variation in operational expenses and the mark-up fees that hubs charge their growers. We find that the average losses, excluding monetary donations, sustained in 2014 by the hubs were $86,204 on average produce sales of $162,668. Assuming a 20% average mark-up fee and based on the model budget of annual operating costs, a food hub operation requires total annual sales of approximately $800,000 to cover its operating costs.

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