Regenerative Insights: Understanding Fresh Produce Distribution

A recent interview by Acres U.S.A. with our very own Director of Business Development Anthony Corsaro digs into the world of fresh produce distribution and how both investors and farmers can engage in the space.

As with many other facets of life, it’s the unexciting “plumbing” that makes the modern food system work. Few people outside of the industry spend much time thinking about warehouses and trucking, but without them our grocery store shelves would be empty.

Distribution plays an especially important role in fresh produce. It’s the reason we can enjoy fresh fruit any time of year. But it has its limitations as well. The system has prioritized scale, uniformity and efficiency, which at times sacrifices flavor, nutrition, sustainability and resilience.

In this interview, Anthony Corsaro — Director of Business Development for the Regenerative Food Systems Investment (RFSI) — discusses the importance of the distribution and processing steps of the food system to the regenerative grower.

Before joining RFSI, Corsaro was a third-generation executive at Indianapolis Fruit Company, where he oversaw sales and marketing for fresh products and services to over 2,500 retail customers across 20 states. He is also an active investor and entrepreneur in regenerative food ventures. He is committed to building food supply chains that incentivize the production and consumption of healthy, nutrient-dense foods.

Acres U.S.A.: Can you describe the family food business you grew up in?

Anthony Corsaro: Our family business — Indianapolis Fruit Company — is based in Indianapolis — the crossroads of America. It’s a good place for a distribution business.

Back in the day in America, there were terminal produce markets in every major city. What that meant was that there were multiple vendors sharing some sort of industrial warehouse space, serving different commodities. So, as a buyer for a grocery store, you would go to Bob for your berries, Tommy for your lettuce, Sally for your potatoes, etc. And typically these merchants were immigrants — lower-socioeconomic-status folks.

So, being Italian immigrants in the early 1900s, our family got into the produce game. My grandfather became a distributor. His company was called Independent Banana Potato Company, so you can take a guess at what he sold. He was at the Indianapolis market with a bunch of other vendors. And then my dad and my uncle Joe started to work with him at the market.

One day they decided they were going to leave the market to open their own facility; they were going to do every commodity and they were going to do full service. So instead of every grocery store and food service operator coming to them at the market, they were going to deliver. Everyone said they were nuts — that they were crazy for going off the market. But pretty much all the businesses that stayed on the market died and the full-service guys were the ones that survived.

That turned into Indianapolis Fruit Company, which as of 2018 was doing nine figures in revenue with a 20-state distribution radius — 2,500-plus retail doors, delivering 3,500-plus items, with every major brand you see at all the grocery stores — Taylor Farms, Dole, Chiquita, Del Monte, Driscoll berries, etc. Big grocery chains like Whole Foods or Walmart or Kroger have their buyers, and for the most part they do their own procurement and then they use somebody like us to fill in. So our core customer is the independent grocer or the smaller chain that doesn’t do their own procurement. They need a middleman like us to be the “engine” of their produce program.

Acres U.S.A.: Here in my small town we do have a Kroger, but then we have a smaller grocery chain that only has a few locations. So that’s Indianapolis Fruit Company’s type of customer, right?

Corsaro: Right. The average American consumer doesn’t realize how big that market segment is. It ranges all the way from a really small operator, like a grocery chain with one or two locations, to a pretty large chain, like an Earth Fare down south; they’re a very well-known, reputable, leading natural retailer, but they don’t have warehouses in their facilities to do their own produce procurement. We facilitate and help them run that.

Acres U.S.A.: What does a smaller-scale produce farmer need to know about how the food distribution system works?

Corsaro: If you’re not going to sell the product direct to a consumer, it has to be produced at some significant-enough scale for a middle-market distributor to handle it, receive it, QC it, repack it into an order for a customer, and then pay someone to pick it up and deliver it. If you produce one case of okra, I can’t send a truck to pick up one case of okra — slot it, pick it, put it on a pallet and then send it to a retailer — because the unit economics don’t work. I need a local producer to make at least a half pallet or a pallet of okra. That’s 30 or 60 cases, because then that same cost — to QC it, to slot it, to pick it — gets spread over 30 or 60 cases.

Acres U.S.A.: How might distribution and processing be different for a regenerative food system versus the conventional one?

Corsaro: I think that’s still being defined. There are regenerative farmers who sell direct to consumers and then there are regenerative farmers that could be distributed — they just have to be at a certain scale. The other thing is that you have to have certain food safety certifications — GAP (Good Agricultural Practices) being one. The USDA does help pay for some, but others they don’t.

Basically, regenerative growers need enough scale to make the economics work, and they need basic certifications that some local producers don’t have. Those are always the two biggest things.

Now, the caveat is that every retailer is trying to carry more local produce. “Local” is more understood and has more of a following than “regenerative.” We’re using “local” as a Trojan horse to spur more demand for regen — which is great. Retailers all define local in different ways. For one retailer it’s within 100 miles of a store. For another it’s within the state, or within three states. For another retailer it’s something else. It really depends on how that final retail outlet defines it. But “organic” or “regenerative” or “sustainable” tends to be a secondary value-add to those operators — they really want to claim local first and then those other things second.

Processing and distribution don’t look that different for regenerative because it’s not a standard like USDA Organic. Distributors have to segregate organic versus conventional products. You can’t stack conventional product on top of organic product on pallets. There are specific food safety guidelines for how to distribute organic versus conventional food. That has not happened yet for regenerative due to the fact that the USDA has not certified or defined or standardized regenerative. But organic or regenerative does allow you to get a premium from your customer, if marketed and sold correctly. The important thing is that people want to buy local food. It’s not about selling organic or regen.

The most margin is all the way at the end of the food chain. But it’s also the most work. I would tell farmers to look in your area and identify all the food buyers, and then try and figure out what’s the best route for you. If you’re super small, it’s going to the farmers market and just selling direct to consumer. If you’re maybe medium size, it’s probably that plus food service, plus retail, and then maybe you can layer in a distributor, if you have enough scale and margin to spread that out. Or, if you don’t want to do the work and you’re willing to give up some margin to someone else to do the distribution and the sales, then all you have to do is drop the product off or get it prepared for pick up.

One thing I want to clear up is that people say, “All these middlemen take too much margin. They screw over the farmers, and the farmers don’t get paid enough for the product.” This is absolutely true some of the time; however, it is not true 100 percent of the time, across the board. It is an issue. But people need to realize that it costs money to send a truck, to load it with product, to drive it back to a facility, to unload the truck, to QC the product, to put it away, to put it onto a customer’s pallet accurately, to load it onto another truck, to take it off that truck and to deliver it to the retailer — and that’s just one form of distribution. In all those steps, the distributor isn’t making much money either — the margins aren’t great. But distributors have to make something to do that service.

When you engage a middleman, you’re engaging them to do a service. I just think there needs to be more nuance to that conversation. The whole system needs to work more cohesively, versus just pointing the finger at middle players and saying, “You’re greedy — you’re taking too much for the service that you provide.”

Acres U.S.A.: It’s definitely a vital service.

Do you think having all those regulations for organic — not being able store things in the same area, not being able to stack pallets with both organic and conventional products — do you think that’s hindered the uptake of organic? Whereas regenerative — which isn’t regulated by the government — allows a lot more freedom.

Corsaro: Speaking strictly to the cost of the service as a distributor, it does not cost us that much more to segregate that product or to do the protocols that we have to follow, because we’re selling that product at a big enough scale to where we were going to set the whole pallet of organic product in its own pallet slot anyway. The only real thing we manage in our facility is that we have aisleways that are totally dedicated to organic — because of that vertical stacking rule.

So, from a food distribution standpoint, I don’t think the regulations are prohibitive, or overly constraining, or even revenue or profit reducing. When you look at the organic seal, a very compelling argument could be made that it’s been the greatest thing ever, because it’s a moniker that consumers understand. It’s driven big market growth. I think there’s also an argument that it has confused people — that it’s a hindrance, it’s too prescriptive. I don’t really subscribe to either side of that binary. I think it’s nuanced based on the commodity, the geography, the consumer.

Right now it’s TBD whether regen is going to turn into another USDA standard, like organic, or if it’s going to always be this thing where there are multiple private actors competing to certify and verify it — or claim it as this or that, or define it the way they would like to.

Acres U.S.A.: There seem to be so many new schemes to try to define it right now.

Corsaro: Yeah, and all well intentioned. I don’t think anyone’s trying to do harm with that. And, at some point, I think we’re going to have to define it more than it is now. Do I believe that we need it to be a USDA-regulated standard? I don’t know. I’m not the person to answer that question. There are some really strong opinions both ways — whether regenerative needs to be something that builds on all the work organic has done, or not be attached to organic. But I definitely enjoy the conversations.

Acres U.S.A.: What are some of the innovations that are occuring within the distribution space?

Corsaro: Innovation is happening both within distribution and with e-commerce. Here in Indianapolis, for example, we have a player called Market Wagon. They let farmers list products on their website — their individual Market Wagon — and household customers buy stuff from them. Then the farmers go to the Market Wagon facility, and if they sold, say, eight cartons of strawberries, they put their eight cartons into the eight different bags that are going out. Then gig-economy workers deliver those bags to people’s households.

There are e-commerce brands like MilkRun and others that are doing similar things. It’s a hybrid between distribution and direct-to-consumer e-commerce, versus a true B2B (business-to-business) distributor like Indianapolis Fruit Company.

Acres U.S.A.: These companies are aggregators, essentially.

Corsaro: They’re like an aggregator and a marketer, because they’re creating demand for those products as well.

Acres U.S.A.: How do businesses like these aggregators get started? Can you describe what type of person would be ideal to begin something like this? Does it need to be a farmer, or could it be an entrepreneur who’s not coming out of agriculture?

Corsaro: There’s definitely a skill set issue. The biggest issue is just time — one person usually doesn’t have the time to operate a website, take orders, do the fulfillment, drive it everywhere, buy a truck to distribute it, etc. But there are tools that help these days — platforms like Barn2Door or Shopify that help people run their own businesses. There are companies like Market Wagon or MilkRun that will aggregate or take actual ownership of the inventory and help distribute that product to the end consumer.

There are businesses like 4P Foods, which I’m invested in, that have a D2C (direct-to-consumer) arm and a B2B arm. So, let’s say you’re a regenerative farmer who grows watermelons and you have 10 bins to sell; 4P Foods might buy those 10 bins and sell six to six different schools, two to fulfill individual orders and the rest as individual watermelons direct to customers.

So, there are all kinds of different models. There are lots of tools for farmers to increase the demand for their products here in 2022.

Acres U.S.A.: Do you have any idea on the statistics of whether these aggregators or direct marketing efforts are moving the needle in terms of people truly eating local?

Corsaro: It’s hard to say, because nobody’s measuring that holistically. But I will say that there are more farmers markets in this country than Walmarts — which is crazy to me. There’s a lot of innovation — people trying to own those transactions or take a larger percentage of them. I don’t really know if that’s the end-all-be-all, because most people can’t afford to give up much margin in that transaction. The innovation has to come, I think, from getting value somewhere else in that transaction. I don’t know where that is; there are a lot of people trying to figure that out. But I don’t necessarily think taking a piece of that already-small piece is going to be the answer.

“We see so much attention given to on-farm production and to end product and brand. But there’s this middle piece that we cannot do anything without. If you can’t process or distribute the food, then you just have crops — you don’t have food.”

-Anthony Corsaro, RFSI

Acres U.S.A.: What are some challenges or hurdles for people looking to invest in this space?

Corsaro: The biggest thing is that it’s all infrastructure investment. It’s a facility to store stuff, it’s refrigeration to keep it cold, it’s trucks to move it around. And that is all extremely capital intensive and extremely low margin and an extremely long time horizon for return. So it’s not a sexy asset class that’s going to be a 10x multiple and a three-year turnaround — it just doesn’t work like that. You have to buy trucks, hire people to drive the trucks, and hire people to work at the facilities. It’s very labor and capital intensive.

We see so much attention given to on-farm production and to end product and brand. But there’s this middle piece that we cannot do anything without. If you can’t process or distribute the food, then you just have crops — you don’t have food. It’s the pivotal piece to turning it into something that people can actually eat and consume.

Acres U.S.A.: What role could policy play in improving this middle infrastructure?

Corsaro: I think government has done some good things. The farm-to-food-box program during COVID was a boost for some businesses — especially typical food-service operators that lost a ton of business. I think that was well received, at least from the produce community. There was some fraud. There were issues with it, just like with every government program. But I thought it was a decent attempt.

The investment that USDA is making in meat processing seems to be well received right now — to boost the smaller, more niche operators. But the big four have such a stronghold and monopoly on that industry. I don’t know if it’s going to be enough to really get the job done. But it’s at least something. So that’s positive.

We continue to see people trying to fight for more SNAP dollars and WIX dollars, and there are individual state programs that are taking a pharmaceutical lens to food. Some states have a “double bucks” program — if you spend your SNAP money on fresh produce it’s worth twice as much. I think we’re going to continue to see people lobbying for these types of policies from a human health standpoint.

But the biggest thing to me to move the needle is that we grow too much corn and soy. Why do we grow so much corn and soy? Because the whole system is set up to incentivize the farmer to grow corn and soy. We don’t eat corn and soy! We shouldn’t feed corn and soy to animals! The biggest policy intervention should be to find a way to incentivize farmers to grow food — not corn and soy. I don’t have the answer to that either. But that’s the problem.

Acres U.S.A.: What is RFSI trying to do to improve regenerative food systems?

Corsaro: We’re trying to catalyze more connection and capital into this space. There’s scientific reporting and data that’s been done that says we need large amounts of capital flowing into the space. So we convene, educate and connect capital allocators, funders/investors, capital activators, and other stakeholders and advocates of the regenerative agriculture movement to spur increased investment at a higher rate and a faster clip — so that we can transition to regen food systems in a faster and more successful manner. We do that through events, other forms of content and lots of individual conversations.

Acres U.S.A.: What can local farmers do to succeed in a regenerative food system?

Corsaro: My best advice to farmers trying to grow their business and work with a distributor is just to understand the table setters to get into the game. And the table setters are that you have to be enough like Taylor Farms for me to work with you — I have to be able to receive cases of product; they have to be uniform; your products need to fit into the processes and procedures that I am using as a distributor.

That said, there is more wiggle room for you. Retailers pay a premium for local. They want local, and distributors understand that. A lot of times a local product is a better product. You have to do those things without losing the special sauce that you have, but you have to do it to where you’re not making me recreate the wheel. Distribution is like any good business — it’s just processes, procedures and systems. If you can’t at least fit into that most of the way, I can’t work with you, because I just can’t run a business like that.

Acres U.S.A. is North America’s oldest publisher on production-scale organic and sustainable farming. For more than four decades our mission has been to help farmers, ranchers and market gardeners grow food organically, sustainably, without harmful, toxic chemistry. Look for this interview and other insights on the regenerative agriculture supply chain in the September 2022 issue of Acres U.S.A. magazine.