Contents

Types of Direct Farm Marketing

Business Forms

Tax FAQs

Types of Direct Farm Marketing

Food Hubs

Advantages

Disadvantages

Legal Issues

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Advantages: Producers can spend less time marketing, delivering, and collecting payments from consumers and more time growing food and further developing their business. It also provides an opportunity to reach to customers, particularly retail businesses and institutions that may be looking for large quantities of products. If desired, farmers can focus on one or two products, working with other farmers to provide more options for consumers.

Disadvantages: There is often a fee associated with participation in food hubs. Depending on the structure of the food hub, producers may have to wait longer to receive payment for the products they provide. Food hubs often lack a sustainable business model and may be viewed as an unstable source for marketing.

Legal Issues:

  • What are the requirements in the contract to provide a certain amount of food?
  • What are the consequences if the farmer cannot fulfill orders?
  • Do the food hub distribution sites have to be licensed as a food distribution site with proper facilities for storage and refrigeration?
Food Hubs
Farmer’s Market

Advantages

Disadvantages

Legal Issues

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Advantages: The cost of selling at a farmers market is generally low, ranging from only a few dollars for a day permit – up to perhaps several hundred dollars for a year long space at a successful market. Farmer’s Markets draw many consumers looking specifically for local and regional food.

Disadvantages: There may be many other vendors selling the same products.

Common Legal Issues:

  • Does the market restrict you to selling only products you raise?
  • What is the procedure to follow if the market believes you violated the rules and it wants to prohibit you from selling?
  • Can the market limit the geographic area from which farmers come?
  • Does farm liability insurance apply to activities at the farmers market?

All these issues and others are discussed in Chapter Four on farmers markets.

Farmer’s Market
Roadside Markets and Farmstands

Advantages

Disadvantages

Legal Issues

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Advantages: They are generally less expensive to operate and the advertising costs are limited to a few signs. In some parts of the country it is not uncommon to see farm stands which operate on the “honor” principle meaning no one is present at the market.

Disadvantages: Often reliant on drive-by impulse buyers and may not be possible in remote areas. Inviting customers onto the operator’s property may raise concerns about insurance and liability.

Legal Issues: 

  • Is the market a lawful use under local zoning?
  • Are there restriction on what can be sold and when?
  • Does the state or local government limit the number and size of signs allowed?
  • Must state or local sales tax be collected?

More details on land use issues and property law are available in Chapter Seven of “The Legal Guide for Direct Farm Marketing.”

Roadside Markets and Farmstands
Agri-tourism and On-farm Recreation

Advantages

Disadvantages

Legal Issues

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Advantages: Agri-tourism near large populations can drastically increase farm revenue and may only last for one or two months. It can take many forms, including harvest and halloween attractions, hunting and fishing excursions, or educational activities. It is also seen by many people as an important way to increase rural economic activity.

Disadvantages: Some endeavors may take the business out of the realm of agriculture or farming and open it up to land use regulations or nuisance suits. There is also an added amount of risk due to potential accidents and corresponding lawsuits by visitors.

Legal Issues: 

  • Is the business agriculture or farming?
  • Is it subject to land use regulations and nuisance lawsuits?
  • What are the landowner’s liability concerns for accidents on the property?

More information is available in Chapters Eight and Ten.

Agri-tourism and On-farm Recreation
Direct Sales to Restaurants and Stores

Advantages

Disadvantages

Legal Issues

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Advantages: The quantities involved may be larger and it doesn’t require the same commitment of time in making the sales as may be involved with farmers’ markets. Buyers may pay a premium to obtain locally sourced and organic products.

Disadvantages: Food safety requirements or certifications beyond those mandated by law may be required by the buyer. While closer to wholesale marketing, selling directly to restaurants and stores does require more involvement in delivery and sales.

Legal Issues:

  • Is a food processors license necessary for the products being sold?
  • How to make sure of being paid for what is delivered?
  • How to verify the food is being produced in the manner it is being advertised?

More information on the types of direct marketing are covered in Chapter Three of “The Legal Guide for Direct Farm Marketing.”

Direct Sales to Restaurants and Stores
Community Supported Agriculture (CSA)

Advantages

Disadvantages

Legal Issues

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Advantages: Producers receive advance payment in the form of member shares, providing crucial capital at the beginning of the crop year. Upfront payment by members also means that the customers share in the risk of the farm operation. A degree of labor is often supplied by CSA members as part of the membership agreement. CSAs tap into the growing interest in community raised food as subscribers participate in the operation.

Disadvantages: Time and money will be required if deliveries are made available to members. Member agreements and participation add an additional level of complexity to the operation. Inviting members onto the farm operation may raise concerns about liability and insurance.

Legal Issues:

  • Are the members who work on the farm considered employees?
  • Does the CSA need a food processor’s license if it includes processed food in the share?
  • If the CSA uses a drop-off site in town must it be licensed as a food distribution site with proper facilities for storage and refrigeration?

A sample membership contract is available in the “Sample Documents” section.

Community Supported Agriculture (CSA)
Pick-Your-Own

Advantages

Disadvantages

Legal Issues

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Advantages: Pick-you-own operations allow producers to tap into the increasing demand for on-farm recreational experiences and interest in locally produced food.  Allowing customers the opportunity to make a physical connection with the farm can improve sales with other farms of direct marketing.

Disadvantages: There has been a general decline in the number of consumers canning foods at home, which means fewer consumers needing to purchase large quantities. Inviting the public onto the farm creates additional concerns about liability and insurance.

Legal Issues:

  • Does insurance coverage apply to the pick-your-own customers?
  • Has the state adopted a law limiting the liability for pick-your-own operations?
  • Has everything possible been done to remove known hazards from the property?

These issues are discussed further in Chapter Ten of “The Legal Guide for Direct Farm Marketing,” which focuses on insurance and liability.

Pick-Your-Own

Business Forms

Sole Proprietorship

Definition

Formation

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Definition: A business in which one person owns all the assets, owes all the liabilities, and operates in his or her personal capacity. (Black’s Law Dictionary).

Formation: There are no legal forms to fill out or structure to create. However, in many states, the owner must register with the state or local government if the business uses a trade name or a fictitious name.

 

Learn More in Chapter Five.

Sole Proprietorship
Partnership

Definition

Formation

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Definition: A voluntary association of two or more persons who jointly own and carry on a business for profit. (Black’s Law Dictionary).

Formation: Partnerships can be formed without filing forms or registering. Typically, the best way to create one is to enter a written legal “partnership agreement,” but courts have ruled that a partnership exists, even where there is no written agreement.

Learn More in Chapter Five.

Partnership
Limited Partnership

Definition

Formation

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Definition: A partnership with general partners who run the business and are personally liable and limited partners that are only liable to the extent of their investments in the business.

Formation: All states have adopted laws governing the formation of limited partnerships, which usually, if not always, require a certificate of limited partnership be filed with the Secretary of State.

Learn more in Chapter Five.

Limited Partnership
Corporation

Definition

Formation

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Definition: A business form with authority to act as a single person distinct from the shareholders who own it. There are a variety of types of corporations with different advantages and disadvantages relating to taxes, liability, and other matters.

Formation: Corporations are created under state law by filing articles of incorporation with the statutorily specified department, typically the Secretary of State.

Learn more in Chapter Five.

Corporation
LLC

Definition

Formation

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Definition: A company that is characterized by limited liability, management by members or managers, and limitations on ownership transfer. (Black’s Law Dictionary).

Formation: Statutorily authorized only in some states, legal requirements for formation will vary depending on the type of business formed.
 
 

Learn more in Chapter Five.

LLC
Cooperative

Definition

Formation

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Definition: An organization or enterprise (as a store) owned by those who use its services. (Black’s Law Dictionary).

Formation: Like a corporation, a cooperative is typically required to file articles of incorporation or articles of organization with the state’s Secretary of State. The cooperative is usually considered to exist upon approval by the Secretary of State and issuance of a certificate of incorporation.

Learn More in Chapter Five.

Cooperative

Tax FAQs

What Receipts Do I Need to Keep?

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What Receipts Do I Need to Keep?
Do I Need to Worry About Filing If I’m Not Making Money

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Do I Need to Worry About Filing If I’m Not Making Money