Risk Sharing Implications for Today’s CSA Farm

Every year we see a new twist on the way a Community Supported Agriculture (CSA) farm offers products to consumers. Sometimes I am impressed by the creativity of the arrangement; at other times I get concerned that the model is changing so much that it should not be called CSA. Regardless of the day, however, a clear understanding of the Risk-Sharing component of the business is essential to business managers and your customers. This becomes more critical as we observe more severe weather events causing production delays or losses on farms. Farmers should understand what risks are or “are not” being hedged by the CSA arrangement and in turn, clearly communicate this to customers, members, subscribers….whatever the correct term is these days. Community Supported Agriculture (CSA) is a partnership between consumers and farmers. Consumers contract with farmers before the growing season begins for a share of the upcoming harvest. In its original format, both farmer and consumers agree to share the risks and rewards of growing food in their local climate. Farmers generally receive all or most payment in advance. In the original definition of CSA, risk was spread between both parties. Both the upside and the downside. If the farm had a bad tomato season, consumers got less while the farmer still got paid for trying to grow the tomatoes. Don’t forge

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3 thoughts on “Risk Sharing Implications for Today’s CSA Farm

  1. Agreed! In our business planning program we have mostly tried to drop “CSA” language and have substituted it for “subscription” if we see no clear risk sharing intent. Oh, and we have all our accountants setting up LIABILITIES on farms balance sheets to reflect the balance owed to pre-paid customers. This works well with declining balance set-ups, although it is tricky to factor in discount rates to reconcile the liability to “0”.

    We have plenty of new farmers that get queasy with the idea of loans. Many do not realize that the CSA model is more or less an annual equity based finance agreement (don’t tell them shareholders sounds very similar to stockholders, as in the stockholder of big nasty profit centered companies, oh my!). Bumper crop of kale = divendends
    No winter lettuce = you know investment is like gambling

    Don’t get me started on the “CSA” farms that short their membership on crop abundance dividends in order to sell the crop to wholesale buyers.

  2. It’s a pet peeve of mine how often the terms “members” and “share(s)” are used for so-called CSA programs now. Originally, as Mark points out, CSA was set up as an agreement between a group of consumers and a farmer (sometimes with consumers actually soliciting a farmer, essentially hiring them to grow their food), and those members would in turn receive an actual “share” of the produce – proportional to their membership, just like stock. E.g. if there was 100 members, each was entitled to 1% of the produce, and those amount could change each season, as noted.
    Most “CSAs” that I see today though are in essence just pre-paid subscriptions (e.g. for that box or bag of produce), rather than an actual “share.” And as noted, just what type of risk the consumer if taking is not often clear.
    With our focus on pastured meats, we decided to offer a declining-balance “farm credit” – we reward this early, up-front pre-payment by added bonus dollars/credit, which the customers can use for virtually anything and anytime. This systems gives our customers a financial incentive (the bonus %) as well as flexibility, but without as much risk, I think (there is the risk that we’ll run out a certain product at times (eggs!), and of course the risk we’ll go out of business or disappear…).
    But it also gives us, the producer, flexibility too (not having to guarantee having an exact quantity of some product in stock as such and such a time), and providing that up-front cash to meet expenses as they incur. A handful of prepaying customers last winter made the difference for us in paying the bills without having to seek out a line of credit from a financial institution!

  3. Finally…..This articulates what I have been seeing in CSAs for some time now. Most new CSAs for which I am familiar don’t understand the concept of risk mitigation and management. Frankly, I am appalled at how consumers are being treated by this model, and shocked at how willing they are to give away their hard-earned money. We’ve been farming for over 10 years and would never ask for money up front, nor expect our customers to pay for our inability to manage risks. We chose to pay for our mistakes in production and marketing through experience, rather than placing that burden on our customers. Thanks for a thoughtful piece of writing.

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