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Farmers Market Archive

How to Make a Farmer’s Market: The Legal Structure Behind Local Food Part 4

December 14, 2012

Erin Kee, Esq. is back with the final part of her 4 part series on legal structures for farmers markets. Today she covers the cooperative business model.

The fourth and final legal structure we’ll discuss in this series on farmers markets is the cooperative. A cooperative is a form of business organization that is owned by the participating members, and cooperative’s goal is to maximize profit for its own membership. The fundamental governing principle common to all cooperatives is the principle of “One Member, One Vote.” The participating members vote on all the major business decisions of the company and are responsible for selecting the key executives to run the organization. Thus, one of the great benefits of organizing a farmers market under the cooperative structure is the sense of community responsibility ingrained in the DNA of the organization. This can be an extremely important marketing advantage for any farmers market.

The idea of “Community” is woven into the corporate fabric of any cooperative

There are three common business models used within the cooperative framework to operate farmers markets in the United States.

The first model is a cooperative that is entirely owned by the farmer’s who participate in the market. This means that each member farmer would take part in all the business decisions involved in running the market. For example, the members can vote on who to hire as a market manager or where to locate the market. The benefit of this structure is that each farmer can ensure that the market is meeting his or her needs.

Depending on the number of farmer’s involved in the market, voting on too many issues in a purely cooperative structure could become a cumbersome process. Farmers are an independent-minded lot, and it might often be challenging to get them to agree on nitty-gritty details of market operation. The by-laws of the cooperative should strike a balance between creating the sense of community through democratic decision-making and establishing effective executive leadership that can make important business decisions without constant resort to committees.

A second model has the cooperative owned by a limited number of farmers that allows other farmers to join as vendors. The additional vendor farmers bring diversity to the market, but do not necessarily encumber the operation by exercising organizational leadership.  An example of this is the Farmer’s Market Cooperative of East Liberty in Pittsburg, Pennsylvania. This market is owned by four farming families and operates as a cooperative. The four families are the only farmer’s involved in the oversight of the market. Having a limited number of farmer’s owning the cooperative makes it easier to lead the market – fewer members means fewer obstacles to executive authority. With this hybrid cooperative model , the market gets the benefit of streamlined leadership as well as the ability to develop the sense of community so important to a successful farmers market.

A final model has a pre-existing cooperative, such as a cooperative grocery store, operate a market under its corporate umbrella. Many local stores are already structured as cooperatives. These stores have a permanent location where they can hold the market and they already have a system in place to ensure the interests of all members are met. Cooperative stores usually have their customers as members. This means that the farmer’s who participate in the market will already have a loyal customer base. Thus, new farmers markets can be established relatively quickly and successfully. Newark Natural Foods in Newark, Delaware sponsors a weekly farmer’s market at its store. Customers enjoy the convenience of shopping at the store for durable and bulky items like coffee and olive, and then hit the farmer’s market for fresh produce that supports the local farmer.

If you are interested in any kind of cooperative, the Internal Revenue Service has a special pub you should familiarize yourself with before you begin planning a new market. Cooperatives have a reputation for being quaint and homespun, but they are actually very sophisticated business entities and their tax implications are particularly unique.

–by Erin Kee, Esq. 

How to Make a Farmer’s Market: The Legal Structure Behind Local Food Part 3

December 12, 2012

Erin Kee, Esq. is here again with Part 3 of her series on legal structures for farmers markets. Today she describes the rare but streamlined approach to market management – private ownership. 

A privately owned farmers market is the most centralized route to local food. A market operated by a for-profit business entity could be owned by any individual looking to take advantage of the economic opportunity presented by local food. The purpose of forming a market with any of the legal structures we’ve discussed is to create an atmosphere that is conducive to shopping and socializing, and a privately owned market is free to quickly respond to the needs of market customers and vendors in order to make that happen. The destiny of the organization is not run by a committee or by a board of directors, but by a single entity or person with the executive authority to mandate the way business is conducted. Though it may seem autocratic, anyone with experience in “leadership by committee” understand that this can definitely streamline the decision making process of a market.

In my previous post about the non-profit structure for farmers markets, I discussed the importance of well-drafted, well-conceived bylaws that would serve as the governing document of the marketplace. In a privately owned market, however, the contract takes preeminent place. Each individual vendor must be contractually bound to the market owner with terms that cover the products to be vended, the prices charged, the duration of the agreement, the duties of the market owner, or any other term ordinarily included in a service contract.

Though this may expedite market leadership, it puts vendors at a disadvantage that other forms of market organization do not have. Vendors are not members of a privately run market and have no role in its governance. This leaves the vendors with little procedural recourse to fire a lousy manager or to change their low-traffic stall unless the terms of the contract contain language that addresses such issues.

The bustling Les Halles market of Zola’s “Belly of Paris”

Establishing a private market can nevertheless enrich the market owner and the farmer vendors. Owners can still profit through vendor participation fees, and these fees are justified by the planning, marketing, and advertising efforts of the private market manager. In order for this structure to remain profitable the owner would work to increase customer participation in the market. He or she would also endeavor to rack-up as many talented and diverse vendors as possible to participate in the market. Successful management of the market by an owner that is inherently invested in the growth of the market’s traffic and the diversity of its offerings would in turn increase the profits to individual farmers.

When thinking about starting a private farmer’s market the best legal structure to consider is the Limited Liability Corporation. The advantage of the LLC is that the private assets of the owner will be protected, taxes are paid at the individual level, and there are fewer statutory management burdens on this type of structure than corporations.

A great example of the private ownership model can be found in Columbia, South Carolina, where Emile DeFelice has founded the Soda City Market. Emile runs the private market and pays all the expenses associated with its operation. The vendors at his market are only responsible for creating a great product, showing up on time each week and paying their vendor fee. The private market is run more like a store than the traditional market, with Emile focusing on providing a sensible range of products and not saturating the market with too many similar products. Farmers want to participate in his market because of the Emile’s skill at market promotion and the sales platforms he creates for the farmers. Emile’s top priority is creating income for the participating farmers.Private ownership of farmers markets can be lucrative for everybody, even if they only simulate the sensation of community created by other collaborative legal structures.

 

— by Erin Kee, Esq.

How to Make a Farmer’s Market: The Legal Structure Behind Local Food Part 2

December 11, 2012

Erin Kee, Esq. is here with part 2 of her 4 part series on the Legal Structure of Farmers Markets. Today she talks about the non-profit structure as it applies to the business of running a farmers market.

The nonprofit structure seems like a natural corporate entity to represent a group of farmers coming together each week to sell their produce. The non-profit entity exists so that farmers and the community can become enriched by the shopping, socializing, and eating that goes on within the market. It is important to note that the enrichment points outward, towards a group of public beneficiaries, not inwards toward a group of private shareholders. This is a psychologically satisfying quality of the non-profit structure that just seems to mesh with the ethos of farmers markets.

Do not confuse the lack of profit motive, however, with a lack of managerial responsibility. Non-profit corporations are in fact corporations that need to be operated in accordance with state law and the federal tax code. In order to properly incorporate as a nonprofit, in addition to filing a certificate of incorporation the market will need a carefully drafted set of by-laws. By-laws will serve as the governing document for the organization. Examples of farmers market by-laws can be found on the Farmers Market Coalition website. These are basic templates, so market founders with experience might want to get more creative with their by-laws. For example, by-laws can either mandate or encourage a diversity of products in the market. By-laws can also establish the way farmers behave at the market by forbidding vendors to sell below cost or to give away items in order to prevent undercutting. By getting creative with these rules, the complexity of non-profit corporate structure can be used as an asset for the market instead of a statutory burden.

(Click here for a further list of ideas that can be incorporated into farmers market non-profit bylaws.)

The non-profit will also need a board of directors, who are ultimately responsible for the fiscal health of the organization. Needless to say, this takes a good deal of time and “commitment to the cause” on the part of each director.

Ordinarily, the board hires a market manager to run the day-to-day operation of the market. The manager has the responsibility to publicize and promote the market, get the permits, clear the plaza of tables at the close of the market day, or anything else the market and the farmers need in order to make the sale. This is a job like any other – the board should set out the obligations of the position, set the right performance expectation and salary, and hold the manager accountable for fulfilling its expectations.

Any market should support itself by collecting vendor fees from farmers participating in the market. These fees will be used to cover costs associated with renting the site, city permits, the market manager’s salary and any other expenses. The challenges for a non-profit farmers market primarily concern the collection of these revenues. In order to preserve the tax exempt status of the market, it would be highly advisable for market managers and boards of directors to familiarize themselves with I.R.S. Publication 557, entitled “Tax Exempt Status for Your Organization”. Some forms of revenue may jeopardize the privilege of tax exemption if the non-profit is operated carelessly.

Non-profit markets have devised some ingenious methods for determining fees associated with the market. For example, the Berkley Springs Market in West Virginia determines the fee based on the size of the vendor’s booth, the location in the market, and the drive-in accessibility.

However they are derived, the economic resources of a non-profit farmers market should flow in some way back to its farmer-beneficiaries. The key thing to remember is that with a non-profit corporate structure, this is a legal obligation as well as a moral one.

–By Erin Kee, Esq.