Institute for Food Laws and Regulations

Learn more in our related online graduate courses for food industry professionals: Kris DeAngelo teaches “The Law of the Produce Safety Rule” each fall semester, and Scott Haskell "The Law of the Preventive Controls for Human Food Rule" each spring semester.

Value Added and D2C Sales

Safe food processing and enhanced value addition are important steps in today’s direct-to-consumer food sales and food value chain. So, what is value-added agriculture and food production, and how does it affect direct-to-consumer (D2C) food sales?

Value-added agriculture of D2C food sales (e.g., farmer’s markets, open-air markets, environmentally friendly or “green” marketing, on-farm retail sales) is a growing and important movement that has engaged agricultural communities in sustainable food inclusion and in many cases is helping affected communities to eliminate food deserts. 

Generally, D2C supply chain actors have a demonstrated commitment to the community. There are currently more than 8,500 farmers markets listed in USDA’s National Farmers Market Directory. It is a concept that has in many ways changed production agriculture and has placed small farm food sales back on the map. Can enhanced food safety be a value-added product of D2C food sales? Let’s see!

The definition of value-added agriculture from the U.S. Department of Agriculture, Rural Business Development:

“Value-added products are defined as:

• A change in the physical state or form of the product (such as milling wheat into flour or making strawberries into jam).
• The production of a product in a manner that enhances its value, as demonstrated through a business plan (such as organically produced products).
• The physical segregation of an agricultural commodity or product in a manner that results in the enhancement of the value of that commodity or product (such as an identity preserved marketing system).

“As a result of the change in physical state or the manner in which the agricultural commodity or product is produced and segregated, the customer base for the commodity or product is expanded and a greater portion of revenue derived from the marketing, processing or physical segregation is made available to the producer of the commodity or product.” (USDA)

The USDA emphasizes that there are five ways small farmers/producers have added value to their products:

• Producing and marketing a real or perceived quality attribute (or characteristics).
• Reducing transaction costs.
• Bundling products.
• Producing and marketing a commodity that improves operating efficiency somewhere up the supply chain.
• Producers owning assets somewhere up the supply chain for further commodity processing.

The terms income enhancement and increasing throughput describe the process of increasing farm and producer income by utilizing a new production, management, and/or marketing practice (in our case direct-to-consumer food sales). With this, value-added can be a subcategory of income enhancement. Value-added can be part of the producer’s approach to optimal increased sales and marketing. Additionally, this can be the process of capturing or creating value in a commodity or product which allows a greater portion of the value of that product to return to the producer at time of final sale.

“Capturing value occurs through changes in distribution of value in the food/fiber production chain. These changes are generally efforts to "capture" more of the consumer dollar. Direct marketing, vertical integration, producer alliances and cooperative efforts are often directed toward capturing more of the end-use value of farm production.

“Creating value occurs with actual or perceived value to a customer for a superior product or service. The objective is to create something that has value. New products, enhanced product characteristics, services, brand names or unique customer experiences may create additional value for farm products.” (USDA)

Regardless of whether the producer creates or captures value, a larger percentage of the final profits remain with the producer. In the D2C case, providing value is in the form of filling a market niche by simplifying and improving the supply chain; this has improved profitability. Additionally, consumers are increasingly committed to ethical or moral purchasing by selecting food that fulfills their goals of activism including local, organic, know-your-farmer, and green.  These descriptors in D2C sales create and capture value.  And, in the end, increased customer value allows a better return to the D2C food producer.

Importance of Food Safety and D2C Sales

Food safety should be an important aspect of D2C food sales. The food safety chain is generally recognized as from ‘farm-to-fork’. The World Health Organization (WHO) calls food safety "one of the most widespread health problems and an important cause of reduced economic productivity." According to the Centers for Disease Control (CDC) and Prevention, each year roughly 1 in 6 Americans (or 48 million people) gets sick, 128,000 are hospitalized, and 3,000 die of foodborne diseases. CDC’s estimates of the burden of foodborne illness in the United States provide the most accurate picture of known pathogens and unspecified agents causing foodborne illness in the United States.

Food safety can be an issue for small producers in agriculture. Fragmented supply chains (as in D2C food sales) can present special issues with food safety and traceback. “Traceback investigation is the method used to determine and document the distribution and production chain, and the source(s) of a product that has been implicated in a foodborne illness investigation.” (USDA)

An extremely robust whole-chain traceability system can be useful to limit consumers’ exposure to potentially contaminated or unhealthy foods. This allows traceback in the event of an outbreak and can improve supply chain management even with small on-farm sales. Improved D2C hygiene (wash hands before and after handling food and money), having a clean workspace and assuring that food is stored at the correct temperature will all help prevent foodborne illness and keep food safe. Using Good Agricultural Practices (GAPs) while the crops are in the field is important to final product food safety. Precautions should include the proper use of manure/fertilizers, clean harvest, pesticide management, wildlife restriction and irrigation water source evaluation. Food safety regulations are important for Farmer’s Markets.

As the number of D2C sales and marketing channels increase, it is essential to assess the potential foodborne disease risks associated with these commodities. Here’s the good news: In a study by University of California, Davis, researchers found an extremely low risk of contamination of foodborne pathogens on produce and meat at Northern California certified Farmer’s Markets. “Animal products and produce were purchased from a total of 44 certified farmers' markets in Northern California. Salmonella was found in 6 (1.8%) of 338 animal products and in 0 (0%) of 128 produce samples; E. coli was found in 40 (31.3%) of 128 fresh produce samples. The results from this study highlight the need for further training on mitigation strategies to reduce contamination of animal products and fresh produce by foodborne pathogens.”

Most of this training is done through the Food Safety Preventive Controls Alliance (FSPCA), which is “a broad-based public private alliance consisting of key industry, academic, and government stakeholders whose mission is to support safe food production by developing a nationwide core curriculum, training, and outreach programs to assist companies producing human and animal food in complying with the preventive controls regulations.” (FDA https://www.ifsh.iit.edu/fspca)

Food Safety Laws that Apply to D2C Sales

Requiring product labels is essential to food safety and traceback but is not always provided within D2C sales. Labeling informs customers of the location of food production and helps to provide product traceability. Should a foodborne infection event occur, utilizing product labels will make the recall process easier and much more efficient; potentially saving lives. When a supply chain is fragmented, transactions occur across different growers/processors and make tracing and tracking products exceedingly difficult. D2C products may be made up of ingredients from various farms or producers but where those entities are located will directly impact the labeling that is required.

Most of the labeling requirements are dictated by the Federal Food, Drug and Cosmetic Act (FDC&A) and enforced by the Federal Food and Drug Administration. But these provisions are enforceable on products only to the extent that they are part of interstate commerce under the Commerce Clause of the United States Constitution. If the D2C product moves across state lines the product must comply with all labeling requirements under the FDC&A, which helps ensure safety. But D2C sales can include food that is produced and sold within a single state or locality. As such, they are not regulated by FDA, and therefore are not required to have traditional labels that afford consumers much needed information. For these products it is important for individual states to step in and regulate. States have done so, with varying degrees of success in the area of food safety; there is one relatively recent exception (see below). 

The Food and Drug Administration (FDA) Food Safety Modernization Act (FSMA) was signed into law in 2011 and was the first major food safety reform in over 70 years. FSMA’s goal is food safety focusing on the prevention of disease and governing the production, handling, and import of the US food supply. Two acts within FSMA that affect D2C food sales are the Preventive Controls Rule and the Produce Safety rule.

The FSMA Preventive Controls Rule requires domestic and foreign facilities to comply with risk based preventive controls and current good manufacturing practices (CGMPs).  Under the Preventive Controls Rule, food facilities are required to be registered with FDA because they manufacture/process, pack or hold food for consumption in the US unless an exemption applies.  These registered facilities must conduct a hazard analysis of the operation and create a food safety plan which prevents issues including monitoring and verifying that the prevention steps are taken.  The facilities must also have a recall plan in place in case a recall is necessary. But some D2C operations fall within exceptions to these rules due to operation size and gross income.  Likewise, most farms, restaurants, grocery and convenience stores, nonprofit food establishments and those that process meat, poultry and egg products inspected by USDA are not registerable “food facilities” and thus are not required to comply with Preventive Controls Rule (but must comply with cGMPs).  That said, most farms are required to comply with the FSMA Produce Safety Rule.

The FSMA Produce Safety Rule requires science-based minimum standards for growing, packaging, harvesting, storing, and holding fruits and vegetables for human consumption. But it does not apply to commodities that are traditionally not eaten raw.

These minimum standards address issues from agricultural water, soil amendments, domesticated and wild animals, worker training, health and hygiene, equipment, buildings, and tools along with special rules for activities related to sprouts.  The Produce Safety Rule is designed to reduce or eliminate food safety issues on farms much like the Preventive Controls Rule does for other foods.

But sometimes due to the nature of the activities on a farm, it must operate under both the Preventive Controls Rule and the Produce Safety Rules. This would be the result if a particular farm were considered a “mixed-type” facility engaged in activities such as Baking, boiling, bottling, canning, cooking, cooling, cutting, distilling, drying/dehydrating raw agricultural commodities to create a distinct commodity (such as drying/dehydrating grapes to produce raisins), evaporating, eviscerating, extracting juice, formulating, freezing, grinding, homogenizing, labeling, milling, mixing, packaging (including modified atmosphere packaging), pasteurizing, peeling, rendering, treating to manipulate ripening, trimming, washing, or waxing. (Source: North Carolina Fresh Produce Safety). So, a farm that slices apples, would need to comply with the Preventive Control Rules in addition to the Produce Safety Rules.

But both the Preventive Controls Rule and the Produce Safety Rules allow exceptions to some entities, which creates food safety issues for D2C sales.

Exceptions for FSMA Rules for D2C Sales

Originally, when Congress wrote FSMA there were concerns that

the corresponding regulations would adversely affect small producers and farmers in terms of cost of implementation. In response to these concerns Senators Tester and Hagen, offered the Tester-Hagen amendment which was adopted in the final version of FSMA.

The Tester-Hagen amendment provides that D2C facilities qualify for exemptions in one of several ways. First, if the D2C facility meets the definition of “very small business” as defined by FDA as less than $1.2 million in sales (in 2021, adjusted for inflation) of human food or manufactured, processed, packed, or held without sale on average for the previous 3 years. The second is a qualified exemption which eliminates some requirements if the facility’s average monetary value of food (some D2C sales are for non-food items or experiences) is less than $500,000 AND the greater than 50% of sales are to qualified end users such as consumers, restaurants, or retail food establishments within the state or within 275 miles, in short, many D2C entities. But if an exception applies, these D2C entities must document that they comply with state, local laws and regulations and provide this information to FDA in addition to ensuring that they have identified and controlled for potential hazards.(Food Safety on the Farm). In addition, small entities must also include a name and address of the entity either on the label or at the point of sale so that the public is informed. This small farm exemption also applies to farms under the FSMA Produce Safety Rule.

Further, the provisions allow exemptions for very small businesses and small and very small farms.  “Farms with less than $25,000 in gross annual sales of produce over the past three years may qualify to be exempt from the Produce Rule in many instances. Additionally, D2C farm producers may be eligible for ‘modified’ status under the Produce Rule, but only if they have less than $500,000 in gross annual sales of all food over the previous three years and they sell the majority of their food directly to consumers, restaurants or grocery stores within 275 miles from their farm.” This exemption can be revoked if the facility is linked to a foodborne illness investigation of if FDA determine it necessary to protect public health. (FDA Produce Safety)

These types of exemptions reduce the cost of compliance for small D2C businesses but also decrease food safety measures as written into the FD&CA and FSMA.

Food Safety Issues for Exempted D2C entities

For example, home-based food businesses are generally exempted from registering as FSMA controlled facilities (making them exempt from FSMA’s Preventive Controls Rule).  If a home-based entrepreneur produces tomato sauce in his/her own kitchen to sell at a local farmers market without the acidification required to kill botulism spores, the product may be deadly, albeit to a few local individuals. 

Similarly, some ‘cottage food’ businesses (e.g., those businesses that sell the majority of their products directly to consumers such as a local raw honey seller selling on a local Facebook Marketplace page) are considered “retail food establishments” and are thus exempt from coverage under the Preventive Controls Rule and under the Produce Safety Rule, because it is not a raw agricultural covered produce.  The honey may nevertheless be contaminated with botulism spores resulting in death.

Conclusions

The concept of value-added agriculture offers a much wider and more inclusive concept of profitability under FSMA for small farmers. Congress and FSMA have done a wonderful job protecting the small farmer and producer from difficult regulations allowing them to be competitive players. As noted, supply chain actors can have a demonstrated commitment to community nutrition and helping to eliminate food deserts. Value-added allows small food and agriculture producers to develop domestically empowering rural assets, producers, and consumers while creating in many instances improved community wealth and well-being.

D2C emphasizes the importance of making food production and agricultural marketing an important concept. Strengthened rural development and in many cases restructuring portfolios can enhance market shares. Small producer value-added provides an endogenous approach to community economic development. FSMA has helped empower this segment of D2C food production and marketing. However, over 75% of farmer’s markets offer no sanitation training to workers or vendors. (Harrison, JA, et al. J Food Prot. 2013 Nov;76(11):1989-93) Even though many farmers, producers and D2C managers are currently utilizing good management practices, some practices being used may continue to place consumers at risk of foodborne illness and disease. With this said, there is a decided need for the training of both producers and marketing managers.

Given the restricted food safety training with D2C and the need for the implementation of hygiene management systems by farmer’s markets, restricting farm product sales to low-risk farm products may be prudent pending completion of safety training programs. Current and future trainings and improvements of preharvest food safety control measures in fresh produce are important to emphasize. Managing the mechanisms of pathogen contamination, survival, and potential microbiologic inactivation or prevention under field and packinghouse conditions must be evaluated and potentially highlighted to producers.

Disclaimer.

References

Alamu, EO., Mooya, A. (2017) Chapter 10 - Food Processing Technologies and Value Addition for Improved Food Safety and Security.  In: Smart Technologies for Sustainable Smallholder Agriculture: Upscaling in Developing Countries defines integrated climate smart agricultural technologies Pages 201-210

https://www.researchgate.net/publication/316145801_Chapter_10_Food_Processing_Technologies_and_Value_Addition_for_Improved_Food_Safety_and_Security

Burrows, Rhoda, Jennifer Folliard. Food Safety from Production to the Farmers Market. South Dekota State University Extension. https://extension.sdstate.edu/food-safety-production-farmers-market

Clark, Jill K., Becca B.R. Jablonski, Shoshanah Inwood, Aiden Irish & Julia Freedgood (2021) A contemporary concept of the value(s)-added food and agriculture sector and rural development, Community Development, 52:2, 186-204, DOI: 10.1080/15575330.2020.1854804 https://www.tandfonline.com/doi/full/10.1080/15575330.2020.1854804

Dudinskaya, E., et al. (2021) European Consumers’ Willingness to Pay for Red Meat Labelling Attributes Animals 2021, 11(2), 556; https://doi.org/10.3390/ani11020556  https://www.mdpi.com/2076-2615/11/2/556

Food Insight. 2017 Food and Health Survey. “A Healthy Perspective: Understanding American Food Values” (May 1, 2017) https://foodinsight.org/2017-food-and-health-survey-a-healthy-perspective-understanding-american-food-values-2/

Godwin, Sandira. “Food Safety and Farmers Markets” Tennessee State University

https://nifa.usda.gov/sites/default/files/resource/Food%20Safety%20and%20the%20Farmers%20Market.pdf

Harrison JA, JW Gaskin, MA Harrison, JL Cannon, RR Boyer, GW Zehnder. “Survey of food safety practices on small to medium-sized farms and in farmers markets.” Journal of Food Protection. 2013 Nov;76(11):1989-93. doi: 10.4315/0362-028X.JFP-13-158. PMID: 24215708. https://pubmed.ncbi.nlm.nih.gov/24215708/

Hofmann, Christa, and Jennifer Dennis, A. Scott Gilliam, Shirley Vargas. “Food Safety Regulations for Farmers’ Markets” https://www.extension.purdue.edu/extmedia/ec/ec-740.pdf

Johnson, Renee, Food Safety on the Farm, CONG. RESEARCH SERV., RL34612, FOOD SAFETY ON THE FARM 2 (2011) https://www.hsdl.org/?view&did=10063

Levy, DJ., et al. (2015) Microbial safety and quality of fresh herbs from Los Angeles, Orange County and Seattle farmers' markets J Sci Food Agric. 2015 Oct;95(13):2641-5. doi: 10.1002/jsfa.6996. Epub 2014 Nov 27. https://pubmed.ncbi.nlm.nih.gov/25382560/

Martini, d., Menozzi, D. (2021) Food Labeling: Analysis, Understanding, and Perception Nutrients 2021, 13(1), 268; https://doi.org/10.3390/nu13010268 https://www.mdpi.com/2072-6643/13/1/268/htm

Menozzi, D., et al., (2020) Consumers' Preferences and Willingness to Pay for Fish Products with Health and Environmental Labels: Evidence from Five European Countries Nutrients. 2020 Aug 31;12(9):2650. doi: 10.3390/nu12092650. https://www.mdpi.com/2072-6643/12/9/2650

Pires, A., et al. (2020) Salmonella and Escherichia coli Prevalence in Meat and Produce Sold at Farmers' Markets in Northern California Food Prot (2020) 83 (11): 1934–1940. https://meridian.allenpress.com/jfp/article-abstract/83/11/1934/436935/Salmonella-and-Escherichia-coli-Prevalence-in-Meat?redirectedFrom=fulltext

Scheinberg, JA., et al. (2017) Prevalence and Phylogenetic Characterization of Escherichia coli and Hygiene Indicator Bacteria Isolated from Leafy Green Produce, Beef, and Pork Obtained from Farmers' Markets in Pennsylvania J Food Prot. 2017 Feb;80(2):237-244. doi: 10.4315/0362-028X.JFP-16-282. https://pubmed.ncbi.nlm.nih.gov/28221988/

Other Helpful Links

FDA Produce Safety: https://www.fda.gov/food/food-safety-modernization-act-fsma/fsma-final-rule-produce-safety

North Carolina Fresh Produce Safety: https://ncfreshproducesafety.ces.ncsu.edu/definition-of-a-farm/

Farmers Markets: https://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfcfr/CFRSearch.cfm?fr=1.227

Open Air Markets: https://www.planetizen.com/node/68364

Green Marketing: https://www.investopedia.com/terms/g/green-marketing.asp

USDA What is Value Added? https://www.agmrc.org/business-development/valueadded-agriculture/what-is-value-added-agriculture

USDA Adding Value https://www.agmrc.org/business-development/valueadded-agriculture/articles/adding-value