Survival strategies of producers involved in short food supply chains following the outbreak of COVID-19 pandemic: A Hungarian case-study.

Abstract

The outbreak of the Coronavirus disease 2019 (COVID-19) caused unprecedented disruption to the global food distribution network (Barrett, 2020; Hobbs, 2020; Torero, 2020). Although the major impact, with the exception of those who suffered from medical issues, appeared to be economic (Béné, 2020; Laborde et al., 2020), the spread of COVID intensified existing concerns regarding the (un)sustainability of the global food system, potential threats to food security (of the poor, mostly) and to the resilience of local food system actors (Béné, 2020; Laborde et al., 2020; Swinnen, 2020; Volpato et al., 2020). Many authors consider the COVID-related situation as a real-time experiment concerning the sustainability transition (Bodenheimer & Leidenberger, 2020; Cohen, 2020), with a special focus on local food systems and short food supply chains (SFSCs). These alternative systems may fulfil a number of roles and functions and include a diversity of actors as well as marketing channels, making them reliable elements of the food system in terms of maintaining operations, compared to the relatively small number of transnational agro-food enterprises (Hendrickson, 2015; Lamine, 2015; Tendall et al., 2015). A consensus seems to be evolving about their importance during COVID (Blay-Palmer et al., 2020; Boons et al., 2020; Cummins et al., 2020; Swinnen, 2020). Individuals and local networks are hypothesised to be able to adapt more easily and rapidly to changing conditions than larger ones (Cabell & Oelofse, 2012). On the other hand, heterogeneous responses were reported by the grey literature and the media, and concerns have been formulated by many authors that many SFSC producers faced challenges accessing the market due to lockdown measures and social distancing and/or labour shortages (Holden, 2020; Torero, 2020). In fact, solid empirical evidence about the actual strategies, opportunities and responses of small-scale producers employed to take advantage of the current situation (or at least moderate its impacts) is still lacking. The aim of this article is to document early, first-wave COVID-19 impacts experienced by small-scale food producers in Hungary and to differentiate some of their early responses. In presenting empirical data, this work contributes to filling a knowledge gap about the actual reaction of small-scale farmers to the market-related disruptions caused by the pandemic, not only in terms of economic outcomes, but also in relation to strategic decision-making and behavioural-attitudinal transformations. The concept of resilience was used to build a framework. The related literature is reviewed in the following section. The multifaceted nature of local food systems, alternative food networks and SFSCs has prevented the formulation of an academic consensus about definitions (Michel-Villarreal et al., 2019; Schmutz et al., 2018). In this article, with consideration to the core concepts specified by Gruchmann et al. (2019), Schmutz et al. (2018) and others, the focus was on those small-scale producers who offered their products to spatially proximate costumers directly or through a limited number (ideally zero) of intermediaries. Defining resilience is similarly challenging (Tendall et al., 2015). According to Schipanski et al. (2016), resilience applied to agriculture is ‘the capacity of food systems, including the actors within them … to cope with interacting and cumulative forces that undermine food access and equity’ (p. 600). Béné (2020) developed a model of resilience pathways to study the resilience of local food system actors (e.g., farm households) in the context of COVID. Although the model was originally proposed for the study of the COVID experience in low and middle income countries, it offers generalisable conceptual resources. In this model, resilience resulted from a set of capacities, meaning a combination of assets and other resources. Béné (2020) emphasised the role of financial assets and, to a lesser extent, social capital during COVID, while the latter was also found to be exceptionally important by many others (e.g., Paganini et al., 2020; Thilmany et al., 2021; Tittonell et al., 2021). The role of human capital in the COVID context was also validated (Darnhofer, 2021; Tittonell et al., 2021). In his model, Béné (2020) stressed that farm households might use these assets, or forms of capital (understood as ‘inputs’ in the resilience process), to shape adequate strategies that created resilience per se or intermediary outcomes. Adequate strategies increased the chance of positive outcomes (e.g., an increase in income, more balanced cash and workflow as a result of changes, access to other suppliers etc.), or reduced the possibility of harmful consequences (such as selling productive assets, ceasing operation or reducing health-, education- or high-quality food-related expenses). In the model, intermediary outcomes (resilience) determine long-term outcomes (individual or household wellbeing). The focus of this article is on producers’ actual responses (the development of specific marketing strategies) that potentially helped them to better adapt or mitigate the impact of the shock caused by the pandemic. Recently, an emerging body of literature has focused on sources of resilience in the context of producers participating in SFSCs: the issue is particularly relevant in light of the pandemic. Smith et al. (2016) claimed that SFSC producers successfully coped with crisis in post-flood Australia due to their local production and sourcing of inputs, greater flexibility, lower level of dependence on modernised infrastructure (which could not be used on wet soil) and in-depth local knowledge in terms of social relations and infrastructure such as passable roads. Sources of resilience of producers selling at farmers’ markets were found to be the direct consumer–producer interactions that instantly conveyed preferences, as well as a diversity and abundance of customers (with diverse preferences) and producers (who offered a wide range of products). Spaces for direct interactions also provided opportunities for personal learning and knowledge exchange for all actors involved (King, 2008; Milestad et al., 2010). One strength of SFSC producers was found to be their reflexive character (being critically self-aware and willing to restructure their business in the face of challenges; Moore et al., 2014). According to Darnhofer et al. (2010b), resilience at the farm level can be built through adaptability and change when learning and innovation are explicitly targeted outcomes. The role of place-based experiential learning and networking appears to be particularly important (Darnhofer et al., 2016; Knickel et al., 2018; Šūmane et al., 2018). In an unpredictable economic environment, flexible farm organisation (i.e. remaining open to new activities) and diversification and risk-sharing strategies both in terms of production and marketing can enhance the adaptive capacity of farmers (Benedek et al., 2021; Darnhofer et al., 2010a; de Roest et al., 2018). Furthermore, the ability to reorganize to respond to an unforeseen event was shown to be ensured by strategies that enable bricolage and tinkering, or in other words, that make reconfiguration and reorganisation possible (Darnhofer, 2021; Zagata et al., 2020). Based on the findings presented above, the pathway model of Béné (2020) was extended. Some specific sources of resilience appear to have been important in the COVID context, while others have been irrelevant (Figure 1). Direct consumer–producer interactions (forms of social capital) represent the core of SFSCs–these enable preferences to be conveyed; in the context of COVID, an increase in demand for (fresh) products (Butu et al., 2020; Kolodinsky et al., 2020) and potentially a rise in home delivery services. A redundancy (abundance and replication of system components and procedures that guarantee operational continuity in the case of shocks) and a diversity of actors (not labelled as a resilience capacity in the Béné model) ensured that some producers emerged to respond to new demands in spite of challenges. A redundancy of facilities (a combination of financial assets and social capital, such as stocks themselves, as well as cooperating to share cooling or delivery capacity, as described by Smith et al. (2016) in a post-flood context) might be less important in situations of increased isolation. The reflexivity of producers (human capital) was supported by individual learning mechanisms. The role of producer interactions and cooperation (another form of social capital) was questionable during the pandemic due to the need for social distancing, although evidence exists that marketing channels based on the cooperation of producers, such as box schemes and consumer purchase groups, experienced unprecedented growth (Diesner, 2020; Nemes et al., 2020; Wheeler, 2020). To the best of our knowledge, the role of agricultural knowledge systems (universities, extension services, etc., also understood as factors of social capital) in promoting the resilience of small-scale producers has not been studied before. However, to acknowledge their potential importance in the transition of agro-food systems to sustainability (Mapiye et al., 2021; Van Oost & Vagnozzi, 2020), and particularly in the face of unexpected turbulence (Marshall et al., 2020), they are displayed in Figure 1 but not analysed in detail. The remainder of the article presents the empirical analysis that was conducted to characterise and sort the responses of small-scale producers. Resilience is remarkably difficult to measure (Béné, 2020). For the purpose of this study, resilience was operationalised and identified if the original level of sales of an SFSC component was maintained or exceeded in the lockdown period. Applying such a narrow and business-centred framing allowed us to provide a fast and objective assessment of early responses by keeping the related questionnaire short and simple (which was very much needed, as farmers had very little time for interviews due to the constant changes) in spite of the limitations it causes by overlooking broader interconnected system-level considerations. Of the sources of resilience, marketing styles and channels were the focus of attention. The empirical analysis was based on Hungarian data. The most important local measures and tendencies affecting sales through SFSCs in Hungary are briefly summarised. The proportion of individuals in voluntary isolation was large, resulting in an increase in demand for online and home delivery services. Most shops (ones that did not sell food, medicine or hygiene-related items) closed, including restaurants, except if they offered food for takeaway. The ongoing operation of markets was explicitly encouraged by the Ministry of Agriculture. Nonetheless, many of them closed, as local organisers (mostly governments) did not want to take any political or other risks. A few markets chose to operate online, on a pick-up-only basis. Restrictions on movement allowed only citizens of over 65 years of age to enter shops or markets between 9:00 AM and 12:00 PM. This time period largely covered the usual opening hours of farmers’ markets, which experienced a substantial drop in turnover (Nemes et al., 2020). Primary data were gathered through a set of structured interviews containing a mix of closed and open questions that were implemented between 6 April and 12 May, when emergency measures were most stringent in Hungary. Small-scale producers were approached by representatives of specified networks who had already been in contact with the related farmers for a long time. All these networks concentrate on small-scale producers and local food systems, often in rural areas and far from big cities; they were Local Action Groups within the EU-financed LEADER program for rural development–consumer purchase groups, non-governmental organisations and so forth. Due to the character of these organisations, no further restrictions (e.g., arbitrary thresholds) were introduced concerning sample selection. Personal contact ensured the willingness of farmers to respond during a time of challenge and uncertainty caused by the very first wave of COVID-19. Most of the respondents provided data through telephone interviews. Due to the method of data collection, the resulting sample (similarly to other studies focusing on producers involved in SFSCs) is not representative. The interviews were complemented with an in-depth case-study of an artisan cheesemaker, Steve (a pseudonym), whose experiences were closely tracked through semi-structured conversations every 2 weeks during the time of restrictions, and two 60-min structured interviews, one conducted at the beginning of the time of closure, and the other after re-opening. As such close follow-up required commitment from the producer, a dedicated interviewee was chosen based on their prior contribution to research projects (as a farmer stakeholder). The dairy sector represented a good reference point as it involved a high level of flexibility at different stages of production, from the beginning stages (e.g., decisions related to a broad assortment of products), to the end (e.g., a great variety of final customers could be targeted, from restaurants to individual customers, through diverse marketing channels). First, the sector the producers were operating in was defined. Based on changes in sales due to COVID-related restrictions (see Table 1), a single variable (change in sales) was derived that showed whether a producer experienced cessation (0), a decrease (1), no change (2) or an increase (3) in sales. Similarly, an ‘income’ variable was generated for the calculations that incorporated all other categories of annual gross income. Producers were requested to evaluate the importance of the marketing channels they used both before and during COVID according to the income these channels provided. A 5-point Likert scale was utilised (1: I do not use this channel; 5: this marketing channel is very important in terms of my sales). This scale is similar to the one used for evaluating schoolwork in Hungary, so was easily understood by respondents. (As for the specific channels, the term ‘directory’ was used for sales made through the website of a fellow producer or an association). The number of sales channels producers used was calculated a posteriori; this included all the channels that were mentioned whose importance was rated as at least ‘2’. A further variable was derived to characterise sellers’ online presence and use of information communication technology (ICT) either for the purpose of communication (‘1’) or online sales (‘2’) versus no use of such tools at all (‘0’). Producers were also asked whether they perceived different problems concerning the different stages of production. Answers were transcribed and coded a posteriori. Regarding problems, the variables reflecting the stages of production were awarded three values: ‘0’: there is no problem; ‘1’: there are some general problems not related to COVID; ‘2’: problems emerged in relation to the outbreak of COVID. In a second phase, COVID-related problems were further distinguished thematically. The strength of this approach was that it allowed the identification of key problematic areas, their relative importance, as well as the expectations of producers, without bias resulting from the anticipation of researchers. First, changes in the importance of marketing channels were calculated and their significance was tested with non-parametric Wilcoxon rank-sum tests (Wilcoxon, 1992). Next, as qualitative results implied that farmers might have adopted different strategies to manage the COVID-related crisis, quantitative methods were applied to divide farmers into segments based on their reactions, with the aim of identifying successful strategies. Different marketing strategies were assessed through k-means clustering analysis. Thus, two cognitive objectives were expected to be met: (a) verifying the assumption that SFSCs had the potential to ensure the economic survival of small-scale producers after the outbreak of COVID; and (b) based on evidence, highlighting the important elements of survival strategies of small-scale producers. The number of clusters was defined through Caliński/Harabasz pseudo F-tests (Caliński & Harabasz, 1974). Definitions of two, three, and four clusters were assessed; the interpretation of more clusters might have been problematic in relation to the relatively small sample. The definition of three clusters provided the optimal solution. Although all the three clusters contained successful and less successful producers, a diversified strategy that involved home delivery services and did not abandon personal relationships with customers (taking the expectations and requirements posed by social distancing into account) seemed to promote resilience the most. Channels whose importance during the first wave of COVID was reported to reach or exceed 1.5 were involved in the clustering exercise. Cross-validation was undertaken in the following step to test the differences between the clusters concerning variables that were not involved in the clustering itself but used to describe marketing behaviour pre-COVID, and farm characteristics. Non-parametric Kruskal–Wallis tests were applied, supplemented by pairwise Wilcoxon rank-sum tests with Bonferroni correction to better understand the differences between the clusters. Results of the cross-validation are reported together with the results of the clustering exercise in Section 4.3. One hundred and thirty-six small-scale producers participated in our survey. In terms of location, 19 out of the 20 NUTS III statistical regions were represented in the sample. Descriptive statistics are displayed in Table 1. Farms, despite being small-scale, varied in size as expressed in terms of annual gross income. This diversity increased the relevance of the results. Fifty-nine percent of producers experienced negative impacts–namely, cessation or decrease in sales. Thirty-one percent managed to maintain the level of sales; many of these respondents expressed that this required a thorough revision of their marketing strategy. Ten percent were able to take advantage of the situation by increasing sales (many of them manyfold). ‘We are old and belong to the category of people at risk, so we cannot go to the market, and our sales have stopped completely’. Small-scale producers characterised by an income of 8,500–14,100 EUR were most likely to have experienced an increase in sales. These agents were big enough in terms of production capacity to use multiple marketing strategies (of substantial relevance in terms of being able to adapt rapidly) but were small enough to be able to respond promptly to the changes. Producers had used 4–5 marketing channels pre-COVID, on average. Figure S1 in the Supporting Information shows the changes in the perceived importance of the most important marketing channels calculated from the results shown in Table 1. The few successful sales channels (‘home delivery’ and channels based on ICT) were relatively unpopular before the pandemic, while most channels declined in importance. Before the outbreak of COVID, markets represented the most important marketing channel (see also Table 1), in line with previous findings (Benedek et al., 2018; Szabó, 2017). The greatest reduction in sales was experienced in relation to fairs and festivals (banned by lockdown measures), as well as restaurants (among which only places that offered takeaway and home delivery were able to remain open) and markets (affected not only by a significant decrease in consumer interest due to social distancing, but the restrictions on opening times introduced for older citizens). Farm-gate sales are typically a very personal offline mode of sales in Hungary, involving customers visiting farms in person (produce is often displayed in front of the farm gate to attract the attention of passers-by). The importance of this channel decreased somewhat due to the need for social distancing, but the personal nature of the related transactions apparently prevented a major decline (Benedek et al., 2020). The role of independent shops decreased after the outbreak of the pandemic. These shops (often very small ones) usually do not offer home delivery services and, similarly to markets, suffered substantial economic losses due to the increased isolation and the imposition of ‘elderly shopping hours’. Many of these shops decided to close in spite of the fact that regulations allowed them to remain open. The fact that the importance of consumer purchase groups was so small, and did not grow much during the pandemic, might need some explanation. In general, consumer purchase groups and vegetable box schemes seemed to be the great winners of the pandemic (Diesner, 2020; Nemes et al., 2020; Wheeler, 2020), but producers in our sample lived further from bigger cities where such schemes are more common in the Hungarian context, and it appears that the majority of our producers could not take advantage of this successful trend. Problems identified in Table 1 are shown in the order of severity after the outbreak of COVID. Though problems arose at several stages of production, sales suffered most, while online sales–although a problematic area pre-COVID–caused further problems for a small number of producers only; apparently, this approach was more important as a solution. Table 2 shows the key areas associated with COVID-related problems according to the different stages of production and marketing. As online sales were less problematic during COVID, this channel is not displayed in Table 2. The relative self-reported importance of the problems is shown in brackets (the latter do not add up to 1.00 for two main reasons: Several producers mentioned more than one problem, and further problems were mentioned that were classified into an ‘other’ category that is not shown in Table 2). Some key areas are illustrated with quotations from producers (in italics). Many of the problems the producers mentioned are general ones that would also apply to all actors in the food system. However, many problems (shown in bold in Table 2) appear to be specific to producers involved in SFSCs. This is partly because the latter mainly had direct relationships with their customers, and meeting at traditional points of sale was severely affected by the restrictions. Furthermore, due to the small scale, these producers could react to the new situation very rapidly by changing their production strategy, introducing new processes such as vacuum packaging (as demanded by Hungarian consumers after the outbreak of COVID in the hope of avoiding infection) or making home deliveries to keep abreast of regulations or changing consumer demand. Due to the uncertainty related to the duration of the social or regulatory changes, profound alteration to strategies was more difficult to accomplish in the case of conventional, industrialised and centralised agricultural enterprises. In the next section, the results of the clustering exercise are provided. The top section of Table 3 displays the results of the k-means clustering analysis. The bottom section displays the results of validation with variables that were not involved in the clustering itself. Values that proved to be significantly different from the values of other clusters based on the pairwise Bonferroni-corrected Wilcoxon tests are shown in bold (p-values are shown in Table S1 in the Supporting Information). The means of the variables significantly differed among the three clusters, implying that small-scale farmers may be classified into three distinct groups based on their marketing strategies during the pandemic. All three clusters include successful and less successful producers; however, certain strategies regarding the use of specific marketing channels (as described by Cluster 3) resulted in a higher probability of an increase in sales. ‘As all the festivals have been cancelled, we have practically no sales nowadays. We started to slaughter the animals to reduce fixed costs. Customers may expect home deliveries, but it takes too much time, it doesn't pay off. Producers should cooperate to sell their products together in bulk’. By eliminating productive assets, this producer failed to mitigate what Béné (2020) identified in his resilience pathway model as harmful consequences–similarly to those who ceased operating. ‘Our customer base changed a lot. During the winter, we served 10 families. Because the market closed, now we deliver to 30. They send their orders through Facebook messages. We only have three cows, it was easy to switch. It would have been way more challenging with more animals’. ‘All direct sales stopped due to the lockdown, but the turnover of our e-commerce store increased.’ ‘Customers are seeking different products now. For example, instead of bakery products, we are selling many different types of flour and other raw materials these days, even through our e-commerce store, which did not happen before. Many of our customers are allergic or follow special diets; they are afraid of leaving their homes now; thus, we offer them home delivery services, even for market customers, which they greatly appreciate.’ ‘We collected e-mail addresses in order to keep in touch with customers. Now, we are contacting everyone to keep them updated about regulations, opening times, availabilities, etc. This has resulted in a more personal relationship with customers (for example, many of them followed us on Facebook), but it requires a lot of extra effort.’ ‘Although our resellers at the market closed, our farm-gate sales increased significantly, partly as some NGOs that offered social services increased their orders.’ ‘Those who have invested in marketing and communication with customers can now easily serve them and even more as demand increases. We have a Facebook page on which we publish details of all our products on a weekly basis. We have created a Google-form-based delivery system’. A closer look at the channels they preferred, compared to members of other clusters (markets and farm-gate sales), and the more intensive use of home deliveries revealed that these producers stressed the importance of maintaining direct interaction—a strategy that Benedek et al. (2020) claims contributed to the successful management of the COVID crisis, in spite of the challenges posed by social distancing rules. The intermediate level of the ‘online presence’ variable showed that even if these producers used ICT tools, this was (at least originally) mostly for communication purposes. The importance of customer relationship management for these producers was also reflected in the interview excerpts. Although spatial analysis was not carried out, many producers from Cluster 3 (9 out of 18) were operating in the Balaton-uplands area, a popular holiday region. They were participants of the same local territorial quality system of certification developed by the local LEADER Local Action Group. The rest of the producers in this cluster were connected to consumer purchase groups. Thus, they all were used to using online platforms and cooperating for the purpose of marketing. Willingness to cooperate (similarly to in other post-Soviet countries; see e.g., Banaszak & Beckmann, 2010; Möllers et al., 2018; Verhees et al., 2018) is generally very low among Hungarian small-scale farmers (Bakucs et al., 2012); thus, purely being open to cooperation is a sign of open-mindedness among them (Benedek et al., 2018). To conclude, the key to the success of the members of Cluster 3 might have been–besides strategic channel selection–an acknowledgement of the role of communication and the importance that was placed on improving social capital. Though the related literature is expected to grow in the coming period, the importance of the mobilisation of social capital in the context of food systems during COVID has been already stressed by Thilmany et al. (2021), Darnhofer (2020), Darnhofer (2021), and Herrington and Mix (2020). When asked what kind of changes would become more permanent, respondents most typically specified (36 percent) ‘online operations’, followed by an increase in the importance of home delivery services (14 percent). No systematic differences between the clusters were revealed in this regard. Twenty-six percent of the sample mentioned that they wished to return to their original strategy most of all. However, reacting rapidly to changes related to one stage of production might have created unexpected problems in others, which required hard decisions and an eagerness to engage in trial-and-error solutions. To reflect on the importance of skills and strategies that enable bricolage (Darnhofer, 2021), and also to account for all the work and effort that supported the establishment of a successful marketing strategy (the choice of a set of fruitful marketing channels) and mobilisation of diverse resilience capacities (Béné, 2020) within a short period of time, the case-study of Steve, an SFSC actor, is presented in the following section (the full case-study is available as Case-Study S1 in the Supporting Information). Steve, an artisan cheesemaker and self-made entrepreneur, was self-confident, used to taking the initiative and shouldering risk and did not wait for external support. His main marketing channel pre-COVID became sales to fashionable restaurants located in the surrounding tourist destinations (which mainly operate during summer) and in the capital, Budapest, some 150 km away. Additionally, he visited a local farmers’ market to generate continuous cash flow year-round. Seeing the crisis coming, he developed a new business model that focused on individual custo