Considering direct marketing? Talk with an insurance agent

Direct marketing delicious foods you have raised is exciting, but there are many steps to complete for success.

Like the duck who looks calm on the water's surface while paddling furiously underneath, the direct marketer must pay attention to proper food handling practices and have all of the legal requirements in place.

That includes obtaining proper insurance, creating a separate LLC for meat sales, and understanding processing options.

Product liability insurance is imperative, said Todd Churchill, BizOps Consulting CFO and lead of Business Strategy Services with CliftonLarsonAllen (CLA).

"You call your insurance agent and tell them that you want to sell meat directly to consumers, farmers' markets, and restaurants, and you want to make sure you have product liability insurance – a minimum of $1 million on your farm policy," Churchill said.

Churchill has worked as a consulting CFO to over 130 businesses and non-profit organizations since 1997, including meat processing and food distribution. He founded Thousand Hills Cattle Company featuring grass-fed beef, and he's currently co-founder of Blue Nest Beef, which offers beef managed on grasslands that support birdlife. He also leads the Business Consulting practice for CLA's farm and ag clients in Minnesota.

If a farmer sells beef to a consumer who eats the beef and gets sick, the consumer's health insurance company will most likely sue the farmer.

For instance, if someone becomes sick from a common food-borne pathogen or even worse – e. coli 0157:H7 – and winds up in the hospital, the health insurance bill could add up to hundreds of thousands of dollars.

"Their health insurance pays that bill, but there is something in the insurance business called subrogation, which means the insurance agencies have the right to go back and find another insurance company to force them to take the claim," he said.

Even if the person who purchased the beef and is sick is your own sibling, and they would never sue you, their health insurance company will.

Typically, product liability insurance is not expensive. Companies that specialize in farm policies should know what direct marketers need.

Churchill said he's worked with many insurance companies on these types of policies.

In addition, you should ask your meat processor for a certificate of product liability insurance. This verifies that your processor has adequate product liability insurance.

Churchill says that farmers can ask to be named as an additional insurer on the meat processor's policy. The meat processor isn't as likely to provide this, and it might be important to work with an expert to find what you do or don't need. An excellent resource is the Agricultural Utilization Resource Institute (AURI – auri.org) that offers science-based value-added assistance.

The next step, if you're serious about direct marketing, is to add a separate entity (LLC) for the meat-selling business. All income and expenses related to meat sales need to run through the separate meat business.

"This shouldn't cost more than $1,000 to get an attorney to draw up a document and get an LLC," he said. "You are going to have to open up a separate checking account. You must make sure you write out the checks to the right account and keep those things separate. This protects your farm assets from any liability (from your meat business)."

The farm meat business will need documentation, too, to show that the farmer has exercised reasonable care to avoid introducing pathogens. Every product needs appropriate "safe handling" meat labels with safe cooking instructions on the label, the website, and on pamphlets, etc., to cook the meat properly and to what temperature to kill pathogens.

The farmer's documentation will include the processor's pathogen testing protocol to assure that safe food handling practices have been followed.

"Always have a conversation with your processor about pathogen testing, so that you understand how much testing they do," he said. "Have a written plan that shows how the farm keeps all meat products at a safe temperature."

Finally, when meat is delivered to consumers, use an infrared thermometer to show and document that the meat is kept at 40 degrees for fresh product, or at 20 degrees for frozen products.

Churchill also recommends taking a food safety course such as the ServSafe Food Manager Training program (servsafe.com or servesafe.com) that provides a certificate when the program is passed. This is a one-day course offered throughout the country primarily for restaurant and food service managers.

"The fact that you have taken that class is a tremendous way to prove to a judge and jury that you exercised reasonable care when you sell beef from your farm to customers, that you have done everything a reasonable person would do to make sure it doesn't have pathogens," he said.

Farmers have three different ways to direct market livestock/meat to consumers.

The first way is using a USDA-certified plant. This allows the farmer to sell to any consumer, restaurant, or retail store in the U.S.

The second is using an equal-to state certified plant, which limits sales only to the state where the processor is located.

The third is a "custom-exempt" processor, which can only sell to a farmer's individual customers who have purchased whole, halves, or quarters of the livestock. This product can't be sold to restaurants, retailers, or farmers' markets.

COVID revealed a weak link in the meat production chain. When the labor force at the largest processors were sick, those plants couldn't operate at full capacity.

Since those difficult days that marked the beginning of the pandemic, some farmers have been wondering if there is a better way to bring meat to consumers. Being responsible and completing the above steps will protect farmers and provide the initial steps toward successfully direct-marketing meat.