The reason(s) why a farmers market is created shapes the type and mix of vendors allowed to sell
Tim Carman has an article, "In winter, farmers markets turn into value (added) villages," in this week's Post food section about farmers markets, and divergent opinions about what is acceptable to be sold--just locally grown foods or so-called value added foods.
For the most part, farmers markets aren't initiated by people interested in dealing with food security issues as much as they are by people interested in quality of life and foodways issues....
Basically the point comes down to recognizing that there are at least twelve reasons to open a market, and while the purposes intersect at times, it means that decisions about what is allowable to sell need to vary according to the purpose of the market.
Plus, the goals may vary according to whether you are a sponsor, operator (sponsors and operators are not always the same), or participating vendor.
Potential reasons to have a "farmers" market
1. Provide fresh food that is locally grown, supporting local and regional food security and policy;
2. Provide access to less expensive food
3. Provide access to "more expensive food" i.e., "organically grown" -- access to food that might not normally be available locally, although this is changing in metropolitan markets
4. Build rural incomes
5. Provide fresh food in an area that otherwise has few stores selling fresh food
6. to promote health and wellness (this is why hospitals and health organizations may get involved such as Kaiser Permanente, which supports markets in the DC region, but is actively engaged in market activities in California, their home base)
7. to aid commercial district and/or neighborhood revitalization by building activities and a reason for people to come out, gather, and resample the place (placemaking)
8. to promote entrepreneurship and local business development (e.g., some businesses, such as the Chateau Animaux pet store on 8th St. SE grew out of Eastern Market)
9. to promote a business and/or add additional revenue streams to a wholesale or retail business (e.g., Atwater's Bakery, based in Baltimore County, with three or four retail stores in the City and County, has a major presence in many markets throughout the Baltimore-DC region; Uptown Bakery, based in Hyattsville, is a wholesale bakery, but they allow their employees to sell products at farmers markets--while I don't know of many instances where they do it, Uptown products are sold at the Waverly Market in Baltimore)
10. to promote economic, environmental, and energy "sustainability"
11. as a property management tool/to generate rental income
12. as a for profit business venture
For the people sponsoring markets in part to activate commercial districts and other spaces, they also have to be concerned about managing the retail mix and ensuring that people can get a complete "experience" when they visit (the Main Street mantra is something to do, something to buy, something to eat, and something to hear [music, which for the most part, I think is an unnecessary distraction at farmers markets].
Markets in places where you can't already buy prepared goods or a cup of coffee are at a disadvantage, if the sponsors are looking to having a farmers market as an activation-revitalization activity.
This was a problem with the FreshFARM management of the H Street Market initially, because their very strict producer only rules meant that you couldn't sell coffee and other beverages. As the chair of the Promotions Committee of the H Street Main Street program at the time, in advance of the market, I pointed out this problem, the need to provide a more complete experience, and the need for different rules concerning vendors. The FreshFARM model, although they changed a little bit for H Street, wasn't the right model for that particular location.