THINKING ABOUT THE ECONOMIC

IMPACTS OF LOCAL FOOD SYSTEMS

Steven Deller

Department of Agricultural and Applied Economics

University of Wisconsin-Madison/Extension

Laura Brown

Center for Community Economic Development

University of Wisconsin-Extension, Cooperative Extension

I. The difficulty in defining local food systems

II. What data is available?

III. How could we start to use this data?

IV. Economic impact vs. growth vs. development

V. How do we measure the impact of businesses in

the local food system?

VI. What is a multiplier and how is it related to local

food systems?

Thinking About the Economic Impacts of Local Food Systems

Local foods initiatives are diverse and work in many

different aspects of the food system

Defining Local Food Systems

Local foods initiatives may have multiple goals

• improved nutrition-health and diet related disease

• environmental sustainability

• transparency and food safety

• food quality

• social justice

• social capital or relationship building

• rural or agricultural revitalization

• community economic growth and development

Defining Local Food Systems

The rationale offered to support the community

economic development argument ranges from

• shorter supply chains resulting in higher margins

(higher profits)

• the ability to charge premiums (higher prices)

• more profits retained in the local economy

(Goldschmidt hypothesis).

Defining Local Food Systems

There is no universally accepted definition for “local”

consumer or intermediated consumer perspective (Dunne, 2010, Zapeda, 2006).

proximity- distance, drive time, food-miles (Dunne, 2010, Darby 2008, King, 2010, Zapeda, 2006)

geo-political boundaries- states (Darby, 2008)

local ownership of farm (Low, 2011)

relationship to place (Marsden, 2000)

production techniques used

marketing channels used (Low, 2011)

size/scale (Low, 2011)

products (commodity versus non commodity crops)

quality relationships /supply chain (Marsden, 2000, King, 2010)

Integration of supply chain (Marsden, 2000)

Defining Local Food Systems

• What is the question?

• What information do we need to answer

the question?

• Who will use this information?

• How will they use it?

• When is it needed?

• How will we do it?

“Planning and Program Evaluation Worksheet.” University of Wisconsin-

Extension • Cooperative Extension • Program Development & Evaluation UW-

Extension http://www.uwex.edu/ces/pdande

Before we measure anything..

He uses statistics as a

drunken man uses

lamp-posts

for support rather than

illumination

Andrew Lang (1844-1912)

US Agricultural Census

Percent of farms with direct sales for human consumption, 2007 and 2002

Value of agricultural products sold directly to individuals for human consumption 2007 and 2002

Percent of farms with value added commodities, 2007

Percent of farms with agri-tourism or recreational services, 2007 and 2002

Income From Farm-Related Sources: 2007 and 2002 including agri-tourism and recreation

Percent of farms using Community Supported Agriculture, 2007 and 2002

USDA Farmers Market Database

What Data is Available

Walworth County • Agriculture provides 3,780 jobs

• 76.4% are family owned

• 9% of farms sell direct to consumers (WI 8%, US 6%)

• Percent of farms direct marketing declined since 2002

• Value of products sold direct to consumers declined 30% since 2002

• 2.8 % of farms produced value-added products (WI 3.6%, US 3.6%)

• 1% of farms marketed products through CSA

• Percent of farms involved in agri-tourism and recreational activities declined since 2002

What does this say about our local food system? What questions does this data bring up?

Using the Data – Walworth County

Marketing and Distribution - Direct Sales

US Agricultural Census 2002 and 2007.

www.agcensus.usda.gov Accessed 11-2011

Total amount of sales made directly to consumers(in thousands)

0

$1-$250

$250 - $499

$500 - $999

$1000 - $1499

$1500 - $2684

Low

and

Vogel 2

01

1 (U

SD

A E

RS)

Farms with Direct Sales 2007

Direct Sales Volume 2007

Farms with Direct Sales 2007

Direct Sales 2007

Direct Sales per Farm 2007

Direct Sales per Farm 2007

What we don’t know..

“…little historic data exists regarding sales by local

food farms beyond direct marketing channels.

Inter-mediated sales, which may account for

significantly more local food sales than direct to

consumer sales alone, was not collected until 2008

when it was included in the Agricultural Resource

Management Survey.” (Low and Vogel, 2011)

Direct Sales (2007): $1.2 billion

Inter-mediated Sales (2008): $4.8 billion

What we don’t know..

Low and Vogel (2011) also find that the direct-

to-consumer market is dominated by smaller

farms (less than $50,000 in sales) while the

intermediated market is dominated by larger

farms (more than $250,000 in sales).

Direct Sales per Farm 2007

Economic Impact vs. Growth vs. Development

Economic impact is a static concept.

(with and without)

Growth and Development are dynamic concepts.

Economic Impact vs. Growth vs. Development

90.0

110.0

130.0

150.0

170.0

190.0

210.0

Some event

The growth rate is

2% prior to the

event and is then

3% after the

event.

The “impact” of

the event is said

to be 1%.

Economic Impact vs. Growth vs. Development

• more jobs

• more businesses

• more tax base

• more residents

• more, more, more…

• quality of life

• economic security

• economic opportunities

balanced growth

Growth Development

Economic Impact vs. Growth vs. Development

Demand

Supply

Quantity

Price

Q1

P1

Before “event” economic

activity equal to P1*Q1

P2

Q2

The “event” occurs and

now economic activity is

equal to P2*Q2.

How do we measure the impact of

businesses in the local food system?

To assess the economic impact of local foods systems we

need data on how demand has changed.

New demand for products of local farmers

Lost demand for current suppliers of those products

For example, I join a local CSA for fresh produce and I

buy less produce at the local grocery store.

How do we measure the impact of

businesses in the local food system?

I am substituting one type of expenditures for

another type….

what is the net impact?

Initial $1.00of exports

40¢ respentlocally

60¢ leakage

16¢ respentlocally

24¢ leakage

6¢ respentlocally

10¢ leakage

3¢ respent

3¢ leakage

(a) (b) (c) (d) (e) (f)

2¢ leakage

1¢ respentlocally

Initial impact: $ 1.00.40.16.06.03.01

----------

Full impact: $ 1.66

But first, what is a multiplier

Example

Lets say, for example, that we see an increase in the

demand for locally grown produce:

New Local farm sales: $1M in direct sales

(plus)

Lost Local grocery store sales: $1M is direct sales

(minus)

Example

Impact Type EmploymentLabor

IncomeTotal Income

Industry

Sales

Grocery Store -6 -$157,073 n.a. -$1,000,000

Farm Produce 7 $1,030,720 n.a. $1,000,000

Net Direct Effect 1 $873,647 $278,626 $706,000

Indirect Effect 2 $67,984 $153,938 $242,567

Induced Effect 7 $252,497 $477,325 $754,354

Total Effect 9 $1,194,128 $909,888 $1,702,921

Dane County 2009

What Don’t We Know?

One of the arguments for supporting smaller scale farms is they

are more likely to make their input purchases locally.

Specifically, the initial leakages for “local foods farmers” is

smaller than for more traditional commercial farmers……..

Initial $1.00of exports

40¢ respentlocally

60¢ leakage

16¢ respentlocally

24¢ leakage

6¢ respentlocally

10¢ leakage

3¢ respent

3¢ leakage

(a) (b) (c) (d) (e) (f)

2¢ leakage

1¢ respentlocally

Initial impact: $ 1.00.40.16.06.03.01

----------

Full impact: $ 1.66

In other words, the multiplier

for “local foods farmers”

should be bigger than

traditional commercial farmers.

But we do not fully understand

if this is true or not.

What Don’t We Know?

From an economic growth perspective which type of

agriculture has a greater role in generating growth?

Two competing theories:

Export Base (more money coming in)

Import Substitution (keep money local)

Should we be promoting local foods for local consumption or

products for export to California or overseas? Or both?

What Don’t We Know?

• What role does value added processing play?

• How do we define “local”? Is Chicago considered “local”

for an artisan cheese located in Green County?

• Does community supported agriculture yield sustainable

levels of income for farmers?

• How does a disjointed network of “local foods farmers”

form contracts for institutional purchasing?

References

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Boarnet, M.G., S. Chalermpong and E. Geho. (2005). “Specification Issues in Models of Population and

Employment Growth.” Journal of Regional Science 84(1): 21–46

Carlino, G.A. and E.S. Mills. (1987). “The Determinants of County Growth.” Journal of Regional Science. 27:39–54

Darby, K., et al. 2008. “Decomposing Local: A Conjoint Analysis of Locally Produced Foods,” American Journal of Agricultural Economics, Vol. 90, pp. 476-486.

Deller, S.C., B.W. Gould and B. Jones. (2003). “Agriculture and Rural Economic Growth.” Journal of

Agricultural and Applied Economics. 35(3):517-527.

Dunn, J.B., K.J. Chambers, K.J. Giombolini and S.A. Schlegel. (2010). “What Does ‘Local’ Mean in the Grocery Store? Multiplicity in Food Retailers’ Perspectives on Sourcing and Marketing Local Foods.” Renewable Agriculture and Food Systems. 26(1):46-59.

Durham, C.A., R.P. King, and C.A. Roheim. ( 2009). “Consumer Definitions of ‘Locally Grown’ for Fresh

Fruits and Vegetables.” Journal of Food Distribution Research , Vol. 40, pp 56-62. Goldschmidt, W. (1947). As You Sow. Glencoe, IL: Free Press.

Goldschmidt, W. (1978) “Large-scale Farming and the Quality of Life in Rural Communities: Further Specification of the Goldschmi dt Hypothesis.” Rural Sociology. 43:362-366.

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Agricultural and Resource Economics. October:75-85.

Ikerd, J. (2005). Eating Local: A Matter of Integrity, presentation at The Eat Local Challenge kickoff event, Portland, OR, June 2. http://www.tierramiguelfarm.org/f iles/20081126_Eating%20Local.pdf

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King, R.P., M.S. Hand, G. DiGiacomo, K. Clancy, M.I. Gomez, S.D. Hardesty, L.Lev and E.W. McLaughlin. (2010). Comparing the Structure, Size and Performance of Local and Mainstream Food Supply Chains . USDA ERS Report Number 99. June.

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Lewis, D.J., G.L. Hunt and A.J. Plantinga. (2003). “Does Public Lands Policy Affect Local Wage Growth.” Growth and Change. 34(1):64-86.

Low, S.A., and S. Vogel. (2011). Direct and Intermediated Marketing of Local Foods in the United States , ERR-128, U.S. Department of Agriculture, Economic Research Service, N ovember.

Marsden, T., J. Banks and G. Bristow. (2000). “Food Supply Chain Approaches: Exploring their Role in

Rural Development.” Sociologia Ruralis. 40(4):424-438.

Martinez, S., M. Hand, M. DaPra, S. Pollack, K. Ralston, T. Smith, S. Vogel, S. Clark, L. Lohr, S. Low and C. Newman. (2010). Local Food Systems: Concepts, Impacts, and Issues, ERR-97, U.S. Department of Agriculture, Economic Research Service, May.

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References

Discussion

THINKING ABOUT THE ECONOMIC IMPACTS

OF LOCAL FOOD SYSTEMS

Is economic impact important to your work in local

food systems? If so how?

What other impacts are you most interested in and

how are you measuring them?

What successes have you had in measuring impacts?

What are the challenges to measuring impacts?

What impacts should we be measuring statewide?