Local Food Systems: Theory and Evidence

Local Food Systems: Theory and EvidenceBrian WernerInternational Post Keynesian ConferenceSeptember 25th, 2014

Food TalkMovies:

• Food Fight

• Food, Inc.

• Farmageddon

• King Corn

Books:

• Omnivore’s Dilemma

• Food Rules

• Fast Food Nation

• Diet for a Hot Planet

• The 100-Mile Diet

• Animal Vegetable Miracle

Authors/Farmers/Chefs:

• Michael Pollan

• Mark Bittman

• Anne Lappe

• Wes Jackson

• Wendell Berry

• Joel Salatin

• Will Allen

Arguments for Local Food:

“Bringing more fresh food production closer to home is an unparalleled win-win-win move. When urban agriculture flourishes, our children are healthier and smarter about

what they eat, fewer people are hungry, more local jobs are created, local economies are stronger, our neighborhoods

are greener and safer, and our communities are more inclusive. Everyone ends up smiling.” (Ladner 2011, xi–xii)

Arguments for Local Food:“Localism is about building communities that are more healthy and sustainable – backed by local economies that are stronger and more resilient. It means we use regional resources to meet our needs – reconnecting eaters with farmers, investors with entrepreneurs, and business owners with the communities and natural places on which they depend. It recognizes that not one of us can do it alone and that we’re all better off, when we’re all better off.”

“Localism is about building the New Economy, right where we live. It starts with expanding and diversifying local ownership, import substitution, and business cooperation in a particular place, and results in more wealth and jobs per capita, and in greater personal accountability for the health of the natural and human communities of which we are a part. The goal is real prosperity -for all.”

(“Localism 101”, Business Alliance for Local Living Economies)

The problem:• Terms like job creation, import substitution, economic multipliers are often

part of the arguments that local food systems can create jobs, increase income, etc.

• But they are used without connection to economic theory and the historical process of economic development.

• This research assesses the case for local food systems using economic development theory, historical cases of development, and current empirical research on local food systems.

Other Canon Standard Canon

• Renaissance, Friedrich List, Abraham Lincoln, Alexander Hamilton, German Historical School, Schumpeter, Marx, Keynes, Veblen, Classical Development Economics, modern heterodox economics

• Historical, cumulative causation

• Learning and decision making under uncertainty

• Theory and policy context specific

• Wealth comes from knowledge and innovation

• Focus on production

• Enlightenment, Physiocrats, Smith, Ricardo, Mill, Walras, Marshall, Friedman, Samuelson, modern neoclassical economics

• Equilibrium

• High level of abstraction

• Theory and policy universally applicable

• Wealth comes from material sources

• Focus on barter and consumption

Opposing theories in economics

Source: Reinert, 2007

Argument Neoclassical

Theory

Heterodox/PK/

Other Canon

Theory

Production should only be

determined by comparative

advantage

Policy has an important role in

economic development

The Neoclassical take on Local Food

• “A major flaw in the case for buying local is that it is at odds with the principle of comparative advantage” (Lusk and Norwood 2011, n.p.)

• Local food is comparable to protectionism and trade barriers, which will drive up the price of food as, “protectionist policies have always and everywhere resulted in a higher price tag” (Lusk & Norwood, 2011, n.p.).

• “…locavorism can only result in higher costs and increased poverty, greater food insecurity, less food safety, and much more significant environmental damage…only through greater technological advances, economies of scale and international trade can we achieve the locavores worthy goals of improving nutrition while diminishing the environmental impacts of agricultural production” (Desrochers and Shimizu 2012, 14)

• “If you want to embrace locally produced organic and nonprocessed food, you could move to sub-Saharan rural Africa.” (Desrochers & Shimizu, 2012, p. 8)

Other Canon Development Theory• “Given imperfect knowledge, productivity and quality tend to vary sharply

across firms in the same industry…The price of land, labor, and capital no longer uniquely determines competitiveness. The market mechanism loses status as its sole arbiter, deferring instead to institutions that nurture productivity. Because a poor country’s lower wages may prove inadequate against a rich country’s higher productivity, the model of “comparative advantage” no longer behaves predictably; latecomers cannot necessarily industrialize simply by specializing in a low-technology industry.” (Amsden2001, 5)


Theory

Heterodox/PK/

Other Canon

Theory



advantage



“No nation-state has ever developed from poverty to affluence without taking the production-based canon as its fundamental guide for economic policy over long periods…Rich countries…all have become rich in exactly the same way.”

Rather than removing barriers to create a “borderless economy” or "friction free capitalism,” rich countries have succeeded by promoting industries with increasing returns under conditions of imperfect competition.

“This has been the pattern of success starting in England under Henry VII, via the industrialization of continental Europe and the United States, to the more recent successes of Korea and Taiwan.” (Reinert2007, 6)


Theory

Heterodox/PK/

Other Canon

Theory

Evidence



advantage




Theory

Heterodox/PK/

Other Canon

Theory

Evidence



advantage



Local production can lead to:

Higher income

Job creation

Greater income equality

Better nutrition, food access


Theory

Heterodox/PK/

Other Canon

Theory

Evidence



advantage




Higher income

Job creation

Greater income equality ?


Economic effects of local food• Studies (Otto and Varner 2005, Henneberry, Whitacre, & Agustini, 2009)

have shown multipliers for farmers’ markets in the range of 1.41-1.78.

• Hughes et al (2008) found that multipliers at markets were higher than grocery stores.

• Lev, Brewer, and Stephenson (2003) reported that farmers’ markets often draw consumers to downtown areas, and that between 33%-63% of those consumers also shopped at neighboring businesses.

• Dave Swenson (2010) looked at the effect expanding 28 fruit and vegetables to meet seasonal demand in Illinois, Iowa, Minnesota, Wisconsin, Indiana, Michigan. He estimated that the shifting to local production would result in a net increase of 1,892-2,578 farm-level jobs.

Economic effects of local foodA 2010 USDA study (King et al.) evaluated the difference between mainstream, direct marketed, intermediated supply chains in five cities for five food products (apples blueberries, beef, spring mix, milk). They found that:

• “The producer‘s share of revenues generally decreases with distance to market and the number of intermediaries involved in the mainstream chain (54).”

• “For nearly all of the local supply chains, revenues per unit retained by producers, net of marketing costs, are significantly higher in local supply chains than in mainstream chains. This is observed even when the product does not command a retail price premium(67).”

Economic effects of local food• “Direct market producers set prices that are not linked to commodity market

prices. Rather, direct market prices tend to reflect production costs and local supply-and-demand conditions.” (King et al. 2010, 133)

• Swenson et al. (2007) found that “organic rotation produced 52 percent more industrial output economic impact (gross sales) than the conventional option, 110 percent more value added, 182 percent more labor income, and 56 percent more jobs from the same 1,000 acres of production than from conventional corn and soybean rotations (3).”


Theory

Heterodox/PK/

Other Canon

Theory

Evidence



advantage




Higher income

Job creation

Greater income equality ?


Economic effects of local food• With import substitution there is the theoretical possibility of a zero sum

game, where no one benefits in the end because more lettuce grown in Kansas City means less lettuce exports from California.

• In practice, the two will not be equal, for a least three reasons.

1. Production is not evenly distributed

2. Velocity

3. Distributional effects

Economic effects of local food• “Big companies and money management induce a gap between where

incomes are formed and where they are spent. This leads to projects at the local level intended to speed up the relocalization of the economic flow.” (Blanc 1998, 472)

• Difference in velocity?

Economic effects of local food• As David Morris, Vice President of the Institute for Local Self-Reliance, says

"If you're buying local and not at a chain or branch store, chances are that store is not making a huge profit…That means more goes into input costs—supplies and upkeep, printing, advertising, paying employees—which puts that money right back in the community.“

• Of course every place is local in a sense, so local food is about more than just local, it’s also about values.

• So within local food there is often a preference for family owned farms, small businesses, etc.

Economic effects of local food• Though not really discussed much within the literature, there is definitely a

question of income distribution.

• There is likely to a distributional difference between who money ends up with if spent at a McDonalds versus a small local restaurant.

Economic effects of local food• The private research firm Civic Economics has conducted a series of studies

to gauge the effects of local spending. Each of the studies follows a similar methodology where the group surveys local businesses (some food related, some not) to see how much of store revenue is re-spent locally in wages, profits, procurement, and charity and compares this to national chains.

• In these studies local stores circulate much more in the local economy, ranging from 1.1-4 times more than chain stores.


Theory

Heterodox/PK/

Other Canon

Theory

Evidence



advantage




Higher income

Job creation

Greater income equality ? ?


Food access: Is local food more expensive?

• Long et al (2013) compared food prices at farmers’ markets and supermarkets in the Austin, TX metropolitan area, finding that, “21 of the 52 recorded items were cheapest at the conventional supermarket sites, 17 were cheapest at the natural grocers, and 13 were cheapest at the farmers’ markets (105).”

• McGuirt et al (2011) found that farmers’ market prices in North Carolina were 17.9 % less than grocery stores.

• Pirog and McCann (2009) compared farmers markets and retail outlets in Iowa. The overall price per pound was less at the farmers’ market as was a “market basket” that matched typical consumption patterns.

• Claro (2011) looked at prices for fruits, vegetables, and eggs in Vermont. For conventional (non-organic) products, 9 of 14 items were cheaper at grocery stores than markets. For organic foods, “prices at farmers’ markets were less than organic prices at grocery stores for every item other than potatoes (9).”

• Flaccavento (2011) surveyed markets and grocery stores in six southeastern states. When comparing the lowest cost item, farmers markets were more expensive 52% of the time. When comparing like to like, i.e. organic to organic, farmers’ markets were the same or less expensive 74% of the time.

• Larsen and Gilliland (2009) found that the introduction of a farmers’ market to a London, Ontario “food desert” led to lower food prices at supermarkets in the area, even as food prices for the city as a whole had increased.

Food access and nutrition• Supplemental Nutrition Assistance Program (SNAP) are now accepted at

around half of the 8000 farmers’ markets in the U.S. In 2013 $21.1 Million was redeemed at markets (Hunt and Blavatsky).

• SNAP benefits have been estimated to have multipliers between 1.7-1.8, highest among government fiscal policy tools (Zandi 2008; Hanson 2010).

• For FY 2013, $13.2 million in coupons were redeemed under the WIC Farmers’ Market Nutrition Program and there is a similar program for seniors.

• Surveys have shown these incentives are an important reason that eligible consumers visit farmers’ markets.

Food access and nutrition• Herman et al. (2008) found that WIC participants who were given vouchers

for produce at supermarkets and farmers’ markets increased their consumption of fruits and vegetables. The farmers’ market sample increased consumption more than the supermarket sample and the gains were sustained even six months after the voucher program was ceased.

• Studies by the Florida Department of Elder Affairs (2008) and Racine, Smith Vaughn, and Laditka (2010) both concluded that nutrition programs led to higher consumption of fruits and vegetables in seniors.

Food access and nutrition• Members of the local food movement have been at the forefront of “farm-to-

school” campaigns, which are now found over 40,000 U.S. schools.

• “Adolescents who participated in the garden-based nutrition intervention increased their servings of fruits and vegetables more than students in the two other groups. Significant increases were also found in vitamin A, vitamin C, and fiber intake (McAleese and Rankin 2007).”


Theory

Heterodox/PK/

Other Canon

Theory

Evidence



advantage




Higher income

Job creation

Greater income equality ? ?


How great is the potential of local food?• Nationwide, production of vegetables and pulses accounts for less than two

percent of all harvested acreage (USDA, Economic Research Service)

• In Swenson’s (2010) calculations moving to local production would create 300-400 jobs per state studied.

• Even if local food production entailed an increase in acreage devoted to vegetables the job gains are fairly small.

• There is potential for other products (meat, fruits, fibres) and for other parts of the supply chain (processing, distribution, restaurants, retail), but much of these functions would just shift existing workers and capacity.

Ag. versus industry“…There are strong reasons for believing that the manufacturing sector provides the true dynamic element – the fundamental “engine of growth” of an economy. It is the sector in which the major advances in human knowledge are reflected in the development of wholly new products and wholly new industries, the possible existence of which is quite unforeseen until new scientific discoveries create an opportunity for the satisfaction of new wants and thereby transform and enlarge the whole structure of human preferences. (Kaldor 1996, 40)”

Since the “Phoenician dominance of Mediterranean trade (from about 1500 to 500 BC) there was clear practical recognition of the Other Canon principle that adding knowledge and labour to raw materials through the production of manufactured goods produces a superior standard of living to only extracting and selling the raw produce (Reinert and Daastol 2004, 27)”

Ag. versus industry• There are two reasons for this preference for manufacturing vs. agriculture:

The first is the difference in market pricing and the difficulty of establishing market power in agriculture

The second is the presence of existing returns and technological progress:

“Manufacturing plays a crucial role because it is the vector for technical progress” (Fajnzylber 1994)

Conclusion• There are strong theoretical and historical reasons for policy to play a role in

the process of economic development.

• There is evidence so far that local food systems can produce some societal benefits including higher income to farmers and better access to fresh food.

• From a job creation perspective, however, the potential of local food is probably limited.

• Within local economy movements there is the view that local food can be the catalyst for other local economy initiatives.

References:

• Amsden, Alice H. 2001. The Rise of “the Rest”: Challenges to the West from Late-Industrialization Economies. New York: Oxford University Press.

• Blanc, Jerome. 1998. “Free Money for Social Progress.” American Journal of Economics and Sociology 57 (4): 469–83. http://onlinelibrary.wiley.com/doi/10.1111/j.1536-7150.1998.tb03376.x/abstract.

• Civic Economics. “Indie Impact Study Series.” http://www.civiceconomics.com/indie-impact.html

• Claro, Jake. 2011. Vermont Farmers’ Markets and Grocery Stores: A Price Comparison.

• Desrochers, Pierre, and Hiroko Shimizu. 2012. The Locavore’s Dilemma : In Praise of the 10,000-Mile Diet. New York: PublicAffairs.

• Fajnzylber, Fernando. 1994. “ECLAC and Neoliberalism: An Interview with Fernando Fajnzylber.” Cepal Review Interview (52): 205–8. http://www.eclac.org/publicaciones/xml/8/19948/lcg1824i_interview.htm.

• Flaccavento, Anthony. 2011. Is Local Food Affordable for Ordinary Folks? A Comparison of Farmers Markets and Supermarkets in Nineteen Communities in the Southeast. http://www.ruralscale.com/resources/downloads/farmers-market-study.pdf.

• Halweil, Brian. 2007. Still No Free Lunch: Nutrient Levels in U.S. Food Supply. http://organic-center.org/publications/still-no-free-lunch-nutrient-levels-in-u-s-food-supply-eroded-by-pursuit-of-high-yields/.

• Hanson, Kenneth. 2010. “The Food Assistance National Input-Output Multiplier (FANIOM) Model and Stimulus Effects of SNAP.” USDA-ERS Economic Research Report Number 103.

• Herman, Dena R, Gail G Harrison, Abdelmonem A Afifi, and Eloise Jenks. 2008. “Effect of a Targeted Subsidy on Intake of Fruits and Vegetables among Low-Income Women in the Special Supplemental Nutrition Program for Women, Infants, and Children.” American Journal of Public Health 98 (1): 98–105. doi:10.2105/AJPH.2005.079418.

• Hughes, David W., Cheryl Brown, Stacy Miller, and Tom McConnell. 2008. “Evaluating the Economic Impact of Farmers’ Markets Us ingan Opportunity Cost Framework.” Journal of Agricultural and Applied Economics 40 (1): 253–65.

http://ageconsearch.umn.edu/bitstream/45523/2/jaae-40-01-253.pdf.

• Hunt, Alan, and Gabrielle Blavatsky. “SNAP Redemption at Farmers Markets Sees Rapid Growth From 2011 to 2013.” Wholesome Wave. http://www.wholesomewave.org/snap-redemption-at-farmers-markets-sees-rapid-growth-from-2011-to-2013/.

• Kaldor, Nicholas. 1996. Causes of Growth and Stagnation in the World Economy. New York, NY: Cambridge University Press.

• King, Robert P., Michael S. Hand, Digi DiGiacomo, Kate Clancy, Miguel I. Gomez, Shermain D. Hardesty, Larry Lev, and Edward McLaughlin. 2010. “Comparing the Structure, Size, and Performance of Local and Mainstream Food Supply Chains.” Edited by Christopher L. Waltz. USDA-ERS Economic R. New York: Nova Science Publishers, Inc.

• Ladner, Peter. 2011. The Urban Food Revolution: Changing the Way We Feed Cities. New Society Publishers.

• Larsen, Kristian, and Jason Gilliland. 2009. “A Farmers’ Market in a Food Desert: Evaluating Impacts on the Price and Availab ility of Healthy Food.” Health & Place 15 (4): 1158–62.

• Lev, Larry, Linda Brewer, and Garry Stephenson. 2003. How Do Farmers’ Markets Affect Neighboring Businesses. Oregon Small Farms Technical Report No. 16.

• “Localism 101.” Business Alliance for Local Living Economies.

• Long, Joshua, Anwar M. Sounny-Slitine, Katherine Castles, Jillian Curran, Harrison Glaser, Ellen Hoyer, Whitney Moore, Lisa Morse, Molly O’Hara, and Ben Parafina. 2013. “Toward an Applied Methodology for Price Comparison Studies of Farmers’ Markets and Competing Retailers at the Local Scale.” Journal of Agriculture, Food Systems, and Community Development 3 (3): 95–119.

• Lusk, Jayson L., and F. Bailey Norwood. 2011. “"The Locavore’s Dilemma: Why Pineapples Shouldn't Be Grown in North Dakota.” Library of Economics and Liberty. http://www.econlib.org/library/Columns/y2011/LuskNorwoodlocavore.html.

• McAleese, Jessica D., and Linda L. Rankin. 2007. “Garden-Based Nutrition Education Affects Fruit and Vegetable Consumption in Sixth-Grade Adolescents.” Journal of the American Dietetic Association 107 (4): 662–65. doi:10.1016/j.jada.2007.01.015.

• McGuirt, Jared T., Stephanie B. Jilcott, Liu Haiyong, and Alice S. Ammerman. 2011. “Produce Price Savings for Consumers at Farmers’ Markets Compared to Supermarkets in North Carolina.” Journal Of Hunger & Environmental Nutrition 6 (1): 86–98.

• Otto, Daniel, and Theresa Varner. 2005. Consumers, Vendors, and the Economic Importance of Iowa Farmers’ Markets: An Economic Impact Survey Analysis. http://www.leopold.iastate.edu/sites/default/files/pubs-and-papers/2005-05-consumers-vendors-and-economic-importance-iowa-farmers-markets-economic-impact-survey-analysis.pdf.

• Pirog, Rich, and Nick McCann. 2009. Is Local Food More Expensive? A Consumer Price Perspective on Local and Non-Local Foods Purchased in Iowa. Ames, IA. www.leopold.iastate.edu/pubs/staff/prices.html.

• Planning and Evaluation Unit. 2009. The 2008 Elder Farmers’ Market Nutrition Program Evaluation. http://elderaffairs.state.fl.us/doea/Evaluation/Elder Farmer’s Market Nutrition Program Evaluation, 2008.pdf.

• Racine, Elizabeth F, Ashley Smith Vaughn, and Sarah B Laditka. 2010. “Farmers’ Market Use among African-American Women Participating in the Special Supplemental Nutrition Program for Women, Infants, and Children.” Journal of the American Dietetic Association 110 (3): 441–46. doi:10.1016/j.jada.2009.11.019.

• Reinert, Erik S. 2007. How Rich Countries Got Rich ... And Why Poor Countries Stay Poor. New York: Public Affairs.

• Reinert, Erik S., and Arno M. Daastol. 2004. “The Other Canon: The History of Renaissance Economics.” In Globalization, Economic Development, and Inequality: An Alternative Perpsective, edited by Erik S. Reinert. Edward Elgar Publishing.

• Swenson, Dave. 2010. Selected Measures of the Economic Values of Increased Fruit and Vegetable Production and Consumption in the Upper Midwest.

• Swenson, Dave, Liesl Eathington, and Craig Chase. 2007. Determining the Methods for Measuring the Economic and Fiscal Impacts Associated with Organic Crop Conversion in Iowa. http://www.leopold.iastate.edu/pubs-and-papers/2007-03-determining-methods.

• Zandi, Mark M. 2008. Assesing the Macro Economic Impact of Fiscal Stimulus 2008. https://www.economy.com/mark-zandi/documents/assissing-the-impact-of-the-fiscal-stimulus.pdf.

Local Food Systems: Theory and Evidence

Economy & Finance

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