We are quickly approaching the 10th anniversary of the March 2007 Time magazine cover on local food, a milestone indicating that the local food movement became a mainstream phenomenon. Today, there is continued public interest in farmers markets, community supported agriculture (CSAs), food hubs, agritourism, farm to school, and a variety of other activities that fall under the broader label of local and regional food systems. Moreover, there are persisting perceptions that more local food systems will result in better environmental, economic, health and community outcomes, such as lower food miles, bigger economic multipliers and healthier kids. For me and my peer agricultural and rural economists, the main question has been: have localized food systems actually been able to support the farms and ranches that they depend on?
A focus on the dwindling middle class…in agriculture
My own research on this topic was catalyzed by the early work of the USDA research group that became known as the “Agriculture of the Middle” team, as they drew much needed attention to the financial viability of mid-scale farms and ranches. Akin to the concerns many current politicians place on the dwindling middle class, this team of researchers focused on “the ‘middle’ food markets, between direct and commodity marketing options.” Their intention is to explore how “farmers and ranchers are working together to distinguish their products in the marketplace based on values such as environmental stewardship, food quality, and fair trade.” Case studies highlighted in past work included Shepherd’s Grain in the Northwest and La Montanita in the Southwest, both offering better terms of trade with their supplying producers. There has also been additional attention to farms owned by beginning farmers, veterans, and socially disadvantaged groups (minorities and women), which have a significant overlap with small and mid-sized farms in terms of market barriers and financial challenges.
But have new market and business strategies improved the financial viability of farms that are challenged to compete in large-scale, global markets? Finding the answer to this question requires a “track record” of baseline and trend data on economic performance and broader community capital measures, but sufficient data have only recently become available.
Local markets as a bright spot for farm viability
Our recent work at Colorado State University found promising financial news among farms that participate in local marketing strategies. Using detailed agricultural management data from farms (the Agricultural Resource Management Survey (ARMS) from the USDA Economic Research Service), we grouped local and regional food marketers by profitability and then by scale of sales. As expected, producers of different scales reported very different financial performance, but the best performing farms at all sizes (under $75,000, $75-350,000, and above $350,000) were profitable. The most profitable farms tended to be the ones that:
- Participated in direct and intermediated markets—a term used by the USDA to include farms that market locally through a food hub or in collaboration with other producers, often with their farm name identified.
- Used “lean management” strategies, which may help offset some scale inefficiencies among small and mid-size farms by keeping fixed costs and overhead low. Lean strategies often include leasing land and equipment instead of buying, or minimizing employees and using family-based labor to build sweat equity.
What do these differences in approaches and sales mean for farmers? First, the financial choices these farms face may vary from a typical farm if they operate with a “lean” model. Locally marketing farms and ranches may then report higher returns, but the “lean” strategy may make it harder to build long-term wealth and collateralize loans (given no land or long-term assets). So further growth may be limited to what operating cash flows allow, even if market opportunities would allow for even faster growth, unless the producer adopts cooperative growth strategies such as joining a food hub or partnering with a wholesale distributor interested in carrying a local line of products.
Guiding local farmers through market pathways that will let them thrive
Most experts agree that accessing markets will be increasingly difficult for small and mid-sized farms as retail and restaurant food purchasing systems are increasingly vertically and horizontally integrated, but new supply and value chain models are emerging, as highlighted by the USDA Agricultural Marketing Service. In a recent paper in the British Food Journal, the authors concluded that to enhance the viability of local farms and related food value chains, three things are key:
- Market development, including targeted investments in the infrastructure, product innovation and branding that is needed in a competitive food retailing environment.
- Market access, to allow local producers to gain a foothold in traditional food retail spaces where the majority of Americans still shop for food, a role that food hubs may facilitate.
- Consumer and institutional buyer education.
Producers that have found opportunities to become viable elements of the food supply chain are obtaining market access, and seemingly, the underlying economics allow those disadvantaged by scale to be profitable.
Local food markets in their adolescence
Local food systems may play a role in enhancing farm viability among producers who otherwise may struggle to compete or retain the flavor, culture and personal touch they feel quality food production requires. However, the high growth this sector experienced over the past 10-20 years is slowing, and perhaps it is in this adolescence that a new direction for local food market development must emerge.
Agriculture of the Middle researchers continue to focus on projects that create strategic alliances among farmers, processors, distributors and retailers to reach consumers who care about the impacts of their food purchases. Beyond analysis of financial performance, a more encompassing framework to create rural wealth could also assess the impacts on community assets including individual, social, intellectual, natural, built, political, financial, and cultural capital. Creating a more profitable and sustainable framework will require input and feedback from farmers, food community leaders, and the outreach and extension professionals among government, academic, and nonprofit communities.
There are many things you can do to take an active role in framing local food’s future:
- Engage your retailers, restaurants, farmers markets and other food businesses to ask about if and how local sourcing is part of their business model….it signals to them what share of their customer base values locally sourced food.
- Participate in community conversations about how food fits into economic development, land planning, health promotion and entrepreneurship programming.
- If already engaged in local food systems, look for complementarities (rather than differences) between traditional and emerging local food market development.
Just as craft brews became more mainstream as a beverage choice, the availability of locally branded items is likely to grow as more consumers demand them. More producers will target local outlets and some of the large key players may help to provide the market access growing local food businesses need. As you purchase meat or vegetables for your summer barbeques, do a little research into where your food is coming from, and if you’re supporting a local food hub.
Dawn Thilmany McFadden is a Professor of Agribusiness and Agribusiness Extension Economist with Colorado State University, serving in that role since 1997, and specializes in analyzing markets, consumer behavior and economic development related to local, organic and other value-added food market segments. She is on the leadership team of the CSU Extension Food Systems work team and Chairs the Colorado Food Systems Advisory Council. In addition, she serves on the USDA Secretary’s Advisory Board on Agricultural Research, Education, Extension and Economics and collaborates with several USDA agencies on research and outreach projects.
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