Updated: July 12, 2011 (See: Blog for discussion based upon this letter)

I have created a Local Food System Policy Solutions Page that lays out the various ideas expressed by my colleagues and me created over time.  Those solutions address the issues presented on this page below.  I needed a dedicated page just to add the solutions as they become available.  It is advised that you read the information below before understanding the solutions.

The Question

Is it really economically possible to have a sustainable local food system?  The better question is this: If I grow a tomato, can I sell it - can I compete against a tomato grower in Mexico? Can local producers compete in the local market against global food companies who sell food cheaply because of the efficiencies of large economies of scale? 

Summary of Preliminary Findings

The short answer: No ... and Yes. 

Strictly speaking, based upon pure price and economic analysis, price is a function cost of production, processing, marketing, distribution, and volume of sales: the efficiencies of large economies of scale does drive down margins.  So, based upon this limited focus, the answer to the question is “no”.  An economist colleague has said, “the market has favored the industrial food system,” - price, to him, is the determining factor.  The truth, however, is that general economic development practices are not supported by this limited measure.

We do have empirical evidence that a local food system can, and in fact does, exist.  Small food producers can make a living, farmers markets can be successful, community food cooperatives can survive and, to a very limited extent, some wholesale activity works in some communities.  These are the exceptions, rather than the rule.  The very definition of what it is to be “sustainable” is of critical importance.  There is very little that occurs in the business world that is not subsidized to some extent by the community, the state, or the federal government.  Corporate tax rates, credits, all manner of incentives.  The subsidies on corn, for example, reduces the price of the commodity to processors who reap the majority of profits from the sale of industrialized food.  As verified by two independent studies linked at this website, state and local governments extend to business $50B in incentives annually.  In other words, the key “price” term of sale is the result of many factors. 

The three major factors in determining local food system sustainability are: market access (the “convenience”, “availability”, and “procurement” factors), consumer education, and community (i.e., local, state, or federal) support.  The “price” factor is not the determining factor in consumer choice when the presence of the other factors are prevalent.  The economist friend has the macro perspective - but, at the micro level, the economics of local sustainable food works.  So, the answer to the first question is actually “yes” - but, only when considering the convergence of supportive factors.

The goal of this letter is determine how to facilitate those factors, through public policy, that will drive local food economies.  The Stories below are real life situations that I have encountered in my work in Woodbury County, Iowa.  I shall use these true circumstances to tackle the hard issues facing the sustainable local food community:

A grain processor in Iowa contracts to process soy oil for a large corporation located in California.  Processor ships tons of processed cooking oil to California, the company in California bottles the oil under its own brand, then distributes that oil all over the world.  An Iowa entrepreneur decides to buy the same exact oil from the same processor, bottle it locally, and distribute that oil to a local market with a total population of 150,000. 

The problem: since the entrepreneur cannot buy oil at the same volume, he does not get the volume discounts.  Entrepreneur sells the same exact oil for $4.00 more per 16 oz. bottle.  Entrepreneur would have to expand his market by about 100 miles in order to capture the larger population of 2 million people before he could get the volume discount needed to compete on price with the California marketer.  Entrepreneur would have two big hurdles: increase the initial capital investment for distribution and marketing; and get shelf space in the large chain grocery stores.  Since the product is a specialty product (higher quality than the cheapest vegetable oil on the shelves), the limited market would not be attractive to would be investors.

Since it is not really economically feasible to sell relatively small amounts of oil, the entrepreneur would likely face too many obstacles.  It would be cheaper for the oil to be processed in Iowa, shipped to California, bottled, and then shipped back for sale in Iowa.

Area of Policy Focus

Local Processed Food Products: It can be deduced from this story that nothing produced locally can ever be economically feasible based solely upon the price factor - since the efficiencies of large economies of scale will always offer products at a lower cost to the consumer.   This rule would apply to most every item we buy - and that is why the Walmart’s of the world can always sell the same products for less money: they have huge buying capacity that drives down the margins received by suppliers.  This rule applies to products made with 100% American ingredients and labor or imported goods.
Policy Focus: Addressing price inequities; consumer perceptions of price vs. value; community leveraging of related industries & functions to reduce small volume production costs.

Story No. 1

A farmer grows tomatoes and other vegetables.  The chain grocer will not provide the farmer with a firm contract to buy the vegetables.  The farmer has two reasonable options to sell his vegetables: sell them at the local farmers market or local restaurant buyers, or form a CSA (community supported agriculture) and sell directly to subscribers of the CSA.  In other words, the wholesale procurement market is, in essence, closed to the local individual farmer producer.

There are two huge issues facing the individual farmer in the wholesale sector: 1.  Farmer has to become a marketer and make deals with numerous individual grocery stores (who are part of a larger chain) for the sale of vegetables; and 2.  Farmer, in most cases, have to cut prices received for the vegetables in order to compete against large economies of scale producers (i.e., Mexican growers) who sell vegetables for less in large grocer chain produce departments.

Since the local farmer is not part of the industrial grocery chain’s procurement procedures, and since local farmers want to sell their vegetables for a reasonable profit, farmer is out of luck.  Most consumers in the US buy mainly on the basis of price.  It is extremely difficult for local producers to enter the local wholesale market through large chain grocers.

Area of Policy Focus

Local Fresh Food Products: Pricing issues are less complex than those faced by food processors.  A focus would be on a fair financial return to the farmer.  While the major issue facing vegetable and fruit producers is market access, this may be the easiest issue to solve though policy (although politically the toughest).
Policy Focus: Addressing price inequities; consumer perceptions of price vs. value; market access; food security; availability

There are two known factors that could change the fortunes of the local producer depending upon where in the US the consumer is located: 1. The local culture is educated as to the benefits of buying locally produced vegetables (portions of California, Vermont, Minnesota,  North Carolina, and most college towns) depending upon availability; and 2. the development of grower cooperatives that may help to drive down costs and increase availability.  An food oriented consumer is likely to base buying decisions on a multitude of factors including quality, nutritional value, and price.

Story No. 2

Local and/or organic food is here to stay as something that people will want as a food option.  There are many reasons for this opinion.  People long for connection with their community, the environment, and promote healthy choices for their families.  Food is obviously necessary for survival - and what we take into our bodies should be of extreme importance to each of us.  BUT, is it economically feasible to create a fresh and healthy food system that requires local pesticide/hormone/GMO free production?  And, if it is not possible based upon our present governmental policies (which support GMO & CAFO - Confined Animal Feeding Operations - production methods), then what does our government need to do in order to make it economically feasible?

Economic feasibility is the big elephant issue in the room.  People ignore this issue because it can be complex, it requires a rethinking of the metrics used to determine success, it requires analysts to include cost factors to the environment of continuing the status quo, and it requires one to to be persistent in the brutal political arena.  However, without first addressing the issue of economic feasibility, or what could make it economically feasible, then much of the talk of a local food system is just fantasy.  Without consumer focused policy solutions, we should stop thinking of a general local food system, and we should rather direct our attention to supporting small food producers through farmers markets or CSAs.  If we confine ourselves to farmers markets and CSAs, then our country will never be serious about raising the quality of food we eat as a nation - our rural communities will continue to vanish - and our nations health will continue to decline.  Finally, if we cannot even grow our own food for a profit, then there is really no hope for producing anything in our country - since large economies of scale, low foreign labor costs, and other factors will continue to bleed our wealth.  That is why establishing local food systems is so important for our local AND national economies.

It should be said at this point that there are many small food producers who make a living from farming (usually with the help of their spouse and children).  It may be that they do exceptionally well at farmers markets, have a CSA, or otherwise market their products to local grocery stores or restaurants.  Their farms are sustainable.  The great majority of these farmers will not get rich, but they do survive.  There are areas of the country that do have a demographic who prioritize local healthy food - and they do have a sustainable local food system.  These are the exceptions and definitely not the rule.  So, it seems that with policy prioritization to inform the public, provide temporary incentives to change mindsets, we can change the way food is grown and made available to the general public.

When we talk about sustainability in our discussion, we are talking about broad-based availability throughout our food supply - both direct to consumer sales (farmers markets, CSAs, mail order) as well as wholesale (grocery stores, food distributors, food service contractors). 

The number one question a prospective farmer asks me is: “If I grow it, where can I sell it?”

Until we have a culture that supports a holistic approach to food, health, and economics, small food production will either ebb or flow depending upon a niche group of consumers who attend farmers markets, visit farms, or join a CSA - occasionally traveling to an area that has a local food coop or restaurant.  It also depends upon niche group of restauranteurs or institutional buyers to take the time and effort to buck the status quo in favor of a more rational food system.  Our culture must value the small food producer through policies that bring diversity to production and the connection we all share as human beings.  It is easier to rely on the Sysco truck than to actually pursue diverse food supplies that are not presently supported through the industrialized system.

So, what are the possible solutions to our current dilemma?  It is my opinion that if we solve the issue of local food production, we will also, at the same time, solve a lot of issues related to the national economy - other industries have the same roadblocks: subsidies, outsourcing labor, cost of raw materials, manufacturing infrastructure, importing essential goods and services, and transportation.  Large economies of scale always centralizes power into the hands of a few - it may be cheaper for the consumer (for now), but it really costs more for society as a whole.  It is like the little guy looking up in the sky to witness this Greek tragedy unfolding between countries, power plays between global corporations, and meaningless debates between our politicians.  Time to get positive folks:

See: Local Food System Policy Solutions Page for a listing and commentary on possible policy solutions to the issues.

Rob Marqusee

A local pizza establishment if offered hamburger & sausage by a local producer to put on their pizzas.  The locally raised beef and pork is sold at exactly double the price that is paid for industrialized/Sysco product.  Presently, industrialized beef goes for $2.17 per pound, locally raised goes for $4.00 per pound - roughly a $2.00 per pound difference.  Since a quarter-pound of hamburger is put on large pizzas, the restauranteur would have to raise the cost of a pizza by 50 cents in order to recover the additional cost of the local hamburger: 4 pizzas x additional 50 cents per pizza = $2.00.  The key question: would consumers pay the additional 50 cents to buy local and help the local economy?

We did an experiment in Sioux City: I offered to pay the restauranteur $200 out of my pocket to cover the additional cost for 100 lbs. of locally grown hamburger.  All the restauranteur was asked to do was to give the customer the choice to either add either local or non-local hamburger when the customer ordered a hamburger pizza.  An experiment to see if the customer would pay the additional 50 cents to buy local.  The county would also provide massive advertising promoting that pizza establishment, would print table top cards explaining the program and the value of eating local, and would otherwise provide any assistance necessary.  The experiment would provide the findings: if the customers preferred ordering the local hamburger, then after the first 100 lbs. sold, the restauranteur would continue to order the local hamburger at full price; if the local hamburger did not sell (the consumer would not pay the additional 50 cents per pizza), then the experiment would have failed, and the restauranteur would no longer offer the local hamburger as an option.  It would not cost the restauranteur one penny to conduct this experiment - yet, the restaurant would benefit from all the free publicity and marketing efforts.

Well, you may ask, “What happened”?  The answer: the restauranteur refused to undertake the experiment.  The explanation: the kitchen help did not want to manage the two sets of hamburger - and the restauranteurs did not think the customers would purchase the more expensive pizza.  This sorry outcome would not have happened in some communities in the US.  But, I have a feeling that this would be the result in most of rural America or communities in the midwest.  In other words: people are really really stuck in the status quo and will not even provide consumers with healthy options.

Most chain restaurants have centralized commissaries that ship a consistent product from its warehouse to its many member restaurants.  Therefore, a locally owned and operated restaurant is the typical target of a farmer for the introduction of locally grown/raised food.  The three main issues a restauranteur faces when deciding to buy local are: 1. price, 2. consistency of quality, and 3. consumer demand.  When chefs do buy local, they typically go the local farmers market and buy what they need.  Another trait of local food chefs is that they vary the menu to accommodate seasonality or availability throughout the year.

Many of the issues faced by local restauranteurs are also faced by the food service professionals in hospitals and schools - especially when it comes to quality consistency and seasonality.  However, it is much easier in this context to forecast demand.

Area of Policy Focus

Local Meat Products: Pricing issue is tougher for meat than for vegetables and fruits since price differentials are so much greater.  Market access is still a major issue - but not as bad as that for vegetables (due to longer shelf life of meat).  Their are no real incentives to restauranteurs to buy local meat - unless it would bring in more business to the establishment. 

Policy Focus: Addressing price inequities; consumer perceptions of price vs. value; market access; food security; availability; local processing; state and federal inspections; licensing; interstate sales; community priorities, etc.

Story No. 3