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A Local Food Economic Impact Assessment Toolkit &
A Typology of Food System Benchmarks
DAWN THILMANY , BECCA JABLONSKI AND ALLISON BAUMAN, COLORADO STATE U.
STEVE DELLER, U OF WISCONSIN
DAVE SHIDELER , OKLAHOMA STATE U
2016 SOUTHERN REGIONAL SCIENCE ASSN MEETINGS
WASHINGTON DC
APRIL 2016
National Interest in Local Foods
USDA’s (2015) Four Pillars
of Agriculture and Rural
Economic Development:
1. Production Agriculture
2. Local and Regional
Food Systems
3. The Biobased
Economy
4. Conservation and
Natural Resources
April 2016 The Economics of Food System Initiatives
Emerging Work on Food Systems
Growing public interest in regionally-focused food systems
(Low et al, 2015; Martinez et al., 2010; Union of Concerned Scientists, 2013).
New USDA-sponsored toolkit to assess the economic impacts of these food system innovations
Initial results on first phases of a meta-analysis of secondary data and food system projects across the country that can be evaluated with economic assessment tools
April 2016 The Economics of Food System Initiatives
Pattern Matching, Benchmarking and other Challenging Endeavors
Learn more about best practices and economics of food system initiatives:
A conceptual typology of food system initiatives to organize economic analyses,
Meta-analysis of available surveys, secondary data and case studies of food system initiatives
Framing economic impact analyses of projects
by broad categories/typology
Sharing where we are now:
Conceptual graphics, preliminary analysis of compiled data and case study themes.
April 2016 The Economics of Food System Initiatives
Funding and collaboration with:
April 2016 The Economics of Food System Initiatives
The authors gratefully acknowledge USDA NIFA for funding this project through the
Agriculture and Food Research Initiative, award number 2014-68006-21871.
The AMS Team: Dawn Thilmany, coordinator
David Conner, University of Vermont
Steve Deller, University of Wisconsin
David Hughes, University of Tennessee
Ken Meter and Megan Phillips Goldenberger, Crossroads Resource Center
Alfonso Morales, University of Wisconsin
Todd Schmit, Cornell University
David Swenson, Iowa State University
Allie Bauman, Rebecca Hill, Becca Jablonski, Colorado State University
April 2016 The Economics of Food System Initiatives
The NIFA AFRI Team
Dave Shideler
Department of Agricultural Economics, Oklahoma State University, 323 Ag Hall, Stillwater, OK 74078. [email protected]. 405-744-6170
Allie Bauman, Becca Jablonski and Dawn Thilmany
Department of Ag and Resource Economics, B325 Clark, Colorado State University, Fort Collins CO 80523-1172, [email protected], 970-491-7220
Blake Angelo, Manager of Food System Development, City of Denver
April 2016 The Economics of Food System Initiatives
Justifying this Toolkit
Broadly held sense that economic implications of new food system initiatives should be framed and measured in a more standardized (and rigorous) manner, but also responsive to community needs.
USDA AMS:
New resources/initiatives (i.e., Farmers Market and Local Foods Promotion) in need of evaluation framework
Expanding role as technical service provider
July 2015 AAEA Annual Meeting
Toolkit: Seven Modules
Covers two stages of food system planning:
(1) Assessment (2) Evaluation
Modules (1-4): Guides the preliminary stages of an impact assessment - framing the system, relevant economic activities, and collecting and analyzing relevant primary and secondary data
Modules (5-7): Overview of more technical set of practices, including using information collected in stage one for a more rigorous analysis
This toolkit is meant to be used in its whole or in part, but does not necessarily need to be utilized from start to finish However, later modules assume knowledge of and findings from prior modules
USDA AMS Toolkit- 2015 The Economics of Local Markets
Structuring the Assessment Process to Enhance Success
Food System initiatives are diverse
Place based nature is key to success in meeting local needs
Accordingly, important to:
Assemble a diverse project team
Establish realistic timeline and roles
Scope the study appropriately – establish study parameters and priority issues
April 2016 The Economics of Food System Initiatives
Timeline for Northern CO Food Assessment
Case Study: VT Farm to Plate
In 2009, legislature tasked the VT Sustainable Jobs Fund to support econ dev
18 month process resulted in broad network, and the development of a 25 goal, 10-year strategic plan to strengthen Vermont’s food system.
This comprehensive process represents a coordinated approach to a food systems assessment.
April 2016 The Economics of Food System Initiatives
Figure 1: Assessment Analytical Framework
April 2016 The Economics of Food System Initiatives
Source: National Academies Institute of Medicine Report, http://iom.edu/Reports/2015/Food-System.aspx
This
schematic
integrates
food sectors,
dynamics,
appropriate
analytical
methods and
likely domain
of effects
Modules 2 & 3: Primary & Secondary Data
Provides list of secondary data sources (divided by supply chain)
Full and updated list available on website: http://www.localfoodeconomics.com/appendices/
Discussion of when and how to supplement with primary data collection.
Detailed information about:
Qualitative and quantitative research;
Surveying, interviewing, and sampling methods.
July 2015 AAEA Annual Meeting
Case Study: Public Health in Northern CO
April 2016 The Economics of Food System Initiatives
For more information: http://www.larimer.org/foodassessment/
• Significant differences in consumption patterns across the counties
• Weld county was improving, despite having the lowest average rate
• Discussions with stakeholders revealed key investments by LiveWell CO appeared to be making a difference
Module 4: Data Interpretation
Let the data speak:
Test your assumptions/conventional wisdom;
Comparative analysis/benchmarking;
Linkages across system (i.e., economic, social)
Words of caution:
Correlation vs. causality;
Every difference in measurement does not represent a significant difference
Simple spatial analysis techniques explained:
Cluster mapping;
Location quotients
July 2015 AAEA Annual Meeting
Augmenting Data with
Local Efforts
Lots of secondary sources, but where does local (primary) data add value?
*Secondary data as baseline!
April 2016 The Economics of Food System Initiatives
Case Study: of Dot Surveys/RMA
April 2016 The Economics of Food System Initiatives
Dot Poster Surveys, also known as Rapid Market Assessments
Developed by Larry Lev and Garry Stephenson at Oregon State University to gather information from farmers’ market patrons, and has many advantages.
Simple to administer, responses are easily tallied, and possible to get a large set of responses in a short period of time.
CAN FOOD SYSTEM ASSESSMENTS BE BETTER INFORMED BY MORE
STANDARDIZED APPROACHES IN EVALUATING AND BENCHMARKING
PROJECTS AND ENTERPRISES?
Exploring Economic Patterns in Food Systems
The Economics of Food System Initiatives April 2016
Justifying the Need for a Typology and Best Practices of Benchmarks
Food System initiatives are diverse
Place based nature is key to success in meeting local needs
Yet, some standardized typology or classification systems allows advisors to identify best practices and benchmarks
What are key economic and managerial differences in these enterprises that signal they benefit the community and economy?
Returns to farmers? Stronger B2B linkages?
April 2016 The Economics of Food System Initiatives
A Typology of Farms
Direct Marketing
• Very Small • High Value
added
Value Food Chains
• Higher Volume
• High Value
Trouble Zone
• Lower Volume • Low Value
Added
Commodity
• High Volume • Low Value
Added
Modified from: Stephenson, Agriculture of the Middle
April 2016 The Economics of Food System Initiatives
Farm Direct to Wholesale
-Institutions (Farm to School)
Farmers Markets -Local customers
-Customers searching for multiple goods
-Restaurants
CSA -Informal production contract with households
Roadside Stand and Online Sales
-Loyal customers
-Targeted visitors/tourists
Farm Direct to Wholesale
-Restaurants
-Institutions
-Specialty retail Multi-Farm CSA -Restaurants
-Institutions
-Specialty retail
Food Hubs -Restaurants
-Institutions
-Specialty retail
Traditional Distributor
April 2016 http://www.extension.org/pages/70544/an-evolving-classification-scheme-of-local-food-business-models#.VVZOBkbG-ix
Bauman, A, D. Shideler, D. Thilmany, M. Taylor and B. Angelo, An Evolving Classification
Scheme of Local Food Business Models. eXtension CLRFS Resource page. May 2014 online:
The Economics of Food System Initiatives
April 2016 The Economics of Food System Initiatives
Market
Orientation
Customers Managerial
Control
Pricing
Power
Market
Volume
Potential
Roadside Stand
and Online Sales
Local, traveling and
national households
Full control High Low to high
Farmers Markets Local households,
travelers
Full control High Low to
medium
CSA Local households Full control Medium Low
Farm Direct to
Wholesale
Local, independent
businesses,
institutions
Full control Medium Medium
Multi-Farm CSA Local households and
businesses
Shared control Medium Medium to
High
Food Hubs Local businesses and
institutions
Shared to limited
control
Medium Medium to
High
Traditional
Distributor
All buyers Limited control
and pricing power
Table 1: Market Typology Advantages & Disadvantages
U.S. Local Food Systems
Local Foods and Small Farms
Source: Vogel and Jablonski 2015
Connecting with Farm Level Data
Increasing data sets exploring farm-level factors
USDA ARMS data: deeper look into Census data as well as marketing, finances and management
CSA Benchmark Studies: industry and Farm Credit
NY Farmers’ Market Federation survey
Benchmark information on farm marketing decisions and financial outcomes
Can we triangulate this with themes from case studies in intermediated markets to draw broader conclusions?
April 2016 The Economics of Food System Initiatives
Initial Results –USDA ARMS
Several categories exhibit significantly different expenditure patterns
April 2016 The Economics of Food System Initiatives
Table 1. Average expense by market channel
Market Channel
A
v
e
r
Average
Expense
(% of
evtot)
Standard
Deviation
Average
Expense
(% of
evtot)
Standard
Deviation
Average
Expense
(% of
evtot)
Standard
Deviation
A
v
e
r
Average
Expense
(% of
evtot)
Standard
Deviation
D2C 12.2% 0.006 10.4% 0.007 12.0% 0.004 7.9% 0.005
Intermediated 12.8% 0.013 24.7% 0.022 9.5% 0.011 11.6% 0.016
D2CIntermediated 11.6% 0.009 24.8% 0.017 10.4% 0.006 7.1% 0.005
Nonlocalfood* 14.3% 0.003 4.9% 0.002 16.6% 0.003 7.2% 0.002
Alllocalfood* 10.4% 0.009 7.7% 0.008 11.7% 0.009 8.8% 0.008
Adjusted Wald test, Prob > F = 0.000 0.003 0.000 0.050
pevfuelo pevcwork pevutilpevlaborpevoth pevfertc
USDA AMS Toolkit- 2015 The Economics of Local Markets
US Benchmarks
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Alllocalfood*
Nonlocalfood*
Purchased livestock Purchased feed
Other variable expense Seeds and plants
Fertilizer and Chemical Labor
Fuel and oil Maintenance and repair
Machine hire and custom work Utilities
Other livestock relatedSource: USDA ARMS 2013
Meta Analysis of Food System Case Studies
Profitability % Records
Highly profitable (over 5% net profit) 0.00%
Profitable (between 2% and 5% net profit) 5.83%
Breakeven (between 0% and 2% net profit) 10.68%
Cash flow neutral (total expenses equal revenues) 0.97%
Net loss (total expenses exceed revenues) 5.83%
Unsustainable loss (variable expenses exceed
revenues) 0.97%
Unknown 75.73%
April 2016 The Economics of Food System Initiatives
Angelo, B, B. Jablonski and D. Thilmany . Meta-analysis of U.S.
intermediated food markets: Measuring what matters.
Forthcoming. British Food Journal.
114 Case studies from over 200 when criteria to filter used
Significant Differences for Viable
Table 4. Specific market outlets reported in case studies, sorted by prevalence
Variable
% of viable
businesses
% of nonviable
businesses (or
unknown)
Direct market
outlets*** Farmers’ market 11.76% 23.26%
Community Supported
Agriculture (CSA) 5.88% 5.88%
Internet/mail order sales 11.76% 17.44%
Buying clubs 11.76% 9.30%
Farm stand/store 11.76% 10.47%
Delivery to customers 5.88% 11.63%
Intermediated market
outlets** Grocery retail 76.47% 46.51%
Restaurant 41.18% 46.51%
Institution 5.88% 37.21%
Distributors 29.41% 20.93%
Other 5.88% 11.63%
Value-added processing 11.76% 5.81%
Note: Asterisks indicate respective significance levels: * α = 0.10; **α = 0.05; ***α = 0.01.
Chi squared tests were performed to test differences among samples for reported use of direct
market outlets and intermediated market outlets categories.
April 2016 The Economics of Food System Initiatives
April 2016 The Economics of Food System Initiatives
Table 6. Location and number of farm vendors
Variable
% of viable
businesses
% of nonviable
businesses (or
unknown)
Geography of
farm
vendors** Local (≤50 miles)
23.53% 9.30%
Near Regional (>50-<250
miles) 23.53% 19.77%
Far Regional (250-400 miles,
or within state) 11.76% 18.60%
Multi-state (>400 miles or
outside of state) 23.53% 16.28%
International (outside of US) 5.88% 3.49%
Unknown 23.53% 9.30%
Table 7. Location of markets and number of products
Variable
% of viable
businesses
% of nonviable
businesses (or
unknown)
Geography
of
Markets** Local (≤50 miles)
5.88% 23.26%
Near Regional (>50-<250 miles) 11.76% 6.98%
Far Regional (250-400 miles, or
within state) 11.76% 9.30%
Multi-state (> 400 miles or outside of
state) 47.06% 32.56%
International (outside of US) 5.88% 1.16%
Unknown 5.88% 23.26%
Moving Forward
Do the key themes identified in case studies across intermediated markets mean something to food system mission?
How do we characterize anecdotal evidence and qualitative information into a useful set of indicators?
Are generalized ranges an appropriate first step in identifying best practices and patterns among enterprises emerging as successful, sustainable and resilient?
April 2016 The Economics of Food System Initiatives
CAN FOOD SYSTEM ASSESSMENTS BE BETTER INFORMED BY MORE
STANDARDIZED APPROACHES IN EVALUATING AND BENCHMARKING
PROJECTS AND ENTERPRISES?
Exploring Economic Patterns in Food Systems
The Economics of Food System Initiatives April 2016
Complex Linkages in Food Systems
We are able to measure the extent of complex intra-regional linkages using input-output analysis to generate economic multipliers.
An economic multiplier is a single number that captures the economy-wide circulation of activity from an initial financial transaction
Direct + indirect+ induced effects
USDA AMS Toolkit- 2015 The Economics of Local Markets
Economic Impacts of Local Foods Modules 5-7
One way to frame the impact of local food growth is considering it import substitution.
When locally produced foods are substituted for imported items, stronger regional linkages are forged
If local foods production and consumption increase, there are economy-wide consequences.
Best practice measurement of these can help inform communities of the potential economic gains from local food system initiatives.
USDA AMS Toolkit- 2015 The Economics of Local Markets
Reliable Local Foods Impact Estimates
Input-Output models track the flow of transactions between local industries, sales by industries to households, and to other “final users” of goods or services,
One can generate economic multipliers to be applied to local foods production, processing, distribution, and sales.
The lion’s share of analysts rely upon IMPLAN (IMPact Analysis for PLANning) because of its ease of operation
April 2016 The Economics of Food System Initiatives
Impact Topics Addressed
Clarification of what an “impact” is and is not
Import substitution
Multipliers, margins and mark ups
Study region considerations
Limitations of the methodology
April 2016 The Economics of Food System Initiatives
Become Involved
Website and listserv: localfoodeconomics.com
Thank you!
Appendices
The Economics of Food System Initiatives April 2016
April 2016 The Economics of Food System Initiatives
Table 2: The Flow of Money
Differential Expenditure Patterns
Larger share of expenditure spent on labor, marketing, and in local economy
Larger share of expenditure spent on labor, marketing, services, and inputs
Higher capital expenditures and purchased inputs, less money spent in local economy
Competitive Advantage
Returns to intensive management, niche market differentiation
Returns to quality differentiation, localized networks
Returns to extensive management, technical and scale efficiency
Potential for Regional Economic Spillovers
Larger labor income and local expenditure may expand farm labor household income and support local businesses
Larger local inputs and labor costs may expand multipliers to households and enterprises
Margins may be slim and expenditures may be spent outside region, but volumes of sales are high
Community Development Implications
Enhanced linkages between farmers and consumers generate social and political capital
Expanded opportunities for entrepreneurship, regional identity/branding
Larger farms garner political capital; high volume allows linked businesses to operate at capacity
Case Study
Guide for Authors
April 2016 The Economics of Food System Initiatives
Table 9. Broad guidelines for case study template for food value chains
Essential Elements
Key Data for
Economic Viability
Analysis
Key Metrics for
Wealth Creation
Analysis
Enterprise Business
Scope, Size and
Organizational
Factors
Name, revenues,
product/service
portfolio, employees,
legal structure,
governance model,
year of establishment
Gross margin, net
income, asset value,
debt level (or ratio),
labor expenditures,
portfolio shares of
key product lines
Mission statement,
commitments to
community partners
(environmental,
cultural, political,
education)
Competitive
Advantage
Market orientation,
Differentiation
scheme, Key alliances,
networks and partners,
scale relative to
industry average
Sales attributed to
partners/alliances,
financial ratios
benchmarked to
industry averages
Specific evidence of
business alliances or
partnerships that are
aligned with mission
or strategic position
Marketing
Strategy, Channels
and Pricing
Strategies
Number of market
channels, share
through major
channels, relative
price points (broadly
defined)
Price premia (actual
or goals with specific
number for key
products), Returns to
promotions or
differentiation
strategies
Sales driven by key
partners or alliances,
Share of sales
pledged to
community orgs,
Price discounts or
allowances for allied
businesses
Sustainability
and/or Growth
Strategy
Intended expansion in
geographic markets
(vendors or markets),
New initiatives to
differentiate product
lines or coordinate in
new market channels
Year over year sales
growth, Planned
investments in capital
or workforce,
Payback period
expectations on
market expansion
plans or investments
Evidence that
linkages generate
specific social &
political capital
(lower transaction
costs, access to new
markets, favorable
zoning)
Challenges and
Potential Threats
Number of new
competitors,
regulatory compliance
issues, loss of market
channels/partners, cost
pressures
Evidence of lower
prices or margins,
cost inflation,
estimates of costs to
comply with
regulations (food
safety, liability,
environmental
impacts
Negative spillovers.
Unintended over
competition from
proliferation in
certain regions.
Regulatory scrutiny
(food safety or
zoning concerns)