How Local Foods Fit Into a Local Economy Steven Deller Professor and Extension Specialist Department of Agricultural and Applied Economics University of.

How Local Foods Fit Into a Local Economy

Steven DellerProfessor and Extension Specialist

Department of Agricultural and Applied EconomicsUniversity of Wisconsin-Madison

This work is part of a team effort: Laura Brown with the Center for Community Economic Development, UW-

Extension, Anna Haines, University of Wisconsin-Stevens Point and Randy Fortenbery, Washington State University

Low

and V

ogel 2011 (

USD

A

ER

S)

• 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

Goals of Food Systems Initiatives

Growth vs Development

Growth

• More Jobs• More

Population• More Income• More

Businesses• More Tax

Revenue

Development

• Equality• Sustainable• Balance• Economic

Opportunity• Quality of Life

Growth vs Development

Economic Development can be defined as a program, group of programs, or

activity that seeks to improve economic well-being and quality of life for a community by retaining jobs that facilitate growth and provide a stable

tax base. International Economic Development

Council

The rationale offered to support the community economic growth argument ranges from

• shorter supply chains resulting in higher profits

• the ability to charge higher prices

• more profits retained in the local economy

Local Foods and Economic Growth

Conceptual Problems with Modeling Local Foods

What Defines “Local” Foods?

Varies across consumers, retailers, intermediaries

Varies across product line

What we know.. A lot about direct markets (farmer markets,

CSA’s, direct sales for human consumption.) Little about inter-mediated markets (restaurants,

hospitals, schools) “which may account for significantly more local food sales than direct to consumer sales alone.” (Low and Vogel, 2011)

Our research suggests that local foods (mainly direct market sales) have little impact on measures of economic growth.

Direct Sales (2007): $1.2 billionInter-mediated Sales (2008): $4.8 billion

Do Local Foods Contribute to Economic Growth and Development?

A Simple Model of Economic Growth

P* = f(E*,I* | P)

E* = g(P*,I* | E)

I* = g(P*,E* | I)

A three equation partial adjustment model looking at growth in population, employment and income.

First step, how do we measure Local Foods?

If direct sales for human consumption is our “baseline” then we want to identify farm characteristics that are most closely tied to direct sales.

Using these characteristics we can develop a proxy for areas (counties) that have higher concentrations of those characteristics.

First step, how do we measure Local Foods?

• Number of farms with direct sales to individuals for human consumption (2002)

• Total sales value of direct sales to individuals for human consumption ($1,000, 2002)

• Number of farms with Sales of $100,000 to $249,999 (2002)

• Number of farms, including nursery and greenhouse, selling vegetables, melons, potatoes, and sweet potatoes (2002)

• Number of farms selling sheep, goats, and their products (2002)

• Number of farms, including nursery and greenhouse, selling fruits, tree nuts, and berries (2002)

• Number of farms certified organically produced commodities (2002)

Sales of $100,000

to $249,999

Vegetables,

melons, and

potatoes

Sheep, goats,

and their products

Fruits, tree

nuts, and berries

Number farms with

direct sales

Value of direct sales

Number of farms with Sales of $100,000 to $249,999 (2002) ──

Number of farms, including nursery and greenhouse, selling vegetables, melons, potatoes, and sweet potatoes (2002) 0.23428

(0.0001)

Number of farms selling sheep, goats, and their products (2002) 0.21538 0.22802

(0.0001) (0.0001)

Number of farms, including nursery and greenhouse, selling fruits, tree nuts, and berries (2002) 0.06203 0.27794 0.24858

(0.0057) (0.0001) (0.0001)

Number of farms with direct sales to individuals for human consumption (2002) 0.24854 0.56082 0.54552 0.4171

(0.0001) (0.0001) (0.0001) (0.0001)

Total sales value of direct sales to individuals for human consumption ($1,000, 2002) 0.20768 0.53381 0.32774 0.38587 0.72844

(0.0001) (0.0001) (0.0001) (0.0001) (0.0001)

Number of farms certified organically produced commodities (2002) 0.21326 0.36703 0.38218 0.37388 0.63162 0.45909

(0.0001) (0.0001) (0.0001) (0.0001) (0.0001) (0.0001)

Marginal significance or p-value in parentheses.

A simple correlation matrix of the different elements that describe

local foods.

Table 1: Local Foods Indicators and IndexEigen- vectors

Number of farms with Sales of $100,000 to $249,999 (2002) 0.2071

Number of farms, including nursery and greenhouse, selling vegetables, melons, potatoes, and sweet potatoes (2002) 0.3763

Number of farms selling sheep, goats, and their products (2002) 0.3351

Number of farms, including nursery and greenhouse, selling fruits, tree nuts, and berries (2002) 0.3139

Number of farms with direct sales to individuals for human consumption (2002) 0.4963

Total sales value of direct sales to individuals for human consumption ($1,000, 2002) 0.4401

Number of farms certified organically produced commodities (2002) 0.4059

Use Principal Components to Build a Simple Index

The Index accounts for 47.8% of the variation observed in the correlation matrix.

A Simple Mapping of the Local Foods Index

Are the patterns in the simple mapping random?

Or are there patterns?

The presence of “hot” and “cold” spots suggests that there is spatial dependency in the data.

If this is the case tradition statistical methods, such as ordinary least squares, will be problematic.Table 2. Spatial Correlation in Residuals: Local Foods and Non-Metro U.S. Counties

Population Growth Employment Growth Per Capita Income Growth

Moran's I Statistic 21.3899 13.2637 19.0343(0.0001) (0.0001) (0.0001)

Lagrange Multiplier c2 17.6110 17.6110 17.6110(0.0001) (0.0001) (0.0001)

Likelihood Ratio c2 6.6350 131.8486 6.6350(0.0001) (0.0001) (0.0001)

Marginal significance in parentheses.

• Population 2000• Employment 2000• Per Capita Income 2000• Percent of the Population Under Age 18• Percent of the Population Over Age 75• Youth Poverty Rate• Percent of Employment in Manufacturing• Percent of Employment in Health Services• Percent of Employment in Lodging and Food

Establishments• Population -- Employment Ratio• Number of Banks per 10K Population• Population Density• Ethnic Mix Index• Percent of Population Speaking Non-English at Home• Percent of Housing Stock Built Before 1939• Percent of Persons Residing in Same House 1995-2000• Percent of Employment in State Government• Percent of Employment in Local Government• GINI Coefficient of Income Equality

Table 3: Global Estimates of Local Foods on Non-Metropolitan GrowthPopulation Employment Per Capita Income

Local Foods Index 0.0022 0.0032 0.0008 0.0008 -0.0048 -0.0075(0.0123) (0.0023) (0.6553) (0.6677) (0.0082) (0.0005)

Marginal significance in parentheses.

Positive influence on population growth: An Amenity Effect?

No influence on employment growth:

Insufficient Job Generation?Negative influence on income growth:

Profitability of these types of farms?

Local Foods

GrowthDevelopm

ent

Public Healt

h

Social Capit

al

?

?

?

?

Viable Communi

ties

Financial

Capital

Political

Capital

Social Capita

l

Human

Capital

Cultural

Capital

Natural

Capital

Built Capita

l

In their studies of rural communities and development Jan and Neil Flora have identified seven types of “capital”, assets or resources that are part of any community.

Each is a “piece of the puzzle” that defines the community.

By investing in these different types of capital the community can improve its viability both economically and socially.

But, does this systems thinking approach take us back to story telling and away from rigorous

analysis?

THANK YOU!