A Tale of Two Farms
Imagine two farms. Farm A produces 400 acres of cabbage and beans, which it has under contract to sell to a processor in the state. The cabbage and beans are processed and marketed under the processor’s label. Farm B grows 10 acres of mixed vegetables, which it sells through five regional farmers’ markets. Both of these farms have important local economic impacts, but each likely requires different inputs to produce its product, and thus has different relationships (linkages) with local businesses. To produce 400 acres of cabbage and beans, Farm A requires more mechanized equipment – like tractors – to plant and harvest. The farm’s transport and marketing costs are minimized as product does not have to be pre-packaged, but can be hauled by the trailer load to the processor, and the processor handles all subsequent packaging and marketing. Farm B requires more labor (per unit of output) to plant, weed, and harvest its crop. It also likely has substantial additional costs in marketing its product, including on items like packaging, transport, and labor.
Understanding the different inputs required for farms by market channel, and their linkages with other local businesses, is critical to calculating their local economic impact. And though local and regional food system initiatives have proliferated across the U.S., there has been little evaluation of the resulting economic impacts, due in large pack to the dearth of requisite data on input expenditures by market channel, and the location of where those inputs are purchased.
Though the U.S. Department of Agriculture (USDA) has long collected information on farm expenditures, this information was only available by primary commodity until 2008 (via the USDA Agricultural Resource Management Survey, ARMS). In other words, the USDA did not collect information about whether or not farms sold through local food channels in the same survey where they asked about expenditures, and thus expenditure information could not be viewed by market channel. Additionally, USDA still does not have detailed data on where inputs are purchased – very important information as only local expenditure results in local economic impact.
The report – Differential expenditure patterns of local food system participants—recently published by Renewable Agriculture and Food Systems, is the first of its kind to collect detailed information on expenditure patterns of farms that sell through local markets (defined as direct to consumer and intermediated markets by USDA’s Economic Research Service). The research used two case studies and USDA ARMS data to develop these expenditure profiles. The first case study included interviews with 120 small and mid-scale farmers (under $500,000 in sales) that sell products through direct-to-consumer marketing channels in an 11-county region in the Capital District region of New York (NY). A second case study, funded by a Cooperative Agreement with the USDA Agricultural Marketing Service and a Sustainable Agriculture Research and Education grant, included interviews with 30 farmers and 15 processors in NY who sell products to ‘food hubs’ (local food aggregation and distribution businesses).
Results show that farms selling through local food outlets spend more on labor and ‘other variable expense’ (i.e., hand tools, supplies, and general business expenses including marketing materials) on a per unit of output basis compared to farms that do not utilize these markets. Based on our results, we recommend that future economic impact assessments of local and regional food systems utilize revised expenditure profiles that more accurately reflect these producers.