Friday, December 16, 2011

Three Things I Think I Know About Local Food Systems

If you follow me on Twitter (@jeffhyde) or are Facebook Friends with me, you may know that I recently attended a Forum to discuss Regional Food Systems with about 40 colleagues from Land Grant Universities in the Northeast.  The Forum was wonderful, bringing together many different people from many different states with many different sets of expertise; economists, plant pathologists, nutritionists, food scientists, horticulturists...  The meeting helped me to solidify some of my thoughts on the topic. Here's the top three things I think that I know....

1. The Customer is Always Right
This is the version of the Golden Rule in which those who have the gold make the rules.  At the end of the proverbial day, the consumers have the money that drives the system.  Over time, the distribution system in the US has focused on providing a diversity of food products at relatively low cost.  Economists who study trade, including international trade, talk a lot about exploiting "relative advantages," making all parties better off if we trade.  That argument applies to any scale of the problem, including global trade.  So, it's no surprise that the distribution system doesn't support local food distribution very well.

To really change the system, it's going to take a willingness on the part of businesses and/or government to step in and modify the food distribution system.  Most of the arguments for this focus on government intervention, which is understandable.  In the long run, though, it will take private investment to sustain it, even if it happens initially as a result of government policy.  Private businesses absolutely would be willing to modify the distribution network if there were increased profits to be made in doing it.

In my opinion, the customers must be willing to pay higher prices for some foods if a distribution system is to develop in order to support a more robust local food system.  While some consumers have shown a willingness to do this, most have not.  Therefore, I think this is unlikely to happen any time soon.

2. There Are Opportunities to Innovate in the Middle
It's no secret that a farmer can recover more of the consumer dollar if he or she is able to "eliminate the middle man" on some functions.  For example, selling at a farmers' market eliminates one or more "middle men" that provide food distribution services.  I regularly tell farmers that this extra money isn't free.  The farmer must bear the cost associated with those functions that are being replaced.  One of the Forum participants told a story that made this point clear, describing one farmers' fatigue of harvesting in the early hours, packaging it, transporting to the farmers' market, selling all day, closing down the booth, driving home, handling the business's Facebook page, and then getting up early the next day to do it all over again.  That farmer is now considering a significant scaling back of the marketing function in order to deal with burn out.

In my experience, stories like this aren't unique.  There are "points of pain" in the local food distribution network that provide opportunity for entrepreneurial action.  Distribution, aggregation, processing, packaging, and marketing are all things that "middle men" do.  Maybe we need more middle men if the local food system is to develop and be sustainable.  I believe there are entrepreneurial opportunities to be explored here.

3. There Are Opportunities to Innovate on the Farm
I'm not blue in the face yet, so I better keep saying it... There are opportunities for almost any farm business because consumers demand diversity.  Because the customer is always right, farm and food business owners have to understand these customers and how to meet their needs.  That, after all, is the heart of marketing!

In my opinion, entrepreneurship is the key to long-term survival in agriculture.  Understanding what you can do to meet consumer needs and be profitable/sustainable is critical.  The entrepreneurship research literature is filled with various theories and case studies about this, but it's almost universally accepted that successful entrepreneurs consistently figure out ways to address needs for those who can pay for the solution.  This may mean developing new food products, growing different crops or livestock, opening the farm to the public, or many other options.  So, all in the food system need to keep an eye on their industry, looking for opportunities to innovate.  Consumer demand for local food creates opportunities, but great skill is needed to seize those opportunities and make money from them!

I'm always interested to hear others' thoughts about local food systems and how they can be developed and supported.  Comments are, therefore, welcome!

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