a local food economic impact assessment toolkit & a ......steve deller, university of wisconsin...

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


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.


Funding and collaboration with:


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


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


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


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.


Figure 1: Assessment Analytical Framework


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.


http://www.localfoodeconomics.com/appendices/

Case Study: Public Health in Northern CO


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


Augmenting Data with

Local Efforts

Lots of secondary sources, but where does local (primary) data add value?

*Secondary data as baseline!


Case Study: of Dot Surveys/RMA


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?


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


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


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?


Initial Results –USDA ARMS

Several categories exhibit significantly different expenditure patterns


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


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%


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.



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?


CAN FOOD SYSTEM ASSESSMENTS BE BETTER INFORMED BY MORE

STANDARDIZED APPROACHES IN EVALUATING AND BENCHMARKING

PROJECTS AND ENTERPRISES?

Exploring Economic Patterns in Food Systems


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


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.


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


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


Become Involved

Website and listserv: localfoodeconomics.com

Thank you!

Appendices



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


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)

a local food economic impact assessment toolkit & a ......steve deller, university of wisconsin...

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