Final Report for LS12-248
Seventy percent of consumers today say they want to know where their food comes from and how it was grown; they are also willing to pay more for locally produced food (Packaged Facts, 2007). Given that in North Carolina consumers spend $35 billion on food annually, there is broad interest amongst the state’s agriculture sectors, business community, and policy makers to develop a local food economy as a way to capture as much of this revenue as possible for local businesses. Despite this broad interest, there exists very limited data in the Southern Region that quantifies the potential impact on local jobs and the area’s economy, the type of information necessary to influence policy makers and others into making commitments towards investing in local infrastructure and other related fields/areas. The purpose of this project was to quantitatively evaluate the unique economic impact of producing, processing, distributing, and selling agricultural goods locally (within the state for the purposes of this project) as compared to those imported from outside state lines. We studied how the revenue a good generates as it moves from producer to processor to distributor to consumer was affected by whether it originated locally or not. We also studied how these effects affected the sectors of the local economy not directly involved with agriculture.
This analysis took into account differences in farming systems (sustainable versus organic versus conventional), differences in supply chain composition (both due to region as well as method of production), differences in crops, and differences in farm size. Our methods included a statewide survey of farmers based on region and economic tier and a variety of types of analyses as described below. Results of the farmer survey highlighted the diverse nature of agriculture across the state of NC, with a large range of farm sizes, values, profitability, and marketing/sales strategies. Secondly, farms of all but the highest values and acreages engage in Direct to Consumer Sales in NC. Thirdly, the point at which NC farms start reliably being profitable is around 100 acres in size. We also found that farms that sell direct to consumers are statistically more likely to buy from a greater range of input suppliers than farms that do not. The intention of collecting the survey data used in this project was to test the accuracy of the IMPLAN database to field data collected in NC, however we were unable to use the data for this purpose due to a lower than necessary response rate across a sufficient number of sampling regions.
We have also developed (and are developing) a set of tools to be used by economic developers including a video, a data visualization set using additional 10 percent campaign data, and also a set of infographics (116) using USDA census data and a state Farmer’s Market inventory. For the infographics, fifteen agricultural data points comparing USDA census data from 2007 to 2012 are featured in one hundred North Carolina counties and the sixteen corresponding Council of Government region posters. The posters feature a narrative guide detailing how to use the tool to communicate agricultural statistics as a measure for the potential of agricultural development in local economies and includes additional agriculture economic development resources. The infographics have been shared with food councils, extension staff, regional and county level planners and economic developers, and farmers. The goal of the infographic is to provide a basic, easy-to-understand overview of the agricultural economy in the county and serves as a starting point for larger discussions around local agriculture and local food systems, among a variety of stakeholders, and also for discussions about the nuts and bolts of that system.
Objective 1: Develop Indicators Using Input from Advisory Group
Objective 2: Develop Comprehensive Database of Farmers in Relevant Counties
Objective 3: Gather Relevant Data from Survey Participants
Objective 4: Use both Gathered and Public Data to Complete Econometric Analyses
Objective 5: Further Explore Current Barriers to Growth of Portions of Agricultural Economy Implicated in Econometric Analysis
Objective 6: Implement Outreach and Dissemination
The issue of how to promote rural development is critically important to many areas of both North Carolina and the United States as a whole. Over the past several decades, public financial support for economic development in North Carolina has been heavily skewed towards urban areas. Local Agriculture, where the final sale of an agricultural commodity or its derivative occurs within a predefined boundary relative to where that item was produced, has become a more commonly discussed tool for furthering economic development without the need to leverage large scale public financial support. Because of the combination of land availability, proximity to areas of sufficient demand for horticultural goods, and agricultural expertise in the rural areas of North Carolina the idea of “Local Foods” is more and more commonly discussed as a potential engine for rural development. Recent research (Brown et al, 2013) has indicated that changes in farm sales within a county has historically been linked with changes in county wellbeing (measured using per capita income). This would occur both by transferring income from urban to rural areas as well as promoting the development of industries/businesses to support Local Agricultural production (i.e. farm supply stores, slaughter facilities, dedicated markets, etc.). However, prospective studies hoping to predict the "economic impact" of future changes, both in terms of absolute sales as well as changes in way these products are brought to market (such as through direct to consumer marketing channels), have not been able to make reliable predictions on a regional level. Furthermore, methodological limitations of how these databases were created limit their ability to be effectively used in evaluating whether farms that conduct direct to consumer sales are more interconnected with their local economies than non-direct to consumer farms and have a greater marginal impact per dollar of generated revenue. This marginal impact is what is commonly referred to as the “multiplier effect” in the literature. Within the southern region, there exists limited data that can be reliably used for conducting economic impact analyses with regards to agriculture. Furthermore, because of the sparsity of available datasets, it is currently difficult to evaluate whether there exists empirical evidence to support hypothesis as to how Local Agriculture may drive economic development. The purpose of this research was to collect the economic information necessary to evaluate the holistic economic impact of Local Agriculture today in North Carolina and more broadly across the Southern Region.
While the growth of Local Foods has been repeatedly implicated in being causally associated with positive economic changes to society, little work has succeeded in quantifying the potential impact. These types of analyses are typically done using the IMPLAN database (IMPLAN Group, 2014). IMPLAN is composed of industry specific economic data and regionally appropriate Social Accounting Matrices (hereafter SAM) information to derive both the expected direct and indirect effects of changes to the economy. The SAM information allows for the IMPLAN database to parcel out the anticipated effect of some economic change out to the level of the individual household. However, because of the fact that much of this information is interpolated, there is much reason to believe that while it models well the forms of an industry that are most common (such as corn, soybean, tobacco, and cotton production in NC agriculture) it represents the less common forms, such as Local Foods, less well. In fact, IMPLAN recognizes this fault with their agriculture data and instead encourages users to substitute their own data whenever possible. “Since the agriculture data are, to a large extent, derived, analysts with local agriculture data are encouraged to use it when building their IMPLAN models” (IMPLAN, 2015).
This study aimed to collect and study farm household level production and economic data to corroborate the veracity of the IMPLAN database SAM information. Primary economic, demographic, and agricultural data was collected from across NC to be used in this interrogation through a mail based survey. In addition, the most recent USDA Agricultural Census and other secondary datasets were also incorporated as an accuracy benchmark in the analysis. Both the collected survey data and secondary datasets were analyzed quantitatively. The quantitative approach was taken in order to try and deduce statistical relationships between different traits of farms in North Carolina. To facilitate this scale of analysis, the sampling frame for the survey used in this project was stratified along both geographic region and economic tier status of the counties. We hoped that sufficient sampling coverage would be had in each of the chosen counties to conduct analysis for each one separately. For 5 of the 9 surveyed counties however, sufficient data was not collected to facilitate this level of analysis. Therefor the data was analyzed at higher levels of aggregation, namely the geographic region.
The major research hypothesis that was investigated was whether there was a difference in the relative degree to which farms that sell Local Foods purchase their own inputs preferentially from a larger number of businesses than those that do not sell locally. We used comparisons against the Agricultural Census with regards to production categories, scale of operations, and operator demographics to determine whether our collected sample was representative of the population. The 2012 Census of Agriculture provides a fortuitous benchmark for measuring how well IMPLAN represents the economic value of “Local Foods” to regional economies in NC. Because of how the agricultural sectors are grouped within IMPLAN, we included in our analysis all horticultural and nursery crop production. Given that the Local Foods movement is trying to reconnect consumers with producers of wholesome food products, the value of Direct Sales is an appropriate measure of the effective size of the movement and can be viewed as a proxy for “Local Food” sales in the analysis. Direct sales comprise all sales made directly to consumers regardless of venue; examples of direct sales include but are not limited to sales at farmers markets, roadside stands, CSAs, direct to restaurant, etc). The greatest increases in direct sales in recent years nationally has been in the area of fruits and vegetable in local markets (correspondence with national advocates for Local Foods). Local Foods advocates argue that the economic justification for public support going to these type of agriculture is that by substituting locally produced farm products for goods supplied from outside of the community/region, the region boosts farm productivity, farming intensity, and enhances the linkages between agriculture and supporting industries causing the associated economic multiplier within the regional economy to increase. Thus, if Local Foods demands increase, there may be measurable positive economic impacts.
The Local Foods movement has grown in popularity over the past decade. Proponents advocate for public financial support of the movement because of the large number of social ills Local Foods is thought to be able to impact for the better. As with all economic industries, analysis meant to predict the economic impact of different changes to the agricultural economy and the value of Local Foods sales are most commonly conducted using the IMPLAN database. Based upon the methodology from which much of the IMPLAN database is derived, there is reason to suspect that this dataset does not represent Local Food ventures well and thus analyses that use this dataset may be biased against Local Foods from the beginning. In order to determine whether this is in fact a problem for the agricultural sector of North Carolina, a statewide survey of farmers was undertaken.
The results of these analyses speak to a number of important characterizations of NC agriculture today. First and foremost, NC agriculture today is highly diverse with a large range of farm sizes, values, profitability, and marketing/sales strategies. While there are certain structural differences that exist across geographic regions (such as average farm size increasing as one moves east), in general there were few types of agriculture that were unique to a single area. The exception to this is certain types of horticultural production located uniquely in the Mountains (such as with apples and Christmas trees). Secondly, farms of all but the highest values and acreages engage in Direct to Consumer Sales in NC. Thirdly, the point at which NC farms start reliably being profitable is around 100 acres in size. These last two findings are particularly important for proponents of the Local Foods movement to consider because of the outstanding issues with the ongoing loss of midsize farms and improving farm profitability.
An additional analysis was conducted to determine whether farms that sell directly to consumers buy their inputs from a greater range of businesses than those that do not. It has been hypothesized many times (Otto & Varner, 2003; Swenson, 2006; Sonntag, 2008; Hughes et al, 2008; Swenson, 2009; Henneberry et al, 2009; Swenson, 2011; Low & Vogel, 2011) that direct to consumer farms would be associated with a higher economic multiplier than comparable non direct to consumer farms. This effect would in essence be mediated by the degree to which each kind of farm is embedded in the social and economic fabric of the community. For the purpose of this analysis the strength of this embeddedness was operationalized by the number of entities they do business with. We found that farms that sell direct to consumers are statistically more likely to buy from a greater range of input suppliers than farms that do not.
In addition to the analysis of the primary survey data, we also studied secondary data from the IMPLAN database and the Agricultural Census to determine whether the NC “Local Foods” sector is being well represented. The findings of the analysis however found that while livestock production is represented fairly accurately while fruit/vegetable production is not. This is consistent with the fact that livestock production is a far larger portion of the NC agricultural economy and thus would be expected to be better represented in the database. The intention of collecting the survey data used in this project was to test the accuracy of the IMPLAN database to field data collected in NC, however we were unable to use the data for this purpose however due to a lower than necessary response rate across a sufficient number of sampling regions. However, analysis of secondary data argues that it does not well represent this portion of the agricultural economy. Future work in this area should strive to better evaluate the current accuracy of the IMPLAN database to determine the degree to which it is effective at being used in forecasting the net economic impacts of changes to the agricultural economy.
Educational & Outreach Activities
There are two research publications in preparation based on this research. 1. Primary and Secondary Analyses of Farm Household Economic Date in North Carolina: A Quantitative Study on Local Foods (target date, fall 2016) 2. The History and Arguments for Local Foods Nationally (target date, fall 2016)
Outreach: As part of this project, in addition to many state and national presentations that incorporate this work, we utilized both direct results and examples and data from statewide successful local foods projects to create several outreach tools to aid economic developers, planners, food policy councils, and others in making the economic case for local food systems development. These include:
Video production: The video will demonstrate the findings from this research that farms that sell direct to consumers are associated with a higher economic multiplier and, therefore, expansion into the local foods sector for farms of various sizes, may be an opportunity to increase profitability. In the counties where direct markets are scarce or budding and not yet profitable, opportunities for local food through local food businesses may connect local farmers to more profitable and more expansive markets. The Warren County Foodworks/Working Landscapes project was selected as a model local agriculture venture demonstrating a replicable small food business and food processing distribution facility; essential elements to a dynamic food supply chain. A video was developed to demonstrate the opportunity to capitalize a historic agricultural community in a highly economically depressed county in North Carolina. Working Landscapes works with fifteen unique school systems in North Carolina to supply fresh locally produced greens and cabbages to school cafeterias. Their small processing facility reaches thousands of students throughout the state. The role of the video will be to communicate that through developing a local food economy and supply chain for small and mid-sized farmers, we can create jobs; spur economic development and growth in our rural, suburban, and urban communities; foster entrepreneurship; motivate and inspire people to act; and give them ways in which to act. Furthermore, the video explains that while building economic opportunities, we also have the potential benefits of improving health (lowering healthcare costs), supporting farmers and food entrepreneurs (and beginning farmers), and cultivating resiliency in our communities.
Outreach Plan: These two tools are part of a larger package of webinars, courses and case studies developed by The Center for Environmental Farming Systems. All of the tools will be used in outreach via the CEFS website, NC 10% Campaign member database and website, conference sessions, and presentations to stakeholders around the state.
Impact: The impact of the video will be to demonstrate how entrepreneurship and rural revitalization supported by economic development and county officials can provide better economic return for farmers expanding to local food markets. The video will speak in terms of the county decision makers, defining agriculture as a viable industry, and outlining ingredients for lower-risk/lower-cost support of local food business development. Local Food Spending
Data Visualization Tool: Interactive online data visualization for use by extension local food coordinators, ag professionals, and county government officials will be made available via the NC 10% Campaign website and CEFS website to show impact of local food spending by NC consumers and local food businesses.
The Role: This interactive tool will demonstrate the impact that local food spending can have on a statewide level and a county level. Users can see where consumers are buying local foods and can connect how county-based support of various local food markets can shape consumer spending. The interactive components enable extension local food coordinators, ag professionals, and county government officials to look specifically at their counties, compare to other counties, groups of counties, or regions in NC; and enable the user to look at local food spending across food sectors and seasonality.
Outreach Plan: The interactive data visualization will be available online for general consumption, will be promoted through the NC 10% Campaign member database (over 9000 consumers and businesses), and will be included in webinars and online toolkits for economic development offices and county officials. Extension local food coordinator training has been proposed for the Statewide Cooperative Extension Conference in November 2016 on how to use the interactive data visualization and how to share with county commissioners and other leaders in their communities.
Impact: Data visualization of a large set of local food spending data is an efficient and insightful way of relaying the message that purchasing locally-grown foods can bolster an area’s local community. These visualizations can help create a shared view of the current trends of local food spending in NC from a subset of data and can help frame needs for county-based support from economic development or county-based resources to foster local foods contribution to the local economy.
Infographics: One hundred and sixteen infographics were developed using USDA census data and a state Farmer’s Market inventory. Fifteen agricultural data points comparing USDA census data from 2007 to 2012 are featured in one hundred North Carolina county and the sixteen corresponding Council of Government region posters. The posters feature a narrative guide detailing how to use the tool to communicate agricultural statistics as a measure for the potential of agricultural development in local economies and includes additional agriculture economic development resources. The infographics have been shared with food councils, extension staff, regional and county level planners and economic developers, and farmers. The goal of the infographic is to provide a basic, easy-to-understand overview of the agricultural economy in the county and serves as a starting point for larger discussions around local agriculture and local food systems, among a variety of stakeholders, and also for discussions about the nuts and bolts of that system. In evaluations, 150 people who attended regional food policy council meetings, 68 percent gave the info graphics the highest rating that they will be very useful in their work, and 81 percent indicated they would use them. Each data point will feature a case study from a North Carolina project describing the growth in that sector and how local councils, government agencies, or extension worked to support that growth area. These two tools are part of a larger package of webinars, courses and case studies developed by the North Carolina Growing Together Project and The Center for Environmental Farming Systems. All of the tools will be used in outreach via the CEFS website, conference sessions, and presentations to stakeholders around the state.
In North Carolina today there is a great deal of debate at the local, county and state levels as to the most cost effective ways to encourage economic development in every corner of the state. These debates are focused upon the issue of the expected marginal return to each public dollar that is used to subsidize some industry regardless of the exact form that subsidization takes. Because of the demonstrated poor representation of the relevant agricultural sectors in the database used to conduct economic impact analyses, the economic benefits of local agriculture that are thought to accrue based on the closer spatial proximity of buyer and seller will be poorly estimated. Consequently, any evaluation that is presently done with this database to determine which portions of the agricultural economy are expected to be the greatest drivers of economic growth in the long run are biased against certain subsectors such as Local Foods.
The focus of this research was to first collect data of an adequate resolution to be able to determine if there exists evidence that farms that market their products direct to consumer are tied to their local economy differently than those that don’t. Secondly, it was to use information from the Agricultural Census to determine if the IMPLAN database adequately represents all portions of the agricultural economy. This information was then used to forecast plausible scenarios for growth down the road. Additional work is being conducted to explore how best to effect these hypothesized changes. The findings from this study will be used to inform decision makers in the state as to what industries and subsectors within should be candidates for public investment because they have been demonstrated to be drivers of economic. North Carolina has a strong tradition of agriculture and the inherent spatial proximity necessary for many of its workings makes agriculture a logical candidate for consideration as a tool by which to achieve economic development in portions of the state that are not currently being targeted for investment by other industries.
One outstanding question in the ongoing debate about the potential benefits of Local Foods (these include economic, social, and environmental benefits) concerns whether farms that engage in Direct to Consumer Sales are associated with a higher economic multiplier than those that do not. Because this multiplier represents the number of other businesses a company is attached to, one would expect businesses that have dealings with many companies to be associated with a higher multiplier than businesses that deal with only a handful holding other variables constant (such as total revenue, number of employees, location, etc). Furthermore, as businesses do more and more business with fewer and fewer entities that are able to provide a wide range of services, these businesses become more likely to be based in other communities (i.e. “non-local”; buying hardware supplies at a relevant big box store whose headquarters are based elsewhere as opposed to purchasing it from the local hardware store) thus providing a second way in which the total value of the money in the economy is failing to be maximized.
One of the interesting pieces of data that was collected in the current survey was a list of all the individuals/businesses/entities a given farm bought from or sold to in the past year. Analyzing this data found that for the state of North Carolina, farms that engage in Direct to Consumer Sales bought from statistically more entities (mean/median = 8.9167 / 7) than those that did not (mean/median = 5.1923 / 3; t(36) = 1.9263, p = .0620); a stronger effect was observed when limiting the analysis to farms that do below $256,000 in revenue per year (t(33) = 2.1803, p = .0365). This was also true for the Piedmont region specifically (D2C farms mean/median = 9.1250 / 7, Not D2C farms mean/median 4.1429 / 3; t(20) = 2.1233, p = .0474). While we cannot use the present data to corroborate the default IMPLAN Information, it does support the ongoing hypothesis in Local Food circles that Local Foods farms are 76 associated with a higher economic multiplier than farms that do not sell direct to consumers. Differences in the methodology used here relative to IMPLAN’s preclude us from hypothesizing with any amount of reasonable accuracy the true multiplier for these industries. The final outstanding question the data collected from this survey can help answer is what size of farms are suitable for Direct to Consumer marketing. As mentioned immediately above, these types of questions are of importance because of the desire advocates for Local Foods have in encouraging further public subsidization of this agricultural sector. This subsidization could take the form of a number of mechanisms including but not limited to direct payments, incorporation into “Crop Insurance” programs (thus decreasing annual risk), increased use of Electronic Benefit Transfer payments (EBT; i.e. SNAP) at farmers markets (thus decreasing transaction costs) and many others. Amongst the respondents to this survey, farms up to 650 acres in size take part in Direct to Consumer Sales (Data Not Shown). This finding implies that expansion into the Local Foods sector is realistic for all but the largest farms in North Carolina; doing so may be an opportunity for them to increase profitability.
See above in Methods and Materials
As interest from consumers grows and new markets develop or are strengthened for local products, including institutional and retail markets in addition to direct markets, an increasing number of producers are able to grow for these markets and shift their supply chains locally while capturing the market/revenue opportunities involved.
Areas needing additional study
We were not successful in this study collecting enough local and regional data to amend the IMPLAN database for our original purposes. This occurred due to lack of response to the surveys and associated followup in some counties; this was likely because of the sensitive nature of the data necessary to collect. Developing more precise estimates of the value of local foods to local economies that go beyond statewide estimates that rely on IMPLAN data and that take into account the variation in production systems within a state is important for accurate estimates. Research is also needed to elucidate the value (both economic and social) of the other key benefits of local food systems (health, alleviating racial disparities in outcomes, food security, land preservation, ecosystem services, etc). While there exists a number of economic methodologies to elicit the implied “value” of the answers to these questions such as Willingness to Pay / Willingness to Accept, Contingent Property Valuation, and others, additional research has shown that these methodologies fail to elicit consistent valuations across time when one focuses on highly abstract topics (Diamond, 1996). One big step forward would be to solve this well-known methodological limitation on finding a common metric to equally value these different traits.