Final Report for SW95-020
A growing number of people believe that sustainable community food systems (where
food is grown, processed, and distributed locally with strong emphasis on environmental
and social values) provide a viable economic alternative to the industrial food system.
The purpose of this study is therefore to determine if sustainable community food
systems can be cost competitive with industrial food systems and under what conditions.
B. Establishinga context for sustainable communityfood
In the past several decades farms have become larger and more industrialized. A mass
production processing and distribution infrastructure has also developed to support these
large farms. Meanwhile, many small scale, local producers and processors have been
bought up or have gone out of business because they could not compete with the large,
agri-business food producers.
Despite the ability of the industrial food system to deliver ample quantities of a diverse
range of foods to feed a large population, a growing number of people are raising
concerns about its impacts on the environment, farm households, consumers, food safety,
and quality of life in rural communities. Sustainable community food systems are
therefore being suggested as viable alternatives.
The key differences between the industrial food system and the community food system
results from the fact that they are based on fundamentally different paradigms or "world
views". The industrial food system is viewed as the commercial production and delivery
of food at the least economic cost, to those who can pay for it. Profitability is achieved
by replacing labor with capital; maximizing throughput; controlling nature with
technology, fossil fuel and chemicals; and by specializing and routinizing tasks.
Conversely, sustainable community food systems operate at a human scale with strong
attention to environmental integrity, economic self-reliance and social well being.
c. The economics of sustainable on-farm food production
Sustainable, community scale food producers have the following characteristics: they are
typically small in comparison with industrial producers;their crops are diversified; they
use innovative practices to improve soil quality and plant and animal health; and they are
often new to farming.
Integrity Systems Cooperative Co. v
1. Crop production yields
A common perception about sustainable crop production is that yields are
significantly lower than crops produced with industtial methods. While some
research studies confmn this perception, many others show that yields can be the
same or higher for a variety of crops under sustainable production. The most
important factor in determining yields seems to be the management skills of the
farmer. Further, most researchers agree that yields tend to decline for three to five
years during the conversion from industrial to sustainable growing methods.
2. Crop production costsand net income
Crop production costs are difficult to compare between sustainable and industrial
approaches because industrial production is usually evaluated on an individual crop
enterprise budget basis whereas sustainable production is best suited to a whole
farm analysis. As with yields, some research studies show that crop production
costs are higher under sustainable production while others show that they are lower.
However, on a total farm income basis, there is considerable evidence to suggest
that sustainable food producers can generate similar and even better financial
returns than comparable industtial food producers.
3. Food animal production costsand net income
One of the fastest growing, small scale animal enterprises is homestead chicken
production. Many farmers have found that they can earn good supplemental
income even on relatively small annual production levels (300 to 1,000 birds).
While homestead chicken production generates less net income than industrial
chicken production (which has higher throughput), the profit per bird under
homestead production is much higher.
Concerning homestead beef and pork production, evidence is growing that pasture
raising and finishing of cattle and pigs can result in higher net income to farmers
than indusnial confinement feeding alternatives. Funher, there is growing evidence
that small herd dairies, managed on an intensive rotational grazing method, provide
greater profitability per unit of production than large, high technology confinement
operations. One Ontario study demonstrated that total farm income was 24% higher
under sustainable dairy production.
For both sustainable crop and animal production it appears that grower profitability
improves the longer that they use sustainable food production practices. Further
community scale food production has the benefit of puning underutilized farm equipment
and facilities into productive use at minimal cost.
Small scale, organic food producers typically receive a significant price premium for their
products (many receive average premiums of 30%) when selling through conventional
disttibution channels. They face the same distributor and retailer markups as industrial
Integrity Systems Cooperative Co. VI
. . - ..' -. -- ---
D. The economics of sustainable communityfood processing
Very little published infonnation is available on sustainable community food processing.
This is because there is not currently much activity in this area and where there is, it is
conducted by private sector fInns who are very reluctant to release their competitive
A number of processing options have strong applicability to sustainable community scale
processors. These include "ready made" (Le. ready-to-cook or ready-to-eat) processed
foods, canning and bottling, and custom-packing meat processing. Ready-made
processed foods are well suited to local markets, typically involve less capital equipment
to produce than other processed foods, and command premium prices. There is good
potential to can and/or bottle high acid foods although the best opportunities appear to be
for ready-made canned or bottled goods such as soups, stews, and sauces. On-farm or
off-farm custom processing of small quantities of chickens also has strong potential.
1. Farmer controlled processing
Traditionally, farmers receive their lowest returns from the commodity processing
market. This is because processors need to acquire their farm inputs for as Iowa
price as possible to compete in the very low margin processed food market. One
strategy to address this is farmer controlled processing.
A growing number of fanners have established successful grower owned,
processing cooperatives to obtain secure markets and better prices. Some of these
processing cooperatives are very large. Other farmers have resorted to small scale
on-farm processing. In some cases, individual farmers have joined together to
jointly purchase processing equipment and storage, washing, and grading facilities.
2. Economiesof scale
In general, the profItability of industrial food processing fInns increases in a linear
fashion with fInn size. This is why there is a high degree of consolidation and
vertical integration in the food processing sector. Nonetheless, there is evidence
that small quantity, on-farm processing can be economically viable because the
processors are able to keep their costs low by using farm family labor and on-farm
kitchen facilities. However, small scale processors that wish to increase their sales
of value added products face unexpected diffIculties. This is because they are too
large to use hand processed, low overhead production methods but not large enough
to capture economies of scale. The primary exception to this is processors of
"ready-made" food products, which can be quite profItable at a medium scale.
3. Significanceof incomepatching
A key characteristic common to community level food processing activities is
"income patching," where the processing activity is one of several sources of
income rather than the processor's sole source of support. A number of
opportunities exist for farmers to significantly increase their cash returns on a
Integrity Systems Cooperative Co. V11
". ... - .. - . _..:.. .. n ___ __.
portion of their crop from small-scale on-farm value added processing. For
example, an apple sauce processor generated the equivalent of 6 months of a retail
sales clerk's salary in only 16 days of processing. Similarly, a homestead chicken
processor earned 5.5 months retail sales clerk pay in 19 days of labor. As with food
growers, strong management skills are needed to be successful.
Unlike fresh products, the costs to produce organic and non-organic processed foods are
very similar. Nonetheless, organic processed foods are generally much higher priced.
The net margins for processors that distribute through industrial channels are typically
less than 5%. It appears that the path to profitability for community scale processors is to
achieve a high margin on small production quantities as opposed to the industrial strategy
of producing high quantities of low margin products.
E. Theeconomics of sustainable communityfood distribution
The three primary options for distributing fresh and processed foods include: sale to large
wholesalers/distributors, sale to local, independent retail outlets, and sale direct to
consumer. While sale to wholesalers/distributors makes up the lion's share of the food
distribution market, the best opportunities for sustainable community food systems
appear to be sale to retail outlets and sale direct to consumer.
Producer/processor wholesale marketing cooperatives are a good example of selling to
retail outlets (as well as institutions like schools and hospitals). These cooperatives give
micro and small growers access to markets that would not otherwise be available to them.
Direct to consumer distribution avenues typically include road side stands, farmer's
markets, direct home delivery, community supported agriculture (CSA), and food buying
clubs. However, there are many different combinations of direct to consumer food
distribution approaches that can produce profitable results. Further, these distribution
methods not only provide economic benefits, they also provide social benefits by
enhancing community relationships and educating people about the benefits of buying
local, sustainably produced foods.
Roadside stands can be a very direct to consumer retail food distribution approach
because the distribution cost is eliminated by the consumer coming to the farm (or near
the farm). Farmer's markets are typically less capital intensive than roadside stands
because buildings and equipment are shared and they are more conveniently located for
the consumer. However, these costs savings are often offset by the higher transportation
and sales labor costs. The gross returns from farmers' market sales are typically 200% to
250% higher than from wholesale fresh market sales and can be much more.
Direct home delivery was once quite popular but has declined in popularity over the past
few years (e.g. home milk delivery). However, recent consumer lifestyle and attitude
changes are signaling a reversal of this declining trend. The strongest reason for the
resurgence in the popularity of home delivery is convenience. In spite of this strong
consumer demand, each home delivery firm tries, and is generally successful at keeping
prices competitive with comparable retail grocery store prices.
Integrity Systems Cooperative Co. viii
Community Supponed Agriculture (CSA) is a pannership between farmers and
consumers to create a fresh food supply without waste or pollution. While some CSAs
operate in a typical commerce relationship, most involve much closer relationships
between the customers and the food providers. Shareholders are encouraged to visit the
farms, not only for festivals but also to help with farm tasks such as weeding and
harvesting. There are over 500 CSAs in North America and the number of CSAs is
growing at 12% per year. While the end consumer price of a CSA can be competitive
with regular grocery store prices, prices vary widely from one farm to another.
Food Buying Clubs are the reverse of grower cooperatives. Typically groups of
consumers come together to pool their food purchases to generate large enough orders to
deal directly with distributors or even growers. A consumer survey in Hartford showed
that food buying clubs saved 20% on their groceries.
In general, the fewer middle-agents that food products pass through on their way to the
consumer, the more money the farmers or processors receive. Therefore, farmers and
processors maximize revenues when they can sell direct to the retail consumer, followed
by wholesale sales direct to retailers, then wholesale sales to distributors, with sales to
processors typically bringing in the least revenue. Food producers can receive 50% to
80% more by selling direct to the consumer. As with the growers and processors, the
economic success of community scale distributors depends on excellent management.
F. Conclusions andfutureresearch needs
Based on the above, there appear to be a number of niche areas of production, processing,
and distribution where sustainable community food systems can be competitive with the
industrial food system. This finding helps to dispel the belief that costs under a
sustainable community food system are so much higher than existing alternatives that
they wo.uld be uncompetitive. It also provides strong justification for communities to
explore the development of local food systems as a key component of a community
economic development (CED) strategy. For example, assuming that a sustainable
community food system could capture 5% of the total food market, it would generate
$13.5 million in annual sales for a community of 150,000people.
An expansion of the sustainable community food system gives farmers the chance to
bring home a greater share of the consumer food dollar. At present, farmers receive only
$22 for every $100 that consumers spend on food. However, under a sustainable
community food system it is possible for the farm value to increase to $30 because such a
system has lower marketing costs. It also returns more cash to post farm labor, which
improves community prosperity. This 37% increase in revenues would represent a
significant improvement in the economic viability of the average American farm.
While this repon represents an initial effon to determine the economics of sustainable
community food systems, more research is greatly needed. Key research needs include: a
detailed analysis of the costs to shift from industrial to organic production for panicular
food products; a detailed economic analysis of processed food products that could be
viable at a community scale production level; and a detailed analysis of the costs and
revenues associated with panicular direct to consumer food distribution techniques.
The primary purpose of this study is to determine if sustainable community food systems
can be cost competitive with existing industrial food systems and under what conditions.
Supporting objectives are to:
o Determinethe economicsof sustainable,small-scaleagricultureproduction
o Determine the economics of community-scale food processing systems
o Determine the economicsof community-basedfood marketing/distribution
o Describe the key barriers and opportunities for establishing sustainable
Integrity Systems Cooperative Co. 1
While this study focuses on the economics of sustainable community food systems, we
recognize that food systems can only be sustainable if the economic aspects are integrated
with imponant social and environmental values. Because little information exists on how
environmental and social values impact on the economics of food systems, they were
under-represented in the study.
Funher, the conditions affecting food production, processing, and distribution vary
widely from one area to the next. For example, cenain types of crops, such as vegetables,
can be grown in most regions of the United States, while others, such as grains, are more
suited to panicular regions. Other variables such as rainfall, length of growing season
and population density also have a major impact on the economics of local food systems.
These variables underscore the point that the economics of a community-based food
system cannot be taken as an absolute.
Nonetheless, we were able to provide anecdotal evidence of the creative and
economically successful ways in which people have incorporated these values at all
stages of the food system. While this evidence does not provide conclusive proof, it
points to some inspiring possibilities for building community, economic vitality, and
environmental integrity into our food system.
Over the past half century the United States food system has become increasingly
industrialized. Agricultural crops are being grown by fewer and fewer farmers on larger
farms using increasingly sophisticated machinery. Similarly, an increasing amount of
food processing is being done in large, centralized plants with national and even
international markets. Retail distribution is increasingly conducted in large "superstore"
grocery store chains.
While the industrial food system continues to expand in the United States, a growing
number of individuals believe that sustainable community food systems (where food is
grown, processed, distributed, and consumed locally as much as practical and with strong
attention to social and environmental values) provide a viable economic alternative.
They also believe that sustainable community food systems provide environmental,
social, and local economic benefits that cannot be matched by the industrial system.
One of the primary impediments to serious consideration of sustainable community food
systems is the generally held perception that the resulting retail prices would be too high
to gain widespread consumer acceptance. However, if an economic argument could be
made that, under certain conditions, a sustainable community food system is cost
competitive with the industrial food system, it may open the door for greater adoption of
sustainable community food systems.
We used three primary research methods to obtain the information for this repon. These
o An extensive literature review including published and non-published
documents. About 135 documents were reviewed as part of this study and are
listed in the bibliography.
o Interviews with numerous individuals who are knowledgeable about the
economics of food systems. Over 125 individuals were contacted. Some
private sector processors and distributors did not wish to be referenced for
reasons of confidentiality.
o Site visits to local food growers, processors, and distributors.
Based on the information from these sources, we analyzed the comparative costs and
revenues of a sustainable community food system and the industrial food system. The
results of our research are documented in this repon.
This repon was focused primarily on the United States. However, where there was a lack
of United States data, we used data from Canada and, in one or two instances, Europe.
A. Can a sustainable community food system be cost
competitive with the existing global industrial food system?
A community scale food system design that relies on the same strategies and techniques
(mass production, multilevel distribution channels) as the existing global industrial food
system would not generally be cost competitive. However, an integrated community
system could be cost competitive for many items when creativity and good management
is applied to maximize the net return from products grown and processed, and to
market/distribute these products through direct to consumer channels. This thesis is
supponed by the following findings from the previous chapters :
o Organic agriculture production on small farms (Chapter III) may be
slightly more expensive than industrially produced products during a 3 to 5
year transition period. Some items can be cost competitive with industrial
alternatives from the outset; and a large number of products can be cost
competitive over the long run.
o Community-scale food processing (Chapter IV) faces some real challenges
to be cost competitive with many industrial alternatives. However, significant
opponunities exist for local businesses to produce value-added processed food
products (especially fresh, ready-to-eat processed foods) at prices that are both
profitable for processors and affordable to consumers.
o Community-scale food marketing and distribution (Chapter V), which
makes a direct connection between consumers and producers/processors, can
be cost competitive with, and even less expensive for consumers than the
industrial food store alternative while returning more to the grower/ processor.
Based on the above, we conclude that there are a number of at least niche areas of
production, processing, and distribution where sustainable community food systems may
be competitive with the industrial food system. This finding goes a long way to dispel
the generally held belief that the costs a sustainable community food system are so much
higher than existing alternatives that consumers would find them prohibitive. It also
provides sttong justification for communities to explore the development of a local food
system as a key component of a community economic development (CED) sttategy.
Integrity Systems Cooperative Co. 60
B. Dothebenefitswarrantthedevelopment efforts?
Having detennined that a sustainable community food system can be cost effective in a
number of circumstances, the next question is "Are the benefits sufficient to warrant the
development efforts?" The economic and non-economic benefits are discussed below.
From an economic perspective, focusing sustainable community food system
development efforts on local disnibution channels (rather than national distribution
channels) does not necessarily mean that the potential market size is insignificant.
For example, gross annual food expenditures of a US community of 150,000people
is $268 million (USDA, 1995b). This is noteworthy because many growers and
processors have a local market of at least this size within a two hour driving
If a sustainable community food system could capture a 5% local market share
within five years, this would translate into $13.5 million in direct annual sales.
Achieving a 5% market share seems reasonable in light of the following:
o 42% of consumers are very knowledgeable and concerned about the
health and environmental aspects of food production.
o 25% of consumerswant direct home food marketing/deliveryoptions
and wouldbe willingto pay an additional10%premiumfor the service
o A 5% market share is equivalent to 40% of the food purchases of just
12%of community households (see Exhibit VI-I).
We caution that the figures in Exhibit VI-l are only notional. The amount of a
community's total food bill that could be satisfied by local sustainable alternatives is
difficult to predict. This is largely due to the absence of hard research data and the
dearth of mature local food system models that incorporate the full scope of food
system elements alluded to in this study. The economic impact depends on a wide
range of variables, not the least of which are: personal lifestyles, attitudes and
knowledge; quantity and quality of supply; an effective food distribution
infrastructure that connects local producers with local consumers; business planning
for alternative food systems, public policy, and the availability of capital.
2. Non-economic benefits
Many of the food system experts we interviewed questioned the bottom-line driven
economic analysis of sustainable community food systems. They felt that a food
system was much more than growing/processing and delivering food at a particular
cost. The sentiment was repeatedly expressed by our contacts that narrowly
focusing on the economics is not sufficient. Rather, when the food system is
viewed from a more holistic perspective, social and environmental considerations,
such as farm health, food security, air and water quality are equally important (pers.
comms. Feenstra, Forester, Schettini, Stevenson). For example, research indicates
Integrity Systems Cooperative Co. 61
that a community with a number of small to mid sized, locally owned farms is more
stable and has a higher standard of living than one with a few, corporate owned,
factory farms (Salant and Marx, 1995; MacConnell, 1988.)
It should also be kept in mind that if a systems approach is employed in developing a
local food system, the community benefits, economic and otherwise, increase
exponentially. This multiplier effect results from meeting many community needs with
improved community relationships, not only between farmers and consumers but also
with low income individuals, at-risk youth, elders, and so on (pers. comm. Winnie).
C. Themarketfor sustainablyproducedfoods is growing
Retail sales of sustainably produced foods have experienced phenomenal growth. In
1995, organic food sales in the United States grew by more than 20% for the sixth year
in a row and now exceeds $2.75 billion (Natural Food Merchandiser, 1996).
Nonetheless, this is still less than 5% of the total U.S. retail food market.
A USDA (1995a) repon entitled A 1994 Assessment of Certified Organic Production in
the United States revealed that there were over 4,000 certified organic fanners farming
over 1 million acres of land in 1994. These fanners make up about 0.2 percent of all US
fanners and the organic acreage represents just over 0.1 percent of all US agricultural
land. The repon estimated that there were an additional 1,800 non-certified organic
fanners. As an example of what is possible, organic agriculture in Sweden is on track to
reach 10% of the nation's total agriculture within the next two years (lFOAM, 1996).
Expanding the sustainable community food system gives fanners the chance to bring
home a greater share of the consumer food dollar. Exhibit VI-2 provides a rough estimate
of the improvement in returns to fanners under the sustainable community food system.
At present, farmers receive only $22 for every $100 that consumers spend on food.
However, under a sustainable community food system it is feasible for the farm value to
increase to $30 because the marketing costs are reduced. This 37% increase in revenues
would represent a significant improvement in the economic viability of the average
American farm. It also returns more to post farm labor, which boosts local employment.
D. Consumer attitudes and beliefs are very important
The most significant factor in determining how rapidly and to what extent sustainable
community food systems can meet local food needs is peoples' attitudes and perceptions.
This is understandable, given our assertion in Chapter II that industrial food systems and
sustainable community food systems are based on fundamentally different views of how
the world works. Some of the key trends and implications related to these consumer
attitudes and beliefs are presented in the following paragraphs.
1. Consumer attitudes and beliefsabout food are deeplyentrenched
While numerous examples exist of the excellent results that can be achieved
through creativity and a "can do" attitude, the following dominant consumer
attitudes tend to perpetuate the status quo of the existing food system:
o Productcost - the lowestpriceusuallywinsoul
o Productquality- visual quality is favored over taste and nutrition.
o Product consistency - consumers want unifonn size and appearance.
o Product availability - consumers expect year round supply of food items.
o Product convenience - consumers want to buy all their food products at
their industrial food shopping locations.
Urban agriculture is a good example of this predicament. In an "ideal" sustainable
community food system,eachhousehold would be much more food self-reliant than
it is today. There would be many more home gardens, community gardens, and
urban gleaning of fruit from trees now going to waste. Exploring possibilities for
"Urban Agriculture" is a growing focus in food systemswork and therea number of
interesting models under development (Feenstra,1995).
Recent research suggests that the economics of urban agriculture are quite
favorable. Community gardensare estimatedto saveconsumers90% of the cost of
food, compared with retail grocery store prices (Community Nutrition Institute,
n.d.). Likewise, a current study confmns that the quantifiable economic benefits
from urban agriculture in Hartford, Connecticut greatly exceed the quantifiable
economic costs (Nugent, 1996). We note that labor is not typically factored into
urban farmer's costs and while the time availability of urban dwellers is often low,
there are many people who do have time to engage in these pursuits.
Despite these findings, the proponion of total food consumption that was home
produced declined from 10% in 1953 to 1%in 1993 (Putnam, 1994). Funher, food
purchased away from home increased from 24% of the total consumer food
(Putnam, 1994) budget in 1950 to 39% in 1993 (USDA, 1995). Therefore,
substantialchangesin lifestyles(e.g. by time-strapped,over-workeddoublewage
earners) and attitude (e.g. toward community and cooperation) must occur before
for these types of options make major inroads.
Integrity Systems Cooperative Co. 64
Potential farm return increase under sustainable communit
Food Dollar Food System Percent
Cost Categories Allocation Target Amount Difference
Farm Value $22 $30 37%
Post Farm Labor $36.00 $43.00 19%
Packaging $8.00 $3.50 -56%
IntercityTransport $4.50 $2.25 -50%
Depreciation $4.00 $2.00 -50%
Advertising $4.00 $1.00 -75%
Fuels&Elect $3.50 $3.50 0%
B.T. Profits $3.00 $3.00 0%
Rent $3.50 $2.60 -26%
Repairs $1.50 $1.50 0%
Interest $3.50 $1.00 -71%
Other Costs 0%
Total Marketing Bill $78 $70 -10%
1993Data from Dunham, 1994
2. Consumer perceptions about organic food is changing
When consumers in a 1992 study were asked why they purchased organic produce,
the most common answers focused on personal or environmental health (Sparling et
aI, 1992). However, in 1996, the top two reasons given for purchasing organics
were quality/appearance and freshness/ripeness (The Packer, 1996). This suggests
that organic produce has been able to move past the niche market of socially and
environmentally aware consumers and is now attracting the mainstream consumer
who is primarily concerned with product quality and freshness.
Optimism for the success of sustainable community food systems can also be
gained from the reasons why consumers did not buy organic. In both the 1992 and
1996 consumer surveys, the top three reasons were non-availability; price, and lack
of knowledge (Sparling, 1992; The Packer, 1996.). Therefore, as consumer
knowledge improves; as organic produce becomes more readily available; and as
organic growing matures (resulting in lower farm costs), locally produced organic
foods should capture a great share of the total food market.
3. Consumer buying behavior is changing
While most consumer food buying behavior is deeply entrenched, a new food
buying ethic is emerging. There is strong evidence that more and more consumers
want fresher, better tasting, healthier quality products than are available from the
industrial food system (Richards et al, 1996).
In many ways sustainable community food systems can be compared with the micro
brewing industry. A decade ago the industrial wisdom was that beer could not be
produced at an acceptable price unless it was made in a very large, industrial style
beer plant with the associated economies of scale. More recently, however, micro
breweries and craft breweries have emerged that work on a different set of
economic principles. While they do not have the production economies of scale of
the major beer plants, they are able to offset their higher unit production costs with
lower transportation and distribution, middle-agent fees, equipment, and
advenising. They funher benefit from being able to charge premium prices. In
1995, micro or craft breweries captured 8% of total beer sales in Washington State,
up from 6% only two years earlier, notwithstanding that they cost more than
domestic, mass market alternatives (The Bellingham Herald, 1996).
There is also a growing trend for convenience among grocery store shoppers.
Recent research reveals that 75% of consumers would rather be doing something
else other than shopping in a grocery store. Funher, 25% of consumers express
interest in direct home food shopping delivery options. It has been estimated that
5% to 15% of consumer grocery purchases would be made through home delivery
services over the next five to seven years (Emerich, 1997).
While community food systems are at an early stage in their development, they
have potential to follow the same path toward greater consumer acceptance as has
occurred in the micro brewery industry. The micro brewery example suggests that
there is another way to look at the economics of food production, which greatly
Integrity Systems Cooperative Co. 65
. -.- . . - . . .- -.....-......-
enhances the long tenn economic survival of the small food producer, the health of
food consumers, and the quality of the community and natural environment.
4. Consumers are willingto pay more for a premium product
While price is still very imponant, consumers are clearly willing to pay premium
prices for premium quality products (e.g. gourmet ice cream, coffee and micro
brewed beers). However, optimism needs to be tempered by survey results
indicating that, except among a relatively small (7%) segment of ardent supponers,
a 10% premium may be the maximum that most consumers will pay for sustainable
food alternatives and only if it is conveniently available (Hartman Group, 1996).
Fonunately, there is evidence that higher sustainable food costs may soon decline.
As indicated in Chapter III, the higher costs experienced by sustainable growers
during transition to organic production, greatly decrease as their sustainable
production systems mature. More imponantly, as pointed out in detail in Chapter
V, changes in the food distribution infrastructure can increase revenues to
farmers/processors without increasing prices to consumers (see Exhibit VI-2).
5. Consumers are becomingmore health conscious
An in-dep~h 1996 national survey of food consumers found 52% to be receptive to
the individual health and/or environmental benefits offered by sustainable food
product alternatives (Exhibit VI-3 on Food Consumer Market Segments provides
details). This trend is fueling a broad expansion of the fresh fruit and vegetable
markets, both at home and within the food service sector. Fresh produce is one of
the principle near-tenn markets for a community food system (Cook 1991). We
note that consumers are more likely to buy fresh organic fruits and vegetables than
processed or packaged organic foods (Campbell Goodell Consultants, 1994).
6. Purchasing seasonal foodsis gaining popularity
Seasonality is beginning to be rediscovered. A number of chefs around the country
are creatively re-doing their menus based on the availability of fresh local food
options (Chefs Collaborative 2000, 1993).As well, a study has been done to inform
food consumers of how they can meet their daily nutritional requirements, as
prescribed by the USDA pyramid, with seasonal local produce in the Northeastern
United States (Wilkins et al' 1996). A coalition of community supponed farms in
Madison, Wisconsin has published a food book on eating seasonally from local
farms (pers. comm. Hendrickson).
7. Consumers are increasinglyconcernedabout quality of life
A 1996 national survey by Roper Strach Worldwide found that two-thirds of
Americans believe that economic development, environmental protection, and
health and happiness of people can go hand-in-hand, even though they had never
heard the tenn, "sustainable development". Roper characterized this active group as
"New Dreamers" - shifting the "American Dream" from traditional measures of
success toward community improvement (Miller, 1996).
One of the predominant traditional factors influencing American lifestyle is our
tendency to measure "success" in quantitative and consumptive terms - i.e.,moreis
better. This sentiment has created a society so busy that it will pay dearly for
convenience and has little time to discern quality. In the 1996 food consumer
survey, 30% of respondents characterized themselves as too busy and stressed to be
committed to anything. These same pressures are felt, to varying degrees, by the
other consumer groups as well (see Exhibit VI-3). This acquisitive drive has also
lead to a high degree of competition and a quest for least cost alternatives. Funher,
our need for instant gratification creates a demand for year round availability of
food products supplied by the industrial food system.
While these attitudes have created some opponunities for local food systems (e.g.,
home replacement meals), they tend to reinforce the industrial food system.
Fortunately, a number of new trends are promising for local food system
development. A growing number of individuals are opting for creative and
fulfilling vocations even though they are much lower paying (Harman and Horman,
1990). Many of the small-scale farmers and processors we interviewed seemed
content with their reduced income because of the deep satisfaction they were
experiencing. Voluntary Simplicity is a growing social movement whose adherents
eschew hectic high consumptive lifestyles in favor of more time for more
meaningful life pursuits.
The transition to a sustainable community food system will be more efficient and
effective if the unique contributions of local systems (e.g. proximity between
growers/processors and consumers,) are emphasized instead of duplicating the
industrialized food system on a local level. This philosophy is fundamental to the
following proposed strategy to shift to sustainable community food systems. The
following steps will contribute to this shift.
1. Educate and organize farmers
o Provide research and training in sustainable agriculture practices and general
business management. Support farmers in their transition from industrial to
o Assist with the formation of grower cooperatives - marketing, fresh market
processing, and farm equipment.
o Facilitate access to land and capital for first time farmers.
2. Educate consumers
o Educate consumers about costs and consequences of food system.
o Promote householdlneighbourhood gardening, cooking, and food preserving.
o Identify opportunities for nutrition through seasonal eating.
3. Developlocal marketing and distribution infrastructure
o Educate consumers how to participate in CSA's (Community Supported
o Identifylocal consumerbuyinghabits/un-metneeds and establisha dialogue
withthemaboutthe benefitsof sustainablecommunityfoodsystems.
o Foster the development of efficient food buying club/home delivery systems
accessible to small scale growers/processors and convenient for consumers.
o Encourage local, tax-supported institutions to purchase sustainable community
food system products.
4. Expand local value added processingactivitiesas the market develops
o Develop micro-brewery scale, efficient processing equipment and facilities
that can be shared by a number of small scale businesses.
Integrity Systems Cooperative Co. 69
o Establish mentoring/partneringsystems to nurture and support new value
added businessesby providingexpertiseon productformulation,processing
o Provide preferred access to start-up and expansion capital.
5. Offer more than food
o Nutritional guide of seasonally available local food options.
o Address as a community,issues such as food securityand nutrition for all
o Build community - strengthen cooperative relationships among diverse
people,rekindlea senseof place,andreconnectwithrhythmsof nature.
6. Encourage urban agriculture projects
o Promote projects to increase household food self-reliance.
o Develop local food purchase program by public institutions.
o Encourage in-city food production businesses by unemployed, underemployed,
These are some initial steps in developing a sustainable community food system. It is
hard to be more prescriptive because each community has different needs/resources and
each is at different stages in their readiness to adopt the strategies discussed in this report.
Comparative financial performance betweenindustrial and organic
Integrity SystemsCooperative Co.
Crop Type Units Conventional Organic % Difference
Winter wheat, Ontario
Yield tonnes/hectare 2.9 3.3 14%
Price $CAN/hectare 160 202 26%
Gross revenue $CAN/hectare 460 662 44%
Variablecosts $CAN/hectare 285 209 -27%
Gross margin $CAN/hectare 175 251 43%
Yield tonnes/hectare 5.5 6.4 16%
Price $CAN/tonne 126 126 0%
Gross revenue $CAN/hectare 691 811 17%
Variablecosts $CAN/hectare 606 325 -46%
Gross margin $CAN/hectare 85 485 471%
Corn and Soybeans, Wisconsin
Gross revenue $/acre 293 244 -17%
Variablecosts $/acre 139 76 -45%
Gross margin $/acre 154 168 9%
Soybeans, Wheat and Barley, South Dakota
Gross revenue $/acre 116 74 -36%
Variablecosts $/acre 101 59 -42%
Gross margin $/acre 15 15 0%
Corn and Soybeans, Nebraska
Gross revenue $/acre 168 157 -7%
Variablecosts $/acre 97 102 5%
Gross margin $/acre 71 55 -23%
Wheat, Barley and Peas, Washington
Gross revenue $/acre 176 118 -33%
Variablecosts $Iacre 125 53 -58%
Gross margin $/acre 51 65 27%
Industrial vs. sustainable roductioncost&revenuecomDarisons
Free Range Organic
Big Bird Medium
Average Dressed Lbs.
Gross Profit/Bird $1.15 $4.05
*All cockerls are $0.10 more than mixed, but consistently grow larger
**Conventional chickens receive 100% bagged food; organic chickens receive bagged food for fIrSt4 weeks,
then are fed grass and screening or mill wastes
***Includes bedding, electricity, heat lamps, transportation, etc.
****Cost estimate assumes that birds are custom processed; if processed at USDA facility, cost would be $2.25
Farmer margins selling to wholesale distributor
o 10% is the goal but most fanners only get 3-4% or just break even
(interviews with six organic fanners in Washington State)
Farmer margins selling to processors
o 0% is often the case and many fanners sell to processors at a loss.
(interviews with six organic fanners in Washington State)
Wholesale distributor margins selling to retailer
o 20 to 40% depending on services performed (Gibson, 1994)
o 15%margin after freight costs (Gibson, 1994)
o 20% margin after freight costs if broker is involved (Gibson, 1994)
o 30% (Pacific Strategies Group Inc., 1995)
Retailer margins selling to consumer
o 41% in supermarkets (Supermarket Business, 1995).
o 32% in supermarkets (Cook, 1991)
o 27%in grocerystore-all food items (Value Line Publishing, 1996)
Community scale food processing presents some interesting economy of scale
considerations. These are presented below.
1. Small quantity, on-farm processing can be economically viable
Products processed in very limited quantities by farm families using lower quality
or surplus produce and marketed directly to consumers can in many cases be cost
competitive for the consumer while being profitable for the farmer. Under this
approach, costs are kept very low by:
fl Using either an on-farm kitchen or borrowed facilities at a church, etc.
0 Relying exclusively on farm family labor i.e. hiring no employees.
0 Using self grown ingredients.
0 Marketing the end-products directly to consumers through farm stands,
CSA’s, farmers’ markets, or directly to retailers on a small scale.
The sales volumes of these types of products are usually limited, with revenues well
below what is needed to support the farm family. We note that volumes can be
increased somewhat by inviting other families in the community to help with the
canning and preserving, so long as the above conditions are observed. This type of
community involvement can provides significant social benefits as well.
2. Medium scale processing of cannedlbottled products poses challenges
Small scale processors that wish to increase their sales of valued added canned or
bottled products face many unexpected difficulties. Once production expands
beyond hand processed, low overhead production, it is very difficult to make the
economics work. The processing options for medium scale processing volumes
e.g. 100 cases per day are very limited. These production levels exceed the
capabilities of borrowed institutional facilities, yet are far too small to justify
construction of a processing facility. Few co-packers are willing to undertake such
small runs and even if one were found, the portion of the farmer’s previous return
that was attributable to his labor would then be paid to someone else. -
In the event that the processors can marginally increase their production, their
increased sales are almost all wholesale, further reducing their per unit return. As -
the sales shift from the informal distribution outlets, the emphasis also shifts from
the product itself to marketing. To effectively compete on grocery shelves, much
greater attention must be placed on packaging, labeling, product line diversity, and
price - all of which represent significant costs and result in very high retail prices.
Integrity Systems Cooperative Co. 32
A number of communities have tried to address this very difficult phase in the
growth of local value added food processing companies by creating food product
incubators. While their structure and operations vary widely, a common model is a
multi-purpose, mid-volume facility 50 to 80 cases/day that can be used by a
number of new companies for an hourly fee. While the incubators have helped a
number of small companies, communities have found it very difficult to make them
economically self-sustaining as the costs exceed the revenues generated pers.
comm. Toner, Dougherty, Wold, Sanchee, Hilchey.
This economies of scale conundrum is presented for apple sauce and apple juice in
Exhibit IV-4. When volumes are small and processing is done on-farm, the end
consumer price is competitive. However, the 200 case/day facility needed far more
administration than its sales could support, making the end consumer price
3. Medium scale processing of fresh processed foods can be viable
While challenges exist for processing canned/bottled food products at a medium
scale, it is often economically feasible to produce fresh processed foods at this
scale. In Exhibit IV-5, we provide relative cost and revenue figures for industrial
scale bread production and medium scale community level bread production
provided by a Washington state bread maker. While the unit costs of production
are higher for the small scale bread maker, the price premium that he can charge for
a fresh, organic end product allows him to make a net profit that is almost as high as
the industrial bread producer.
Relative profitability of industrial and community scale bread production
Industrial Organic, Small Scale
Costs and Revenues Bread Production Bread Production
Quantity Processed 24 oz loaves 1,000 1,000
Total Processing costs $ $1,275 $1 ,700
Marketing/Distibution costs $0 $0
Wholesale selling price $/loaf $1 .40 $1 .80
Total revenue $/1000 loaves $1 400 $1 800
Net Profit $/1000 loaves $125 $100
Retail selling price $/loaf $2.15 $2.75
Wolesale to retail mark-up 54% 53%
Processing costs 25% lower under industrial production
Retail price of conventional non-organic bread 22% less than organic bread
Source: Washington state bread producer organic production figures
Integrity Systems Cooperative Co. 33
Economies of scale comparisons for various food processing options
Pro- Industrial Distribution Retail Direct consumer comparable Processing/Distribution cases Costs Revenue cessor Distrib. Price Retail Price Margin Home Delivery Food Store Method /day fouart wI Profit Margin 25% Margin Wtih Marcn 30% Margin Price Home Kitchen - Stand 12 $1.89 $3.25 42% $3.76 On-Farm Cooperative 24
Farm Stand Sales $1.89 $3.25 42% $3.76 Direct to Retailer $1.89 $2.57 26% $4.28 40% $3.76 Home Delivery $1.56 $2.57 39% $3.67 $3.76 Institution Sales $1.56 $3.00 48% Not Community canning 200 $2.56 $2.56 0% $3.82 33% $3.66 $2.60 Through Distributor $2.56 $1.92 -33% $2.56 $3.82 33% $2.60 If Fully Burdened $2.56 $3.01 15% $4.02 $5.99 33% $2.60 Home Delivery $2.56 $3.01 15% $4.30 $2.60 APPLE JUICE
Gals Costs Revenue Margin Distrib. Price
Margin Home Delivery
Method /day /gal With Profil 25% Macian WI MarGin 30% Marain Price Farm Kitchen - Stand 150 $1.60 $4.00 60% $6.95 Home Delivery $1.60 $4.00 60% $5.71 $6.95 Community Business 400 $5.10 $0.00 $7.85 35% $8.30 Through Distributor ? $3.83 $5.10 $7.85 35% $8.30 Home Delivery ? $5.10 $7.29 $8.30 Note: figures in bold face represent end prices to the consumer
Economies of scale
(I) Pro- Industrial Distribution Retail Direct Consumer Comparable % difference
3 Processing/Distribution cases Costs Revenue cessor Distrib. Price Retail Price Margin Home Delivery Food Store from food
(I) (J Method /dav /QUJut.__wIProfit tarain 25% MarQin Wtih Margin 30% Marain Price store Drice
Home Kitchen - Stand 12 $1.89 $3.25 42% $3.76 -16%
g. On-Farm Cooperative 24
Farm Stand Sales $1.89 $3.25 42% $3.76 -16%
(J Direct to Retailer $1.89 $2.57 26% $4.28 40% $3.76 12%
Home Delivery $1.56 $2.57 39% $3.67 $3.76 -2%
Institution Sales $1.56 $3.00 48% Not relevant
Community Canning 200 $2.56 $2.56 0% $3.82 33% $3.66 $2.60 32%
Through Distributor $2.56 $1.92 -33% $2.56 $3.82 33% $2.60 32%
If Fully Burdened $2.56 $3.01 15% $4.02 $5.99 33% $2.60 57%
Home Delivery $2.56 $3.01 15% $4.30 $2.60 40%
Industrial Distribution Direct Consumer Comparable % difference
Processing/Distribution Gals Costs Revenue Margin Distrib. Price Retail Price Margin Home Delivery Food Store from food
Method /dav /aal With Profit 25% Marian W/ Marain 30% Marain Price store Drice
Farm Kitchen - Stand 150 $1.60 $4.00 60% $6.95 -74%
Home Delivery $1.60 $4.00 60% $5.71 $6.95 -22%
Community Business 400 ? $5.10 ? $0.00 $7.85 35% $8.30 -6%
Through Distributor ? $3.83 ? $5.10 $7.85 35% $8.30 -6%
Home Delivery ? $5.10 ? $7.29 $8.30 -14%
Note: figures in bold face represent end prices to the consumer
Areas needing additional study
As we have noted, consideration of sustainable community food systems is a relatively
new endeavor. While numerous communities are experimenting with various elements of
local food systems, no well developed and fully integrated sustainable community food
system yet exists.
It is therefore not surprising that our research reveals many gaps in the information
necessary for sustainable community food systems to achieve their full potential. To
follow are some suggested research priorities critical to the planning and implementation
of effective sustainable community food systems.
1. Contextual Information
o Identify communitycharacteristicsfavorable to food system development,
includingsize,demographicmix,culturalhistory,etc.,and assessthe typesof
food systemelementsappropriatefor variousconditions.
o Develop tools to assess the sustainability of community food systems.
Integrity Systems Cooperative Co. 70
o Detennine the "true cost of food" - i.e., the shelf price for various food items,
reflecting all indirect (packaging disposal, transportation subsidy) and external
(environmental cleanup and social welfare) costs. One approach could be to
conduct a life cycle analysis for different products.
o Establishnew economicanalysis criteria and tools that movefrom a purely
quantitative focus (how much) to a more qualitative one (satisfaction,
o Analyze the petrochemical inputs into the global industrial food system and
determine the impacts of substantial price escalation and unavailability.
2. On-Farm Production
o Conduct a detailed analysis of the costs and benefits of shifting from industrial
to organic production for particular food products. It is likely that certain food
products are more feasible to grow at a community scale using sustainable
o Investigate methods and economics of successful models for the small scale,
sustainable production of eggs, dairy and meat.
o Identify various bio-intensiveon-farm productionregimens, such as those
developed by John Jeavons (Timeline, 1996) and assess crop yields,
o Develop a resource directory for appropriate-scale, low cost farm equipment
for plant planting/weeding/harvest and animal housing/fencing.
We note that an extensive amount of effon has already gone into assessing the
research priorities of organic farm production. For example, the Organic Farming
Research Foundation's 1995National Organic Farmer Survey revealed the research
priorities of 1000certified organic farmers (Waltz 1996).
o Conduct a detailed economic analysis of the community scale production of
panicular processed foods that have strong potential for a sustainable
community food system. Further exploration of the processing economics at
different production volumes is also needed.
o Assemble a directory of efficient, small-scale food processing equipment with
information on cost, operations, output, infrastructure requirements, and so on.
o Design a micro-scale, mixed use, food processing facility and identify critical
equipment that needs to be included.
o Analyze existing communityfood processingbusiness incubationfacilities
Integrity Systems Cooperative Co. 71
o Conduct a detailed economic analysis of the costs and revenues associated
with particular direct to consumer food distribution techniques. Cost
comparisons between different direct to consumer food distribution techniques
would also be valuable.
5. Other food systemconsiderations
o Analyze the net comparativeeconomicimpact of communityfood systems
and industrial food systemswhen production,processing,and distribution
o Determine how prices of community scale-produced food products are
affected when their scale of production increases (i.e. would they still
o Develop methods to improve data comparability between community scale
food production and industrial scale food production.
o Compile existing research and case studies showing the economics, barriers
and successes/contributions of:
· Food Security Programs - such as food banks, gleanors, World Share, and
efforts of the Hartford Food System and Toronto Food Policy Council.
· Urban Agriculture - community and household gardening programs, and
green belt utilization programs.
· Programs for At Risk Populations - gangs, low income, mentally disabled,
o Identify government policies and regulations that frustrate sustainable
community food system development, and identify policies and programs that
facilitate the transition to sustainable food systems.