Quantifying the Multiplier Effect: What Sustainable Local Food Systems can Mean to Local Communities

Quantifying the Multiplier Effect: What Sustainable Local Food Systems can Mean to Local Communities

Summary

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 the current research is 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.

Objectives/Performance Targets

• 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

Accomplishments/Milestones

In order to properly conduct prospective analyses of the impact of changes in the “Local Agriculture” subsector to the local economy (for the purposes of this study local is defined as being within the state of NC) it is important to have data that reflects the nuances of agriculture across the state.  The vast majority of economic impact studies conducted today, both for agriculture as well as most other industries, make use of the IMPLAN database because of its disaggregation of relevant data down to the county level.  However, because of the fact that little agricultural economic information is reported below the State level, large amounts of econometrics/interpolation are used to construct this database.  Because of this fact there is reason to suspect that the economic benefits that accrue due to close spatial proximity between buyer and seller (i.e. economic multiplier effects) are being systematically undervalued in this database.  This is because their effects would have essentially been smoothed over through the sparseness of the sample relative to the population. In order to determine whether the IMPLAN database adequately represents all aspects of NC agricultural production adequately, including “Local Agriculture”, this project developed a two pronged research program to collect the necessary information.  The first prong of the research program was to conduct an economic survey of farmer’s from across the state to understand how their production fit into the local economy; we surveyed farmers without regards to whether they conducted direct to consumer sales.  This survey was stratified both along geographic regions and relative socioeconomic conditions to ensure representativeness for the state as a whole; the results of this survey were used to determine if farms that engage in direct to consumer sales are integrated into their local economies differently than farms that do not.  The second prong was to reconcile the IMPLAN database against the most recent version of the Agricultural Census in order to make use of the latter’s far more extensive sampling frame.  Economic impact analyses were conducted with both the original IMPLAN database as well as the reconciled one in order to measure the original bias of that database due to the methodology with which it was created. 

For the first prong of the research program, the economic survey of farmers, we derived a representative sampling frame in order to collect data stratified both along geographic region (North Carolina can be divided into three predominant geographic regions along an East-West axis: Mountains/West, Piedmont/Central, and Coastal Plain/East) and economic tier status (a measure of the long term forecast for economic growth in the county as defined by the North Carolina Department of Commerce). At random a county corresponding to each pair of traits. These counties are: Burke (I – Mountain), Transylvania (II – Mountains), Henderson (III – Mountains), Anson (I – Piedmont), Rowan (II – Piedmont), Chatham (III – Piedmont), Robeson (I – Coastal Plain), Wayne (II – Coastal Plain), Carteret (III – Coastal Plain). While these counties were in no way selected based upon their relative agronomic output, they represent a diverse sampling of counties from across the state.  The sampling frame for each county was defined using contact lists maintained by the North Carolina Cooperative Extension Service, relevant non-profit organizations, and the participation lists of the Present Use Value Taxation Deferment Program (North Carolina landowners may have a portion of their property taxes deferred for 3 years at which time the value is forgiven if the land is used in some type of agricultural/horticultural/forestland production program and other minimum requirements are met). While approximately 10% of each county’s sampling frame is being surveyed, the percentage of farmers that represents within each county varies tremendously.  In certain counties extensive follow-up surveying has been required due to a high percentage of the farmland being held by non-farmers or outside organizations.  Having completed the survey process, the pattern of responses (with regards to such things as age, gender, ethnicity, farm acreage, crops produced, ways of marketing, etc.) are in agreement with what is reported in the Agricultural Census implying that we did achieve a representative sample.  Analysis of this data found support for the hypothesis that there is a greater multiplier associated with direct to consumer farms than others.  Additional work is being conducted to explore the potential for novel market opportunities that were revealed from this survey work. 

For the second prong of the research program, comparing the results of economic impact analysis conducted with both the original IMPLAN database and one reconciled with the Agricultural Census, we found evidence that horticultural production is being poorly represented.  Because this database does not represent direct to consumer marketing farms directly, all analyses must instead focus on those farms that product fruits and vegetables (i.e. the relevant portion of the horticultural sector) as these are the goods typically being sold direct to consumers.  Other portions of the agricultural economy, namely livestock production and to a lesser extent row crop production, were accurately represented.  This discrepancy is most likely due to fact that the livestock/row crop sectors comprise a larger share of the agricultural economy and are thus better represented.  Because of the poor representation of the horticultural sector, we found discrepancies in the results of economic impact analyses between those that used the original database and those that used the one reconciled against the Agricultural Census.  This finding argues for the need to incorporate information from the Agricultural Census when using the IMPLAN database to evaluate the economic impact of farms that engage in direct to consumer sales. 

It should be noted that this and all other relevant methodologies used in this research will be included in outreach activities organized through the Center for Environmental Farming Systems (CEFS), a tripartite collaboration between the North Carolina Department of Agriculture, North Carolina State University, and North Carolina Agricultural and Technical State University.  All materials with the project have secured approval from North Carolina State University’s Institutional Review Board.  The findings from the data collection and this synthesis have been and will continue to be incorporated into outreach activities being conducted by CEFS as well as its parent institutions. These outreach activities have included talks given by the directors of CEFS both within the state and nationally, annual presentations by the project coordinator at events/seminars including those organized by the NC Sustainable Foods Advisory Council and the NC Cooperative Extension Service, as well as community meetings with stakeholders across the state.

Impacts and Contributions/Outcomes

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. 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.

Collaborators: