Can Local Food Supply Chains Compete
with Mainstream Food Supply Chains?
Robert P. King
University of Minnesota
rking@umn.edu
Case Study Project Team: Robert P. King (University of Minnesota), Michael Hand (USDAERS), Gigi DiGiacomo (University of Minnesota), Kate Clancy (University of Minnesota),
Miguel Gómez (Cornell University), Shermain D. Hardesty (University of California –
Davis), Larry Lev (Oregon State University), and Edward W. McLaughlin (Cornell
University)
Study Background
Rapidly growing interest in local food motivated by:
1. Consumer demand for taste, quality, freshness, and
connection to farmers
2. Perceived public benefits – more sustainable production
and distribution, food security, health and nutrition
3. Desire to support small farmers and the local economy
USDA-ERS sponsored a case study research project as part of
a larger research program on local foods.
Study Background
Case studies were designed to address two broad
research questions:
1. What factors influence the structure and size of
local food supply chains?
2. How do local food supply chains compare to
mainstream supply chains for key dimensions of
economic, environmental, and social
performance?
Study Background
What did we hope to learn by answering these
questions?
• Provide a foundation for understanding how food moves
from farms to consumers in local supply chains
• Help address other common questions:
 What are barriers to growth of local foods?
 What are the consequences (to environment, economy,
communities) of more local foods?
 What is the role and impact of public policies and
programs?
Study Background
Case studies were conducted in five U.S. metro
areas, with a specific product focus in each location.
•
Minneapolis-St. Paul, MN – beef
•
Portland, OR – blueberries
•
Sacramento, CA – leafy greens
•
Syracuse, NY – apples
•
Washington, DC – fluid milk
Study Background
What is local?
2008 Farm Bill definition:
Any agricultural food product that is raised, produced,
and distributed in – (1) the locality or region in which the
final product is marketed, so that the total distance the
product is transported is less than 400 miles from the
origin of the product or (2) the State in which the product
is produced.
Study Background
Many consumers also link production practices, cultural
values, firm size, and/or distribution range to their definition
of local.
We distinguish between “local food products” and “local food
product supply chains” to account for this.
A “local food supply chain” not only delivers a local food
product but also conveys information to the consumer
about where, how, and by whom the product was
produced.
Study Background
For each “place-product” combination, we conducted
case studies within three supply chains:
•
Mainstream supermarket supply chain – a comparable
food product that does not have a “local” designation
and is sold in supermarkets
•
Direct market supply chain – a local food product
marketed directly by producers to consumers
•
Intermediated supply chain – a local food product that
reaches consumers through one or more intermediaries
Study Background
Syracuse, NY
(apples)
Portland, OR
(blueberries)
Sacramento,
Twin Cities,
CA (spring mix) MN (beef)
Washington,
DC (milk)
Mainstream
Regional
supermarket,
nationally
distributed apples
from NY and WA
Large
supermarket
chain, growerpacker-shipper
(OR and
international)
Upscale regional
supermarket,
nationally
distributed
bagged organic
greens
Upscale regional
supermarket,
nationally
distributed
natural beef
Private label milk
sourced from a
commercial dairy
cooperative and
sold in large
supermarket
chains
Direct
Marketing
Residual sales
(10%) at farmers
markets
Diversified farm,
farmers market
and farm stand
sales
Small organic
farm, farmers
market and
restaurant sales
Small family
farm, farmers
market, buying
club, and CSA
sales
On-farm bottled,
home delivery
Intermediated
Farm sales to
small school
district (1,600
students)
Organic berries
delivered directly
to 9-store grocery
chain
Co-op grocery,
bulk greens
delivered directly
to store
Grass-fed beef
delivered directly
to upscale
regional
supermarket
Five-store retail
grocery, privatelabel organic milk
Structure
• Farms that market direct to consumers often maintain a
diverse portfolio of market outlets and business models.
• Direct market supply chains consistently offer consumers
detailed information about where, by whom, and how the
product was produced … but the addition of
intermediaries to the supply chain makes it more difficult
to convey this information.
Structure
• Durable relationships between supply chain partners –
characterized by a high degree of trust, information
sharing, and decision sharing over time – are important in
all three types of supply chains.
• Prices received by producers are consistently decoupled
from commodity prices in both the direct market and
intermediated case study supply chains.
Structure
• Local food supply chains typically bypass mainstream
infrastructure … but plugging into it could offer
opportunities to scale up.
• To date, few of the intermediated supply chains have
benefited significantly from the infrastructure of
knowledge and services created by the presence of other
successful local food supply chains and local food
organizations … but some are innovators helping to create
local distribution infrastructure.
Size
• Aggregate direct market and intermediated supply chains
account for a very small portion of total demand for each
product-place combination.
• Access to and costs associated with processing and
distribution services are critical for success but are not
currently limiting the size of the direct market and
intermediated supply chains studied.
Size
• Fixed costs for compliance with regulatory and operating
standards (public or private) are not currently viewed as a
major constraint on the ability of low-volume local food
products to use mainstream distribution channels in the
cases studied.
• Lack of year-round availability imposes some limits on
market opportunities for local fresh produce products …
but some retailers are willing to adapt.
Performance
• Producers in local food supply chains tend to receive
higher revenues per unit and a larger share of retail price,
even after netting out costly marketing activities.
• Retail price premiums are difficult to maintain when
“local” is the only differentiating characteristic.
• Almost all of the wage and business proprietor income
generated in the local food supply chains studied (direct
and intermediated) accrues within their respective local
areas … but mainstream supply chains also contribute
significantly to local economies.
Performance
Products in local food supply chains travel fewer miles from producer to consumer
than in mainstream chains, but fuel use per unit of product can be greater
Food Miles and Fuel Use for Mainstream, Direct, and
Intermediated Supply Chains
Fuel Use (gal/cwt)
2.5
2.0
1.5
1.0
0.5
0.0
0
500
1,000
Mainstream
1,500
Food Miles
Direct
2,000
Intermediated
2,500
3,000
Going Mainstream
• The supermarket is one of the 20th century’s most
important marketing innovations.
• Mainstream supermarket and food service distribution
systems favor large scale suppliers and facilitate long
distance movement of products.
• Mainstream systems are flexible and resilient and
represent a vibrant marketplace for connecting products
with consumers.
Going Mainstream
Key Challenges for Local Foods in the Mainstream
• Maintaining an authentic sense of connection between
producers and consumers through intermediaries.
• Ensuring adequate volumes to meet consumer demand.
• Conforming with mainstream business practices:
- food safety
- packaging
- delivery procedures
- financial processes
Going Mainstream
Challenges for “Re-Localization” – Supply Side
• Meeting the need for high volumes, consistent quality and
competitive prices will almost always require aggregation
across producers.
• Access to processing and packing services.
• Efficient use of transportation.
Going Mainstream
Prospects for “Re-Localization” – Demand Side
• Will demand expand beyond “locavores” who are willing
to pay a premium for local food?
• Will successful local products shift to regional or national
distribution to grow volume while maintaining a premium
price?
• Will attention shift from local to other more direct
sustainability measures?
Going Mainstream
What Is the Role for Public Policy?
• Innovation and expansion of local food in mainstream
channels has been and likely will continue to be driven
primarily by market forces.
• The most appropriate role for public policy may be in
reducing barriers.
- Assistance for collaborative marketing groups.
- Foster size neutrality in regulatory compliance
• Avoid “start and stop” policies.
More Information
•
USDA/ERS Report on Comparing the Structure, Size, and Performance
of Local and Mainstream Food Supply Chains
http://www.ers.usda.gov/Publications/ERR99/
•
Longer case study reports and background information are published
on The Food Industry Center web site:
http://foodindustrycenter.umn.edu/Local_Foods_Case_Studies/index.htm
•
USDA/ERS Report on Local Food Systems: Concepts, Impact, and Issues
http://www.ers.usda.gov/Publications/ERR97/
•
1st Quarter 2010 issue of CHOICES Magazine on local foods:
http://www.choicesmagazine.org/magazine/block.php?block=44