Local foods have captured the attention of U.S. consumers, producers, food marketers, and policymakers. Consumers are demanding stronger links with food producers as they gain a better appreciation of where their food comes from. Producers, retailers and food marketers, on their part, are hard at work to meet increased consumer demand for local foods. Today, local foods are displayed in a variety of mainstream channels including supermarkets and restaurants, as well as indirect channels such as farmers markets and Community Supported Agriculture (CSA) enterprises.
Despite this interest in local foods, little is known about their proper role in the national food distribution system. Therefore, in 2008 the U.S. Department of Agriculture commissioned a coordinated series of case studies addressing two questions: What factors influence the structure and size of local food supply chains? And, how do existing local food supply chains compare with mainstream supply chains for key dimensions of economic, environmental and social performance? This research concentrated on five “product-place” combinations: apples in Syracuse, NY; blueberries in Portland, OR; spring mix in Sacramento, CA; beef in the Minneapolis-St. Paul-Bloomington, MN-WI area; and fluid milk in Washington, DC. For each product-place combination, three supply chains were analyzed: a modern supermarket chain (mainstream), a direct market supply chain (direct), and a local supply chain that reaches consumers through intermediaries (intermediated). Here, based on the study findings, I offer four principles to shed light on the role of local foods in the national food system:
1) Pay attention to the role of supermarket/foodservice channels in increasing local foods. Direct market and intermediated supply chains account for a very small portion of total demand in all study sites. If local foods are to be found only in these channels, they may be destined to play a minor role in the overall food system. The mainstream supermarket/foodservice chains are in a unique position to make local foods become mainstream. They have developed an efficient supply chain able to provide year-round availability of a wide variety of products at low prices for the end consumer. The supermarket offers certain conveniences to consumers, such as less time spent shopping and fewer trips and miles traveled for food purchases. Producers and supermarket/foodservice operators should devise strategies to increase the flow of local foods in mainstream channels.
2) Having local supply chains does not necessarily mean lower fuel utilization. Food miles in local chains are lower than in the mainstream cases, but fuel use per unit of product varies. Transportation fuel use depends on many factors, including distance traveled, load sizes, vehicle type and logistics management. In some cases (e.g., apples), the longer distances traveled in the mainstream supply chain outweigh the larger volumes per load yielding less fuel efficiency. In other cases (e.g. spring mix), aggregation of product in the mainstream partially offsets the effect of greater food miles traveled.
3) Businesses in food supply chains tend to diversify their distribution channel strategies, including local. In all apple cases, members of the supply chains exhibit a high degree of diversification in their distribution channels. Local and mainstream apples coexist and complement one another in the supermarket channel; the farmers market vendor engages in some direct marketing but is also linked to the mainstream chain through his relationship with a conventional apple packer-shipper; and the school district cafeteria procures produce both from foodservice suppliers and from local supply chains. Local supply chains are profitable and important for participating firms even if the volume is small, but it is not the only channel.
4) Increased share of retail value is important, but not sufficient to higher profitability. A common argument in favor of direct market channels for local foods is that producers retain a higher share of the retail value. Indeed, the study finds that direct market local chains retain a larger share of the retail price, even after accounting distribution costs. Today, we see successful local supply chains serving specific, generally small, market niches. However, focusing solely on niche markets ignores the contribution of high-volume, low-margin strategies to profitability. Local food supply chains can tap into the latter strategy, via stronger links with supermarket/foodservice operators. Here, the role of the middlemen to aggregate production and ensure that the product meets the required quality standards should be underscored.
We should recognize that “local” and “mainstream” chains are complements, not substitutes, as some advocates appear to claim. The high level of complexity in food supply chains renders generalizations about the advantages of either chain difficult. Local foods offer promising new opportunities; marketing orientation (one focused on satisfying the customer) is essential in order to capitalize on the growing demand for local foods.
Source: U.S. Department of Agriculture, Economic Research Report No. 99