Local Food What Factors Are Spurring Demand Growth

Local Food: What Factors Are Spurring Demand Growth and Why That Matters to Farmers and Communities Debra Tropp Deputy Director, Marketing Services Division Agricultural Marketing Service, Washington, DC

Today’s Overview • How Does USDA Define Local Food? • What Do We Know About U. S. Consumer Demand for Local Food? • What Does Growth in Local Food Production Mean for Producers and Communities?

How Does USDA Define “Local Food”?

USDA’s Definition of Local Food: Deliberately Broad • Working definition: A food product that is raised, produced, aggregated, stored, processed, and distributed in the locality or region in which the final product is marketed. • USDA does not regulate the definition of local food, leaving it to localities and states to determine appropriate, meaningful boundaries. • Some USDA grant programs (including those administered by my Agency) use a broad definition for the purpose of providing meaningful eligibility parameters, i. e. ü Less than 400 miles from the origin of the product, or ü Within the State in which the product is produced.

Local Food is More Than Direct to Consumer • Can include both direct-to-consumer sales AND intermediated sales by third parties • Examples of Intermediated Sales ü Food sold to distributors/food hubs for aggregation and redelivery to wholesale ü Delivered to wholesale customers (i. e. , restaurants, grocery stores, schools/universities, hospitals) Intermediated food sales are considered part of the local food market IF the origin/identity of the food is preserved throughout the supply chain

Local Food is More Than Geography Geographic proximity often serves as a proxy for trust, transparency and closeness of relationship between buyers and seller. Loyalty to national brands fading – consumers are seeking “partners in nutrition” • Top 10 food and beverage companies in US lost roughly $18 billion in market share between 2011 - 2017 (Credit As legacy brands lag, corporations have been buying up new “healthoriented” brands in attempt to preserve market share: • Naked Juice now owned by Pepsi. Co • Honest Tea belongs to Coca. Cola • Larabar is under General Mills • Kashi is owned by Kellogg’s

What Do We Know About U. S. Consumer Demand for Local Food?

Local Food Marketing Practices Survey (NASS, 12/16) • $8. 7 billion in local food sales in 2015 (D 2 C and intermediated) • Nearly two-thirds (65. 5 percent) wholesale, not D 2 C Largest segment ($3. 4 billion, ~60 K farms out of 167 K) • Farms selling food to institutions or through intermediaries (such as local food hubs or wholesalers that use local branding) Other channels: • Direct to consumer ($3 billion, 115 K farms) • Direct to retail sales $2. 3 billion (only 23 K farms) D 2 C up from $1. 2 billion in 2007 to $3 billion in 2015

Connection between consumer food preferences and rise in local food demand Phil Lambert, “Supermarket Guru”, 2013: People are choosing their foods more holistically based on multiple “food factors”: ü Taste ü Ingredients ü Source ü Nutritional composition ü Asking who is making their foods ü Understanding impact on environment & animal welfare All of these attributes – quality, promotion of personal health, transparency, trust, and social/environmental values – play a role in boosting demand for locally-produced food

Food and Health Survey 2016, International Food Information Council Foundation

Produce Assumes Greater Importance in Diet Between 2010 -2014: • U. S. supermarket produce sales rose 21. 7 percent • Supermarket sales overall rose only 9. 3 percent • Produce share of total supermarket sales rose from 10. 4% to 11. 6% • Baby Boomers eat an average of 4. 43 servings of fruits and vegetables a day. • Generation X members eat an average of 4. 71 servings of fruits & vegetables a day • Millennials eat an average of 5. 12 servings of fruits & vegetables per day

Shoppers Intentionally Seek Out Local Foods…Even at Higher Price Points One-third of consumers claim they consciously purchase locally grown or locally produced foods at least once a week. • Nearly half of the respondents agreed they were willing to pay up to 10 percent more for locally grown or produced foods • Almost one in three said they would pay up to 25 percent more. Packaged Facts national survey, Shopping for Local Foods in the U. S. , November 2014:

Shoppers Are Looking for More Natural, Nutritionally-Rich Foods 2015 Supermarket Guru/NGA Consumer Survey: • 28 percent want minimal processing • 25 percent want a shorter list of ingredients. Int’l Food Information Council 2016 Food & Health Survey: • 36 percent worry about chemicals in their foods • Foods labeled with a health attribute experienced a sales increase of 13 percent in the past year vs. flat sales FMI U. S. Grocery Shopper Trends 2016: • 22 percent worry the food they eat isn’t nutritious enough • 26 percent seek products ENHANCED for nutritional reasons (e. g. , vitamins, antioxidants, calcium)

Willingness to Pay More Spans Income Spectrum A. T. Kearney analysis, 2013

Local & Sustainable Food Dominate Chef Preferences 2016 “What’s Hot” Culinary Forecast 1. Locally sourced meats and seafood 2. Chef-driven fast-casual concepts 3. Locally grown produce 4. Hyper-local sourcing 5. Natural ingredients/minimally processed food 6. Environmental sustainability 7. Healthful kids' meals 8. New cuts of meat 9. Sustainable seafood 10. House-made/artisan ice cream 2017 “What’s Hot” Culinary Forecast 1. Hyper-local sourcing 2. Chef-driven fast-casual concepts 3. Natural ingredients/clean menus 4. Environmental sustainability 5. Locally sourced produce 6. Locally sourced meat and seafood 7. Food waste reduction 8. Meal kits 9. Simplicity/back to basics 10. Nutrition Source: National Restaurant Association

Why Are Shoppers Demanding Local Food? They perceive local food as possessing superior quality or nutritional attributes, and they want to improve the quality of their diets According to a recent national study: • 60 percent of consumers say they purchase local food because the products are fresher • 44 percent say they taste better • Roughly one-third believe that local products are healthier Packaged Facts national survey, Shopping for Local Foods in the U. S. , 11/14

Why Are Shoppers Demanding Local Food? • They want to have trust in the source and integrity of the food they purchase • They seek authentic food products • They seek clarity and transparency in food labeling (Phenomenon is strongest among younger consumers) Watershed Communications, 2016 food and beverage survey • Interviewed ~400 Millennials about food and beverage preferences • Every respondent indicated that he or she frequently purchased foods and beverages based on the brand’s reputation for authenticity.

What Does Growth in Local Food Production Mean for Producers and Communities

Producer & Community Impacts of Local Food Systems For producers: • Shorter supply chains allow producers to retain greater share of wholesale/retail expenditure • Differentiation instead of trading commodities transforms producers from price takers to price makers For communities: • Early signs that local food farms yield strongly positive economic multipliers, perhaps stronger than conventional farms • Evidence that local food systems lead to improvement in wealth creation indicators • Data just beginning to be available: see localfoodeconomics. com (benchmark section) for more

In mainstream supply chains, farmers retain only 15. 6 cents of the consumer food dollar on average (slightly higher for fresh produce) Different story in local food systems… • In “short” supply chains, local producers received up to seven times the share of the retail price that mainstream supply chains offered -- USDA ERS report http: //www. ers. usda. gov/media/122609/err 99_1_. pdf • Food hubs often return between 60 to 85 percent of their wholesales revenues to their producers - USDA AMS Farm Share of U. S. Consumer Food Dollar (2015) http: //www. ers. usda. gov/data-products/food-dollar-series/documentation. aspx

Example One: Intervale Food Hub, Burlington, VT • Intervale works with producers to determine prices based on actual production costs for producers and what the market can realistically manage. • Intervale’s producers generally net 60 -70% of the retail revenue obtained from CSAs and 85% of the revenue obtained from distribution to wholesale customers through the hub.

Example Two: Red Tomato, Canton, MA • Coordinates aggregation, transportation and sales for roughly 40 farmers to grocery stores, mostly in the NE • Employs a variety of product differentiation strategies – regional branding, source identification and the verified use of sustainable production practices like IPM. • November 2009 case study: retailer agreed to sell RT’s tomatoes at $2. 79/lb. compared to standard retail price for the same commodity of $1. 99/lb. given the unique attributes of the product. • Combination of cost savings in shared logistics and a higher wholesale price led RT’s producers to receive 3 x higher returns than they received for comparable items outside the value chain.

Economic Multiplier Effects of Local Food Production Hardesty study, 4 -county Sacramento region, spring 2016: • Direct marketers’ output multiplier was 1. 82, compared to 1. 42 for producers in the Sacramento Region not engaged in direct marketing. This means that direct marketers generated $0. 40 additional output within the Sacramento Region for every dollar of sales when compared with producers who do not market directly. • Greater economic impact of producers who direct market was largely attributed to their reliance on local inputs. Producers in the Sacramento region who sold at least some of their produce directly to consumers purchased approximately 89 percent of their inputs from local sources, compared with 45 percent by larger, strictly wholesale-oriented farms.

Multiplier Effects of Local Food Production • For each $1 million in revenue generated by produce farms in the Sacramento study region, ü Farms that engaged in some form of direct marketing created nearly 32 local jobs ü Farm that exclusively used wholesale channels created only 10. 5 local jobs Vogel, USDA/ERS, Agricultural Resource Management Survey (ARMS), 2016 ü Participation in local and regional markets appeared to benefit small fruit and vegetable growers (under $350, 000 in gross annual revenue). They were more likely to earn positive net farm income and have lower operating expense ratios. ü Trend reversed as farms earn more than $350, 000

Community Impacts Beyond Economics Jablonski, et. al. (2016) Used case study of NYC Greenmarkets to understand the wealth creation impacts of the largest farmers market network in the country. Found that engagement between farmers and urban consumers, along with educational programming provided by the urban local food initiative: ü improved entrepreneurial capacity of participating farmers ü promoted greater diversity in farming ü increased knowledge of farming and agricultural issues by urban consumers.

USDA/AMS Support for Local Food Impact Assessment Covers two stages of planning: (1) Assessment Modules 1 -4: Provides guidance on the preliminary stages of an economic impact assessment - framing the scope of the study, establishing suitable boundaries, identifying relevant economic activities, using reliable data gathering and survey techniques. (2) Evaluation Modules 5 -7: Overview of technical set of practices, including how to conduct a more rigorous economic impact analysis using input/output (IMPLAN) software.

Project Team: Coordinator: Dawn Thilmany Mc. Fadden, Colorado State University Contributors: David Conner, University of Vermont Steve Deller, University of Wisconsin David Hughes, University of Tennessee Ken Meter and Megan Phillips Goldenberg, Crossroads Resource Center, Minneapolis, MN Alfonso Morales, University of Wisconsin Todd Schmit, Cornell University David Swenson, Iowa State University Allie Bauman, Rebecca Hill, Becca Jablonski, Colorado State University Editor: Debra Tropp, USDA/AMS/TM/MSD

What We Hope You Get Out of the Toolkit • • An accessible overview of the latest academic results and research Points of entry for stakeholders at all levels of expertise Proven methods and examples that can help guide the direction and framework of your community-based local foods assessment Guidance on how to structure a local food study so that it best reflects your community’s priorities and needs. Better grasp of the potential – and the limitations – of input/output analysis for evaluating economic impact A tool for gaining more broad-based support for local food investment by gathering robust evidence. Greater competitiveness in securing Federal grants by enabling you to more accurately estimate project benefits and tradeoffs. Available from: • www. ams. usda. gov/publications/content/economics-local-foodsystems-toolkit-guide-community-discussions-assessments or • www. localfoodeconomics. com (Colorado State portal)

Contact Information Debra Tropp Deputy Director Marketing Services Division Phone: (202) 720 -8326 Email: Debra. Tropp@ams. usda. gov Website: www. ams. usda. gov/services/local-regional