Comparing the Structure, Size, and Performance of Local and Mainstream Food Supply Chains
by Robert P King, Michael S. Hand, Gigi DiGiacomo, Kate Clancy, Miguel I. Gomez, Sherman D. Hardesty, Larry Lev, and Edward W McLaughlin
Economic Research Report No. (ERR-99) 81 pp, June 2010
Demand for locally produced food has increased sharply in recent
years. Consumers may seek out local foods to satisfy demand for
product quality, to support local farmers and the local economy, or
to express a preference for certain agricultural production and
distribution practices. Interest in supporting local food systems
is also rising among Federal, State, and local policymakers. Local
foods are increasingly incorporated in programs designed to reduce
food insecurity, support small farmers and rural economies,
encourage more healthful eating habits, and foster closer
connections between farmers and consumers.
What Is the Issue?
Despite increasing interest in locally grown and processed food,
little is known about the supply chains that move local foods from
farms to consumers. The objective of this report is to improve
understanding of how local food products are being introduced or
reintroduced into the broader food system and potential barriers to
expansion of markets for local foods. Understanding the operation
and performance of local food supply chains is an initial step
toward gauging how the food system might incorporate more local
foods in the future to meet growing demand.
What Did the Study Find?
Two general research questions in this report addressed factors
that influence the structure and size of local food supply chains,
and how local food supply chains compare with mainstream supply
chains on performance indicators.
Supply Chain Structure and Size
Products from local farms are marketed through both mainstream
and local supply chains, and products from mainstream and local
supply chains may be present in the same retail outlet. However,
local supply chains handle a relatively small portion of total
product demand, and, in some cases, local products fill a unique
market niche as a differentiated product. Despite generally higher
per unit costs than in mainstream chains, farms and businesses in
local supply chains can still be successful if they offer unique
product characteristics or services, diversify their operations,
and have access to processing and distribution services.
Local food supply chains, particularly direct market (producer
to consumer) chains, are more likely than mainstream chains to
provide consumers with detailed information about where and by whom
products were produced, but such information generally is not
enough to persuade consumers to pay a higher price for local
products. Local supply-and-demand relationships and product
differentiation based on attributes other than local origin, such
as organic or grass-fed production, appear to be the primary
influences on prices in local supply chains.
A common feature among farms that participate in local food
supply chains is a diverse portfolio of products and market
outlets. Small farms may diversify product offerings to defray
large fixed costs across multiple sources of revenue, or they may
use multiple types of local market outlets. Some large farms in
local supply chains diversify by using mainstream outlets as a
residual market for excess supply.
The local supply chains studied have adequate access to
processing and distribution services. Stable relationships with
processors and internal investments in processing, packing, and
distribution capabilities reduce potential constraints, although
per unit costs for these services are higher in local supply chains
than in mainstream chains. The local supply chains studied do not
currently rely on infrastructure developed for a national industry
or other local supply chains. Building ties to such supply chains
may increase product volumes and reduce per unit costs as demand
for local food products grows.
Supply Chain Performance
Producers receive a greater share of retail prices in local food
supply chains than they do in mainstream chains, and producer net
revenue per unit in local chains ranges from about equal to more
than seven times the price received in mainstream chains. In all
direct market chains examined, producers assume responsibility for
additional supply chain functions, such as processing,
distribution, and marketing, to capture revenue that would
otherwise accrue to a third party. These supply chain functions can
be costly and often involve the operator's own unpaid labor.
Although farms in direct market supply chains retain nearly 100
percent of the retail price, costs incurred to bring their product
to market total between 13 and 62 percent of the retail price.
Nearly all wage and proprietor income in the local supply chains
is retained locally, but local areas also retain a large share of
wage and proprietor income from the mainstream supply chains.
Mainstream supply chains rely on national and international
networks to deliver products to consumers, but many supply chain
functions in mainstream supply chains, such as retail distribution
services, are performed locally and contribute to local economic
activity. Seasonality also plays a role in the share of revenue
retained locally; some mainstream supply chains obtain products
from local growers during certain times of the year and from
national and international growers in the off-seasons.
Transportation fuel use is more closely related to supply chain
structure and size than to the distance food products travel.
Products in local supply chains travel fewer miles from farms to
consumers, but fuel use per unit of product in local chains can be
greater than in the corresponding mainstream chains. In these
cases, greater fuel efficiency per unit of product is achieved with
larger loads and logistical efficiencies that outweigh longer
How Was the Study Conducted?
A coordinated series of 15 case studies was conducted in five
metropolitan areas. Three supply chain types (mainstream, direct
market, and intermediated) were studied for each of five
product-place combinations: apples in Syracuse, NY; blueberries in
Portland, OR; spring mix leafy greens in Sacramento, CA; beef in
Minneapolis/St. Paul, MN; and milk in Washington, DC. Primary data
were collected through interviews and site visits with principals
of farm enterprises, supermarkets, cooperative grocery stores,
retail distribution centers, and food processors. These interviews
provided descriptions of each supply chain and detailed business
information to make comparisons across supply chains. These data
were supplemented with publicly available data from company
websites, the Census of Agriculture published reports and articles,
and observations of product prices and availability in each