Understanding Economic Impacts of Local Food
As awareness of local food grows, more people are becoming interested in understanding the economic impacts of local food systems. While many of us may be motivated to buy local food by values like preserving farmland, supporting small businesses, and expanding access to fresh, healthy food, these goals are economic development goals. Economic growth is a much narrower measure centered on increases in jobs and sales, or monetary value. To be sure, economic growth is a limited way of judging success, but there are times when it is helpful to justify food system initiatives in terms of economic growth to decision-makers like funders or local government officials.
Tools for measuring economic impact
One way of measuring economic growth, or economic growth potential, is through an economic impact assessment (EIA). EIA estimates aim to quantify the impact of a particular change, such as a new revenue stream, investment, event, or policy, on the local economy in terms of jobs and income. IMPLAN is one of the most commonly used tools for conducting EIAs. IMPLAN measures how a change in one sector of the economy will ripple through and impact the rest of the economy. Other software models that can be used for EIAs include REMI and RIMS II, among others.
There are also approaches for collecting primary data from the local community rather than relying on secondary data embedded in a software model. Primary data collection can be used to trace actual sales between businesses to generate an estimation of direct and indirect impacts. Another approach is to document relationships and connectivity between businesses through a social network analysis. Publicly available data sets can also be mined for key indicators.
More information on all of these tools – both the commercially available software models and the community-based approaches – can be found in the guide, Tools for Assessing Economic Impact.
Make your case with existing research
Conducting an economic impact assessment or collecting primary data can be costly and time consuming. And in many cases, you won’t need that level of detail anyway. Existing published studies document positive economic impacts of local food system strategies and can be used to make inferences about economic impacts in your community.
For example, Jablonski, Schmit, and Kay (2015) found that a food hub had a gross output multiplier of 1.75 and an employment multiplier of 2.14. This means that for every $1.00 of direct sales from the food hub, the local economy produced an additional $0.75 of output for a total impact of $1.75. For example, if a food hub has annual sales of $400,000, this would result in an additional $300,000 in spending in other sectors of the economy, resulting in a total economic impact of $700,000 a year. Similarly, for every 1 food hub job created, 1.14 jobs were created in other sectors of the local economy, resulting in 2.14 total jobs created.
We have our own data — Where do we start?
But sometimes, drawing on existing research is not sufficient. If you decide your community needs its own data, where should you start?
If you are a food business, start by looking at your own records. Do you have detailed records on purchases from your suppliers, including vendor name, items purchased, price per unit, quantity, total cost, and location? Tracking this information now is not only useful for your own business analytics, but will also provide baseline data for an economic impact study down the road.
If you are a community leader, start by thinking through what baseline data might be of most interest to your community. For what industries or activities will you want to look at economic impact? Can you work with the businesses or organizations in question now to make sure you will have the baseline data once you are ready for an economic impact assessment? If you are ready to commission an economic impact study, here are two resources to help you through the process:
Assessments and Choices. USDA Agriculture Marketing Service.
Economic Analysis of Local and Regional Food Systems: Taking Stock and Looking Ahead. Michigan State University Center for Regional Food Systems.
Kathryn Colasanti and Megan Phillips Goldenberg are authors of Tools for Assessing Economic Impact: A Primer for Food System Practitioners. Michigan State University Center for Regional Food Systems, from which this guide is adapted. Ms. Colasanti works as a specialist for the Michigan State University Center for Regional Food Systems. Ms. Goldenberg is a Principal Partner with New Growth Associates LLC.