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Can Local Deliver?
Buying local products is all the rage. Consumers have always had a soft spot for local producers who were seen as small operators that were in danger of extinction because they faced unfair odds in competition with the large agribusinesses that had come to dominate supplies of many agricultural products.
That sentiment got a boost as concern about global warming became more widespread. It was argued that by buying local, consumers could help cut down on long-distance transportation that used non-renewable energy and emitted undesirable greenhouse gases.
It was also argued that today's consumers want to know who is supplying their food products. It was assumed that by buying local the consumer would come into direct contact with the farmer.
Soaring Oil Prices Aid the Movement
Such philosophical arguments probably would not have brought rapid changes in consumers' attitudes and behavior had they not been shocked in the last two years by the soaring price of petrol and diesel fuel and by the resultant rise in the cost of personal transportation.
In an ironic twist, the specter of global warming and the concern about carbon emissions has been turned against another environmental favorite, organic products. Many environmentalists now argue that Local is the new Organic. They are particularly critical of organic foods that are produced by large agribusinesses and hauled long distances.
Retailers Join the "Buy Local" Bandwagon
Retailers that cater to more environmentally-aware customers were the first to jump on the "Buy Local" bandwagon, even before the rise in oil prices had begun to affect their customers. For example, Whole Foods in the U.S. and Sainsbury's in the U.K. both expanded their purchases of local products. Both developed educational programs and provided financial assistance to help small, local suppliers increase their capabilities. Many other retailers, large and small, adopted similar programs.
Large retailers have become adept at managing the innate contradiction of their own business model. Their financial strength and their cost competitiveness derive from operating on a national or international scale. At the same time, part of their appeal to customers comes from their portrayal of each individual outlet as an integral part of the local community through various service, charitable and social activites.
The "Buy Local" movement officially came of age when the world's largest retailer, Wal-Mart, a recent convert to environmentally-sensitive purchases, announced a large expansion of its "Buy Local" program. Wal-Mart plans to spend $400 million on local goods in the next year. Because it was the biggest of the big, Wal-Mart had been having particular difficulty in winning the hearts and pocket-books of consumers in many localities that it wanted to enter.
Much Amibguity about Meaning of Local
It would be an over-statement to say that there is ambiguity about the meaning of "local". The dictionary definition of local is clear. It means relating to a limited district. However, most retailers and many of the promoters of "buying local" are coy about how limited a district must be to qualify as local.
In some cases, buying local means buying from a supplier located within 100, 200 or 500 miles from the point of purchase. In other cases, buying local means buying from in-state sources. For some smaller countries like Austria or Switzerland, and even for some medium-sized countries like the United Kingdom, buying local is often equated with buying domestic, as opposed to imported, product.
Size of the Market for Local Product. Anybody's Guess.
There are even more problems in trying to estimate either the current size of the market for local products, for example, for locally grown and marketed fresh fruits and vegetables, or the rate of growth of the local market. Since there is no standard definition, there are no common metrics available.
For example, of Wal-Mart's purported $400 million of local purchases, how much is from major agribusinesses that just happen to have one of their many branch operations within a few miles of a Wal-Mart store or distribution center? How much is from local suppliers that would not have qualified as suppliers under Wal-Mart's former, famous centralized program. How much is real new business with local entities? We may never know.
Since no certification of local is required, how much that is labeled local is truly so? For example, a radio advertisement for a Seattle retailer invited shoppers to come try their great selection of local fresh produce. Then, without a pause, it mentioned that the chain was featuring fresh sweet cherries. It did not mention that those fresh sweet cherries came from California, 1,000 miles away.
Similar misrepresentation occurs frequently at farmers' markets and other local sales outlets. Many sellers of local product are not farmers. Many farmers sell products they did not produce, either to supplement their stocks or as a service to their neighbors. Thus, the link between farmer and consumer is not always what it seems.
Prospects for "Buy Local" Movement
The durability of the "Buy Local" movement is still questionable. During the economic downturn that is picking up steam in many countries, consumers are likely to give a higher priority to price and value for money, rather than to the origin of the products they buy. Retailers, in turn, will be less willing to stock slow-moving items that do not generate adequate sales or store traffic. It is clearly more economical for a retailer to make one transaction for $1 million than 1,000 transactions of $1,000 each. Transaction costs will become a bigger factor in any economic downturn.
With higher petrol prices, consumers are already reducing the number of shopping trips. So, they are more likely to seek local products during a major trip to a super-center than make individual trips to different local markets. The cost of long-distance transportation can be greatly exaggerated. For example, in the case of fresh apples that are shipped 3,000 miles from Washington State to New York City, even at today's high fuel costs, the transportation cost accounts for less than 7 percent of the retail price.
Past efforts to support local agriculture for small-scale farmers have foundered because of those farmers' inability to maintain the consistent volume of quality product that large retailers need to maintain adequate stocking levels and avoid out of stock situations. Efforts to support such small growers with cooperative packing, sorting or marketing services have been to organize and generally ineffective.
Some retailers have been encouraging their small farm suppliers to produce specialty fruits, vegetables, herbs or spices. However, to be worthwhile, such ventures require the right seeds, soil and climate, the right management practices, adequate yields, and reasonable prices. They need to provide the farmer with income equal to or greater than what he or she could earn as a janitor, school bus driver, or other activity, with the same time and effort.
Food Safety Concern
A looming concern is the whole issue of food safety and adequate traceability. Advocates of "buying local" argue that the major threat to the safety of food is the current, large-scale, long-distance food supply chain. However, this hypothesis has not been tested empirically. An equally reasonable hypothesis is that large- scale operators have the personnel, resources and equipment needed to minimize health risks to their products, and that most small scale operators would not have such resources.
In particular, when local products are hauled to market, or sold in the open air, without the benefit of refrigeration, they may be more vulnerable to contamination than typical supermarket fare. If local supplies continue to increase, food safety is likely to become a more pressing concern.
Jury Still Out
It is still early days in the "buy local" movement. Clearly, if supply and demand continue to expand, so also will the requirement for greater transparency and accountability in "buy local" claims. Local suppliers will need to be prepared to deal with increased public scrutiny if they want the present honeymoon period to continue.
First published in the World Apple Report, Volume 15, No. 8, August 2008, page 1.
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