Early in the ag-tech, vertical farm and greenhouse-grown movement, everyone talked about reasons for innovating the way we farm. Industry insiders discussed everything from changing the way we feed the future to the demand for more locally grown fresh produce options.
Hundreds of millions of dollars were raised to meet what investors felt were market demands. Now the economy, access to money and the cost of money has changed. Also, many farms that were recently built are now out of business.
This leads me to a few questions:
Was there ever a real need for locally grown fresh produce? If the answer is yes, is that need still there? And can controlled environment ag facilities fill those needs?
Inevitable reasons we started talking about innovating farming.
1.) Feed the Future and its Population Growth.
The world’s population is expected to reach around 9.7 billion by 2050, according to United Nations projections. Accommodating this growth requires a significant increase in food production.
2.) Climate Change
Climate change is affecting agricultural systems globally, leading to shifts in growing seasons, changes in precipitation patterns, and an increase in the frequency and intensity of extreme weather events. Adapting agriculture to these changes is crucial for future food security.
3.) Resource Scarcity
Challenges such as water scarcity, soil degradation, and a decrease in arable land pose constraints on traditional agricultural practices. Finding sustainable ways to produce more food with fewer resources is essential.
This review won’t discuss why these new businesses struggled or failed. Instead, we want to focus on the question, is “locally grown” still a thing? Or was it one of many consumer trends that have come and quickly past?
First, let’s answer a few questions.
- Why locally grown?
- What is the definition of locally grown?
- Where can you find locally grown products?
Initial research (learn more about the research here) shows that consumers wanted access to locally grown products because they believed goods produced close to them were more environmentally sustainable, provided support for their local economy, and gave their families fresher and healthier options. While many consumers believe locally grown vegetables are worth paying more for, inflation has hit grocery budgets hard. The cold reality is that a certain segment of the consumer shopping public buys imported produce because it’s more affordable, still a healthy option and generally good quality.
More immediate reasons to innovate the way we farm:
Globalization and Urbanization:
Increasing urbanization and globalization impact food distribution systems. The demand for food in urban areas is rising, requiring efficient and resilient supply chains to ensure that urban populations have access to a diverse and nutritious food supply.
Technological Advancements:
Leveraging technology and innovation in agriculture is crucial for increasing productivity, improving resource efficiency, and developing more resilient crop varieties. Precision agriculture, genetic engineering, and other advancements play a role in shaping the future of food production.
Sustainability:
There is a growing emphasis on sustainable agriculture practices that minimize environmental impact, reduce greenhouse gas emissions, and promote biodiversity. Balancing the need for increased food production with environmental sustainability is a key aspect of feeding the future.
In addition, as time passes, it is becoming clearer that a certain segment of the consumer public and retailers are more conscious of the environmental impact their purchases make and what their brands represent. They believe that buying locally can help reduce the carbon footprint and lower transportation miles on the food they consume.
While this remains true, more established businesses and knowledgeable investors are looking at the resources needed to produce in the off-season or in a controlled environment. This requires using electricity or natural gas to light, heat and cool their facilities to provide consumers and retailers with consistency and quality year-round, while still local. The most conscious farms now work to capture and report these numbers to convince consumers that locally grown is, in fact, a more environmentally friendly choice.
Example: Farms such as Gotham Greens, Area 2 Farms and NatureSweet are choosing to become B-Corps.
(Certified B Corporations are social enterprises verified by B Lab, a nonprofit organization. B Lab certifies companies based on how they create value for non-shareholding stakeholders, such as their employees, the local community, and the environment. Once a firm crosses a certain performance threshold on these dimensions, it makes amendments to its corporate charter to incorporate the interests of all stakeholders into the fiduciary duties of directors and officers. These steps demonstrate that a firm is following a fundamentally different governance philosophy than a traditional shareholder-centered corporation.)
Where locally grown produce really shines is in delivering fresh products, especially when consumers want seasonally and geographically appropriate options. This may also be where farmers ultimately produce the most sustainable options, as seasonally appropriate crops require the least amount of manipulation to the growing climate as well as the lowest capital investment. The only question(s) remaining with this locally grown option is whether the farmer has access to the land needed to produce enough of these crops to support their farming business and the mortgage on the land, while still providing their family with a reasonable lifestyle.
The desire to produce more locally, while investing in technology, is also where we have seen the biggest changes in how and where farms get financing. Historically, farmers used traditional lending sources such as banks, state-sponsored programs or owner financing to purchase land and needed equipment. These investments were considered safe and conservative based on using the farmland and a farmer’s home as collateral.
But new and innovative farming concepts seldom qualify for traditional financing. They are considered more risky due few unproven profit models and much greater need for capital per acre of farmable land. Due to this risk, farms that use greenhouses or indoor farm designs have had to look to new financing options. This includes angel, private equity and venture capital financing options where risk and opportunity are measured differently than traditional outlets.
So what qualifies as locally grown?
The 2008 Farm Bill* defined local food as food grown and transported fewer than 400 miles or within the same state. This obviously means something different depending on the state of the country you live in.
If, for example, you live in Texas, locally grown could mean the food travels 600-700 miles. Yet someone who lives in Vermont could have food that travels no further than 200 miles in state or 400 miles including surrounding states. Regardless, farms focused on providing locally grown food must look at size and scale much differently than traditional farms targeting conventional produce markets and retailers.
*The farm bill is an omnibus, multiyear law that governs an array of agricultural and food programs. It provides an opportunity for policymakers to comprehensively and periodically address agricultural and food issues.
Where can you find locally grown produce?
Consumers who look for locally grown products are also likely to shop differently than your average grocery store shopper. Farmers markets played a major role in the initial local food movements. The popularity of farmers markets gave farmers direct access to their consumers, allowing them to control messaging and branding, while developing relationships with buyers.
This led to developing other direct-to-consumer sales channels that have increased access for farmers and consumers. You can’t underestimate consumers’ appreciation for the opportunity to interact with local producers and learn more about their food’s origin.
Photos courtesy of Area 2 Farms
Next up is specialty retailers and restaurants. Both recognized the demand for locally sourced products and incorporated them into menus and other packaged goods. Grocery stores also added special sections dedicated to local products.
And here is where the story might be changing: Consumers who prioritize locally grown and seasonal produce are often willing and able to pay a premium for products. These consumers value health, the environment and experience. They normally have more disposable income and can afford to purchase food for reasons other than convenience, calories and protein.
I will never claim to be an expert on the economy, but the media in general wants you to believe that our economy is struggling due to inflation. According to Statista, the economy was down about 10% in 2022 and will probably be down again slightly in 2023.
According to “Yale Insights,” inflation (or even the perception of inflation) changes how consumers value the items they shop for. Many consumers become more critical of their purchases. They look for sales, “trade down” for generic brands and seek best prices. They also change where they shop, looking for discounts from retailers they perceive as cheaper, or forgo certain purchases entirely.
Does this mean that all consumers who once valued locally grown produce are gone?
No. It simply suggests that, as the economy changes, the accessible market for a premium-priced product will likely change. It may be limited to those who can afford the purchase or still value the product(s) over other items they regularly consume.
Getting back to the original question(s) in this article’s title, is “locally grown” a fad or a trend that is alive or dead?
Based on everything we see from the USDA and other organizations that talk about farming trends, I say locally grown is alive and well.
However, it also represents values that are difficult to scale or market easily to the general shopping public and retailers that offer options to price-conscious shoppers. This will create problems for many farms that used “locally grown” as a key reason to attract investment dollars from private equity firms looking to invest in a company, operate them or manage them for a short period of time, and then sell the entity or its shares after showing profitable and scalable growth.
Farms that took this type of capital will likely outgrow the local market and move into that of the average “Walmart” shopper. Walmart and retailers similar to them focus on providing low prices and value to middle America. These are the same shoppers who have been losing disposable income over the past two years due to inflation.
So the question then is not, is locally grown dead or alive? The question is, how do you build a profitable farm that is sized and financed appropriately to service discerning consumers who want products that might cost more to grow but meet the values that are important to them in their food choices?
First of all, interesting article. Especially the rational explanation of the definition of locally grown is clear (max. 400 miles or grown in the same state). Definitely, this is a US-perspective and it is a rational/political description.
In Europe, we could also try to find a rational definition e.g. transport distance 700-800 kilometres. However, if a certain product crosses a border (even an internal EU-border) and the distance is just 50kilometres, it is called import and not perceived as a locally grown product. So in most cases locally grown should also be grown in the same country and usually have a much shorter transport distance.
Another way to define ‘locally grown’ is, if you as a consumer would be willing to get your produce at the gate of the grower! Than the distance would be perhaps maximum 20 kilometers (one hour with the bike!).
Thirdly, you could look at consumers perspective. One consumer could find something ‘locally grown’ as long as it is brought to his retail outlet within one day drive of a truck (let’s assume 400 miles), another consumer thinks ‘locally grown’ should be within 20 kilometers. So ‘locally grown’ has no clear rational definition, but it is more of a marketing concept for certain consumers.
Thank you for these thoughtful comments. And yes, our conclusion is the same…”locally grown” is a marketing term that means something very different by country, by region and in some cases by crop.