Federal Reserve Bank of St. Louis Talks Local and Regional Food Opportunity

By: Rebecca Osland

Last week, the Federal Reserve convened a meeting that drew local food advocates from around the region to talk about the economic and community impacts of local and regional food. The St. Louis branch of the Fed partnered with the United States Department of Agriculture (USDA) to release a book this year, Harvesting Opportunity: The Power of Regional Food System Investments to Transform Communities. The book touches on the importance of local sales for agriculture and it’s promise as an avenue to save the”disappearing agriculture of the middle” which has witnessed the loss of 21% of small and midsized farms since 1992, but it also cites the economic impact on communities as well.  According to the publication, farms that use direct-to-consumer sales practices (like farmers markets and community supported agriculture shares) generate 44 cents more in local economic activity than purely wholesale farms and create an average of 21.5 more local jobs, compared with their purely wholesale counterparts (p. 28).  Presentations at the meeting last week explored some of the themes of the book including demand for local food and capital sources for investment in local food businesses. Here are a few important takeaways as they relate to local food and farming here in Illinois.

Local Food Demand

Based on consumer survey data, AMS reports that individuals in all income quintiles expressed a willingness to pay more for local food, with half reporting they would pay up to 10 percent more and a third willing to pay up to 25 percent more. Consumers value having trust, authenticity, and transparency in their food, and they most trust “local” branding at farmers markets. Younger millennials are the most likely to prefer sourcing natural/organic foods at farmers markets over other retail options. If that trend continues we should see continued support for farmers markets into the future.

While the number of farmers markets, CSAs, and other direct sales markets have been growing steadily over the past decade, wholesale markets still capture the majority of local food sales. According to Debra Tropp from the Agricultural Marketing Service (AMS) of the USDA and coauthor of Chapter 1, in 2016 nearly two-thirds of the $8.7 billion in local food sales nationwide was attributable to wholesale channels. This includes institutions, retailers, and other intermediaries. While Debra did not break this down by state, we believe there is room for growth in wholesaling and institutional procurement here in Illinois. Read Debra’s chapter for more detail and other interesting analysis.

In order to take advantage of wholesale opportunities though farmers need to understand how the new Food Safety Modernization Act (FSMA) rules apply to them. The FSMA sets guidelines for on farm food handling, as well as the safety procedures and traceability measures growers need to have in place in order to sell their products to schools, institutions, and other wholesale buyers.

Unfortunately, Illinois farmers are at a disadvantage because Illinois is one of the few states that has not applied for the last two-years of available federal funding to train farmers in the new rules, a missed opportunity of nearly $1.5 million total. The University of Illinois Cooperative Extension is stepping up to try to fill the gap, but the state still has a resource shortage. That said, we encourage farmers to watch for training opportunities and news on the Extension webpage, and learn more about how the rules might impact your farm here. The next training will be in Springfield at the Illinois Specialty Crops, Agritourism, and Organic Conference on January 10, 2018. Register for the training by December 21, 2017.

Capital for Building Regional Food Systems

Access to capital is one of the major challenges that farmers—especially beginning or diversified farmers—face. Traditional lenders have far more familiarity with lending to commodity farmers and can easily track commodity prices to evaluate financial risk and determine loan terms. Diversified farms that grow a number of different items are much more difficult to evaluate in terms of financial risk. However, there are resources that could be available to these kinds of farms and food chain development.

Participants on the panel tackling this topic represented lenders and investment companies, who acknowledged they could do a better job of letting food entrepreneurs know about their services. While we have not fully evaluated what they offer and are not making any endorsements, a couple of potentially promising resources that a small farm or other food entrepreneur may want to research include the nonprofit lender IFF, which focuses more on food access and grocery stores, and Young, Beginning, Small Farmer Programs and Outreach at the Farm Credit Council.

In addition to the resources mentioned by panelists, beginning and small farms may find that more traditional farm financing programs are the right fit for their needs. Farmers can download a guide to USDA Farm Service Agency (FSA) programs from The Land Connection. Additional information about USDA programs is available through the National Sustainable Agriculture Coalition. The Illinois State Treasurer’s Office has been overhauling its Ag Invest program to better serve this farm demographic as well.

It is very encouraging to see an institution like a Federal Reserve Bank recognize the power of local and regional food. Local food has proved to be anything but a passing fad, but there is still much progress to be made developing the infrastructure to support it. With institutions like the Fed taking an interest, development could accelerate.