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Reality Check For Locally Grown Advocates: Economics
Don’t Measure Up

Jim Prevor’s Perishable Pundit, March 28, 2011

Our extensive discussion of the local phenomenon included an exchange regarding procurement policies at U.C. Davis:

More On PMA Foodservice…Everyone Is In Favor Of Better Flavor But Is ‘Local’ A Solution Or An Ideology?

Tom Reardon of Michigan State University Speaks Out: Wither Local?

Dissecting The Meaning Of Local, Sustainable And Flavorful

Pundit Mailbag — Taste Trumps Over ‘Local’

Pundit Mailbag – Where Does ‘Affordability’ Fit Into UC Davis Local Decision?

The key issue, as we saw it, was not that UC Davis elected to adopt some policy. People and organizations do things for all kinds of subjective reasons — reasons related to aesthetics or simple personal or organizational preference.

The issue was that factual statements were being made to support these policies and that the many experts at UC Davis were not standing up to rebut these assertions. Some of the assertions were substantively related to produce… that locally grown product was always more tasty, more healthy, more kind to the environment, etc. Since none of this is proven, and much of it is almost surely false, we argued that advocates for locally grown were using these claims as cover to further their own policy preferences.

We argued that if UC Davis or other procurers wished to increase flavor, safety or reduce environmental impact, these organizations would be advised to procure specifically based on these standards, not use “locally grown” as a proxy for these attributes.

We were also concerned that the economic claims being made regarding the benefits of buying local were not only unsupported by the evidence but were, in fact, clearly contradicted by well established principles of economics. Our series started with a piece based on a panel discussion at the PMA Foodservice Conference, which was moderated by two UC Davis faculty members, one of whom is an agricultural economist. We put the matter this way:

Both Dr. Hardesty and Dr. Feenstra are highly intelligent and very knowledgeable people, but they seem to suffer from excessive politeness. When panelists went off on wild tangents to proclaim idiosyncratic versions of macroeconomics as if they are accepted gospel, they stood silent. For example, when one panelist started to wax poetic about the importance of not shipping money to Chile and praising the importance of keeping money cycling in a local community, one would have thought a trained economist like Dr. Hardesty would have raised her hand to speak up for the principle of comparative advantage. Yet she stood silent.

We went on to explain that this kind of thinking would wind up making us all poorer. Here is how we put it:

Obviously nobody is opposed to UC Davis sourcing locally; if the least expensive source for produce that meets all UC Davis criteria happens to be local, of course the school should buy it. But on what basis can the school either raise the meal plan cost, tuition or get more money from taxpayers so it can buy more product within 50 miles rather than less expensive product 100 miles away? This is completely unclear.

And what is the point? The UC Davis website says the point is “To support the livelihood of growers, producers and processors of our regional community.” But this is just another version of Beggar thy neighbor policies. So UC Davis will support its local community, and UC San Diego will support its local community and Cornell will support its local community and Michigan State its local community—and when we are all said and done, we will be much poorer because instead of producing things where it is efficient to do so, we will buy things where it is politically correct to do so — and that will impoverish us all.

Dr. Hardesty and Dr. Feenstra wrote jointly in response to the Pundit but dismissed the Pundit’s interest in economics as irrelevant to the situation:

Mr. Prevor must have gotten an “A” in his microeconomics class since he clearly articulated the conventional theories of economics, including that of comparative advantage. Comparative advantage, however, supposes that markets already exist. The topic that this year’s Produce Marketing Association bravely tackled was the emergence of new markets to respond to a burgeoning consumer demand for more local, sustainable and flavorful food.

This was very unclear to us. Economic principles apply to both new and old markets and, in any case, we didn’t see selling food locally as a particularly new market.

Now a prominent agricultural economist has passed on to us an article that stated the case well. Written for the Library of Economics and Liberty by Jayson L. Lusk and F. Bailey Norwood, both faculty members in the Department of Agricultural Economics at Oklahoma State University, the piece is cleverly titled, The Locavore’s Dilemma: Why Pineapples Shouldn’t Be Grown in North Dakota:

Oklahoma’s government, like those of 45 other states, funds a farm-to-school program encouraging cafeterias to buy their food from local sources. U.S. Representative Chellie Pingree (D-Maine) wants to help; she recently introduced the Eat Local Foods Act (HR 5806) to assist schools in providing local foods in school lunches. From Michelle Obama’s White House garden to grants from the U.S. Department of Agriculture’s “Know Your Farmer, Know Your Food” initiative, an agenda has emerged to give local foods more prominence on our dinner plates. Interestingly, no agricultural economist has informed the public that a key claim of local-food advocates — that local-food purchases enhance the local economy — violates the core economic principles taught in every introductory economics class. Until now.

A major flaw in the case for buying local is that it is at odds with the principle of comparative advantage. This principle, which economists have understood for almost 200 years, is one of the main reasons that the vast majority of economists believe in free trade. Free trade, whether across city, state, or national boundaries, causes people to produce the goods or services for which they have a comparative advantage and, thus, makes virtually everyone wealthier. Princeton University economist Paul Krugman, who won the Nobel Prize in economics for his contributions to the economics of international trade, called comparative advantage “Ricardo’s Difficult Idea” because so many non-economists deny it and are unwilling to understand it. But if people understood comparative advantage, much of the impetus for buying local foods would disappear.

When the tomatoes are ripe and the price is right, we, the two authors, enjoy local food. In fact, we grow vegetables in our own backyards. But, according to some bestselling authors, daytime talk show hosts, celebrity chefs, and the U.S. government, we aren’t growing and buying enough. These groups have offered a host of economic arguments to promote the sale of local food — arguments that are fundamentally wrong.

The piece goes on to dissect various arguments in favor of local. It takes on the idea that local buying is good for the economy first:

Tom Vilsack, the current Secretary of Agriculture, stated, “In a perfect world, everything that was sold, everything that was purchased and consumed would be local, so the economy would receive the benefit of that.” Apparently Vilsack believes that we’d be richer if we made our own shoes, iPods, and corn. Adam Smith and David Ricardo must be rolling in their graves.

Local food is generally more expensive than non-local food of the same quality. If that were not so, there would be no need to exhort people to “buy local.” However, we are told that spending a dollar for a locally produced tomato keeps the dollar circulating locally, stimulating the local economy. But, if local and non-local foods are of the same quality, but local goods are more expensive, then buying local food is like burning dollar bills — dollar bills that could have been put to more productive use.

The community does not benefit when we pay more for a local tomato instead of an identical non-local tomato because the savings realized from buying non-local tomatoes could have been used to purchase other things. Asking us to purchase local food is asking us to give up things we otherwise could have enjoyed — the very definition of wealth destruction.

If we, as consumers, require that our food be grown locally, we cause the food not to be grown in the most productive, least-cost location. When the government encourages consumers to pay higher prices for a local product when a lower-cost non-local product of equal quality is readily available, it is asking the community to destroy its wealth because the local farmer cannot compete with non-local farms.

If we really want to help local farmers, we’d be better off giving them a donation equal to our savings from buying non-local food. We would have redistributed our income, but at least we wouldn’t have destroyed wealth.

The authors then point to the absurdity of thinking something is good for the environment due solely to food miles traveled:

The truth is that the energy expended transporting food is relatively unimportant. According to USDA-ERS data, consumers spent $880.7 billion on food in 2006. Only four percent of these expenditures can be attributed to post-farm transportation costs. One recent study indicated that over 80 percent of the global-warming impacts of food consumption occur at the farm, and only ten percent are due to transportation.

After an extensive literature review, other researchers have concluded that “it is currently impossible to state categorically whether or not local food systems emit fewer [greenhouse gasses] than non-local food systems.” Minimizing the use of natural resources entails producing food in the least-cost location, which will not typically be local.

The piece goes on to point out that local is not necessarily fresher or tastier or more nutritious. And that even when it is, these values are not determinative and that we often trade off one value for another.

The piece ends with a call to economics to speak up:

The local-food movement enjoys broad, fervent support, and politicians have hopped on the bandwagon, but that only makes it all the more important to eschew political correctness and critically evaluate the consequences of local-food policies. Economists are a diverse bunch, but we have a few core principles, two of which are that there is a balance of payments and that there are gains from trade. These universal principles are as timeless as the law of gravity. If politicians and activists proposed to suspend belief in gravity, physicists would not cower. They would resolutely defend reality. So should we.

Unfortunately all across the country, one finds university after university where local is being mindlessly advocated, with unsubstantiated claims being made of all kinds of substantive benefits. Alas, those who know better see few upsides to speaking out. Even the ag economist who sent it on to us preferred not to be associated with these sentiments, although he clearly believes them to be accurate. But if one ever needs a job in academia or a grant, one is better off being associated with trendy ideology than good economics. That is bad not only for clear thinking but for the future of our country.

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