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A New Hypothesis On Local: To Boost Sales, Sell It Through Supermarkets … Cornell’s Miguel Gomez Previews His Upcoming Talk At The New York Produce Show And Conference

Jim Prevor’s Perishable Pundit, October 1, 2010

We’ve written several pieces pointing out that the industry has a new event coming up this November:

New Event Planned For 2010: Eastern Produce Council And PRODUCE BUSINESS Announce The New York Produce Show And Conference

New York Metro’s Economy Is 12th Largest In The World

Retail “Thought Leaders” Panel Announced For The New York Produce Show And Conference

Famed Food Writer Joan Nathan To Speak At New York Produce Show And Conference

At the heart of the event is an attempt to uncover and encourage great thinking and serious work that can allow both the attendees to profit from attending the show and, simultaneously, help the broader industry to advance and prosper.

Part of that effort has involved an outreach to local centers of learning where we have sought out brilliant young scholars who are working hard to better understand issues of concern to the trade.

Ed McLaughlin, the Director of the Food Industry Management Program at Cornell University is well known in the industry. A frequent presenter at industry functions, he has often either written for or been quoted in Pundit sister publications PRODUCE BUSINESS and DELI BUSINESS.

Professor McLaughlin also works to encourage the success of the next generation of economists. Within the category of up-and-comers it is no secret that among the brightest lights is Miguel I. Gomez. Professor Gomez will be coming to Manhattan to discuss a research project on local supply chains that he and Professor McLaughlin have collaborated on. We asked Mira Slott, Pundit Investigator and Special Projects Editor, to see if she could give Pundit readers a sneak preview as to what attendees would learn at The New York Produce Show and Conference:

Miguel I. Gomez
Assistant Professor
Charles H. Dyson School of
Applied Economics and Management

Cornell University
Ithaca, New York

Q: What spurred this research: Comparing the Structure, Size, and Performance of Local and Mainstream Food Supply Chains?

A: USDA’s motivation for commissioning the study about two years ago was the increasing interest from consumers and the industry in local foods, and the perceived attributes of buying local produce. Very little is known about this supply chain, and people had preconceived notions about local without the data to back it up.

To shed light, the strategy was to compare the supermarket supply chain with respect to local. Our project director, Robert King, an agriculture economist from the University of Minnesota, studied these issues on food systems. He put together a team from five universities in five different states: Shermain Hardesty from University of California Davis focused on leafy greens with her team in Sacramento, California. Rob King in St. Paul, Minnesota, targeted the beef chain. Michael Hand, agricultural economist with USDA’s Economic Research service, did milk in Washington D.C. Ed McLaughlin, and I are working together on apples in the Syracuse, New York metropolitan area, Larry Lev assessed blueberries in Portland, Oregon.

Each development team conducted three case studies focusing on three distinct supply chains. In our case, we looked at apples in the supermarket channel, apples in farmers’ markets and apples in school districts.

Q: Did you enter the study with a hypothesis?

A: Ed and I collaborated on this research but we do a lot of work in the produce industry and wanted to be very pragmatic in our approach.

Q: What do you mean by pragmatic?

A: To be detached. When people speak about local, they have strong opinions but they are not based on scientific information. In public discussions, many times people profess that local should be the way, but should we support this?

Q: Could you highlight the significant findings? What does the science say about buying local? Is it the better way to go? Were you able to flush out the facts and misinformation and differentiate subjective reasons?

A: Should local matter? The best answer to this question, which may not be satisfying for those who want a clear-cut, black-and-white approach, is that it depends. Results are multifarious. The food system is very complex and it is difficult to come out with simple conclusions.

Getting local produce to the supermarket system depends on so many factors, and the importance or weight of each factor. For example, when you think about the share of revenues that is kept in the farm and left for the grower, in some of the cases the retail value was higher than in the local supply chain. That was the outcome of our specific research related to the apple supply chains we studied in Syracuse, New York. In terms of food miles, we found in certain instances the mainstream supermarket supply chain did much better in the amount of fuel consumption for each pound delivered compared to local.

Q: How did you determine that? What variables did you include?

A: We took into account all the transportation that takes place from the moment the product is harvested to the moment the product is sold to the consumer. We didn’t include the consumer’s transportation in the analysis.

For leafy greens in California, the supermarket chain did 0.35 gallons per hundred pounds leafy greens shipped. The farmers market did 0.63 gallons per hundred pounds leafy greens shipped.

Q: Why?

A: The main reason is that the supermarket supply chain takes advantage of economies of scale, does large volumes and is very efficient on a volume basis. Again, this is not the case for all the supply chains we analyzed. For example, in Syracuse New York, we found the same metric higher for the supermarket chain than the farmers’ market chain. That is why you can’t make sweeping generalizations and need to examine case by case.

If you look at charts comparing allocation of retail values or food miles and fuel use, you see it’s very different for both location and commodities.

People in general think there is a price premium for local produce. But it’s not true in all cases. For instance, we found that for apples in Syracuse the lowest price was in the farmer’s market, much cheaper than in the supermarkets.

Q: Wouldn’t that also vary depending on the supermarket chain, its size, operations and infrastructure, among other things…

A: Yes, it would be different for different supermarkets without a doubt, but I can tell you the supermarkets used in the study were either regional or national chains. We are not talking about independents.

For blueberries, the retail value or price per pound was $3.20 at the Portland supermarket versus $3.30 for the farmers market. In Syracuse, the price per pound of a bag of apples was $1 per pound at the supermarket, and 50 cents a pound at the farmers market. New York produces apples, an important commodity, so all the infrastructure is in place.

Q: Even within this limited study, you’ve discovered contradictions to commonly held ideas about local. Could you elaborate on some of these?

A: The main point is there are many groups interested in local foods that have a very strong voice in the debate, and the public believes the myths are true. Our research findings question these generalizations. One myth is that local foods are more expensive.

Q: Why is it important if that myth is left unchallenged?

A: It matters in two ways. Growers, especially newer ones, will think if they enter this market they’ll get premium prices, so it sends the wrong signal. And if consumers think this, it distorts the reality of the market.

Advocates of local farms often ignore the fact that local is not available all the time. For consumers, it is important to have a wide assortment of fruits and vegetables all year round, and the mainstream supermarkets offer this variety to consumers. We went every week to look at farmers’ markets and supermarkets to see if local foods were available, and they were not always available. You and I know this because we work in the industry.

Q: Did consumers participate in your study?

A: We chose not to involve consumers. Another contention regarding local foods is they are fresher and tastier, but our study didn’t ask consumers their opinions. Many surveys and focus groups are problematic because the actual behavior of the consumer is not observed.

Q: Tell us other myths your study debunked or raised into question…

A: The myth that getting rid of the middleman is good for growers and consumers. The argument there is if you take middlemen out of the system, the share of the grower in retail value is higher. We found this is not true always.

This is related to another point. For me, one of the bigger opportunities for increasing consumption of local food is by selling it through the supermarket channel supply chain. However, there are big limitations; volume is too low, and it’s too expensive for supermarkets to handle. I’m convinced the middleman can provide service by aggregating production and being paid a fair profit for that.

Even though the farmer may receive a smaller share percent wise, he or she is guaranteed to have market access.

One of the things we learned is when you have farmers delivering directly to the store, it can become a headache for the store manager. Receiving many little deliveries is much harder to orchestrate and becomes a serious management challenge. I think the localness of the supermarket is really part of the marketing strategy, but it doesn’t come free. It’s difficult for the store to deal with these small volumes of product.

Q: Isn’t food safety another issue?

A: Yes, but we didn’t look into food safety questions in detail. There is a notion that local foods contribute more to the local economy and social fabric of the community. For example, with Syracuse, the farmers’ market community-building is great.

Q: But that doesn’t necessarily preclude the fact that supermarket chains may be helping local communities in other ways…

A: That’s an important point. The supermarket company buys from two very large New York State growers, but these growers also buy from small local growers, providing access to the smaller farmers. And it has a big impact to the economy in our state.

Secondly, our collaborator chain does a lot of work on technology transfer to all the farmers to meet quality requirements, sends produce people to the farms to develop relationships, and becomes involved in a lot of community-building along the supply chain. The chain supports community initiatives, and provides jobs to many people living in the area. It participates in national associations. It tries to create a stronger apple sector in the U.S., contributing to trade organizations to increase supply and consumption. You cannot be so black and white.

Q: In your comparisons, you haven’t included the school supply chain. Is that because the channel operates in a completely different way?

A: Yes. For the purpose of our study, it’s easier to compare the supermarket chain to the farmers market. They work basically the same in all the five cities, while school districts can operate very differently.

We looked at apples in the Syracuse school district, and determined that it makes a lot of sense to encourage local apple distribution, because the apples are produced very close to the school district. New York State has the infrastructure to bring apples through the middleman, who buys other products as well. We have apple farmers in the supply chain that own retail operations and also sell product in other chains. Selling in the school district is another distribution channel for them. It is one more avenue for business diversification, but volume in small.

Q: With your expertise and knowledge going into this study, did anything surprise you? Was there any result that caught you off guard?

A: I was expecting local foods were a bigger sector given all the noise around them, but learned locally grown amounts to a very small portion of fruits and vegetables we consume. The other surprise for me is the challenges.

My hypothesis, which I didn’t have beforehand, is the following: the only way to significantly increase local foods is to go through the supermarket channel. It depends on the ability of local food producers to integrate into the supermarket chain. That was a surprise for me because I thought there would be alternative ways to grow this huge demand.

Local gets all the hype, but at the end of the day from the consumer perspective, convenience is Number One, and year-round availability, fair prices and consistent quality remain paramount.

Q: Based on your research revelations, what advice would you give to industry and government policy leaders?

A: It is difficult to say what impact this study will have regarding USDA policy. What I’m afraid will happen is that if there is not enough information, policy makers will take as a given that local is better and will subsidize local at the expense of other more important subsidies. This totally ignores all the contributions and benefits of the very efficient mainstream supply chains of fruits and vegetables.

The other message I’d like to emphasize is that the only way to grow the supply of local foods is by going through supermarket chains for both volume and consistent quality.

I think policies that encourage the link between local farmers and supermarkets can make sense. There is a risk of glamorizing local. Local produce is not more sustainable necessarily and not more expensive necessarily.

Q: Isn’t the definition of local hard to pin down as well?

A: That is one thing we struggled with. It is very difficult to define what local is. For our study, it had to be within the state. Of course, if you’re a regional chain in California, you could practically call everything in the produce department local! Defining local can be very complex and leads to misuse. In some people’s minds, it’s the same city or county or food shed, while for others it’s the same country!

Q: While our readership is primarily focused on the produce industry, how did the case studies in the beef and milk supply chains compare?

A: Results were very similar whether produce, beef or milk. I’m not against local foods. I just want to make sure the general statements we start adopting as a society make sense. Otherwise, the myths may wrongly influence industry and public policy decisions.

Of course, many of the issues Professor Gomez touches upon are similar to those we have mentioned in our series on Sodexo/UC Davis procurement policies, which grew out of a workshop at the PMA Foodservice Conference. You can see the work we’ve been doing on this matter in these pieces:

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

Are Critics Of Local Programs Devoid Of Taste Buds?

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

Pundit Mailbag — Taste Trumps Over ‘Local’

Just as important as the findings that Professor Gomez and Professor McLaughlin have unearthed through their research is the very fact that they are researching at all.

Our primary critique of the UC Davis procurement plan was that it was based on assertions without evidence:

Item after item was asserted as if it was somehow self-evident why one would think the way the panelists thought. Linda Adams, for example, laid out a complicated five-tier program of preferences, whereby UC Davis preferred to buy within a radius of 50 miles, then 100 miles, then 250 miles, then California, then USA — without ever pausing to explain by what criteria it had been established that it was a good idea to lay off poor Mexican field workers in Baja so we could truck produce across the continent.

The Cornell research doesn’t reach into such value judgments, but it is intriguing that the entirely quantifiable stuff doesn’t reliably support other assertions on things such as fuel use per pound of product.

The fact that prices on local were not reliably higher and that grower share of the pie was not necessarily higher raises all kinds of issues. In our mind, we hear the echo of the speaker from the back of the room at the foodservice conference:

The intelligent and incisive gentleman in the back of the room at the panel discussion who asked “why local” and who suggested we look at “metrics” was Jorge Hernandez, SVP Food Safety and Quality Assurance for US Foodservice. He’s a former FDA official, former NRA Foundation executive, and a former PMA Foodservice division director. He is a world class resource when it comes to food safety.

In other words, one of the reasons advocates for local endorse the practice is that they claim that growers earn higher returns by selling locally and that, as a result, a preference for local procurement helps preserve open spaces. If this is not true, if grower returns of selling local are not higher, it becomes much less persuasive why we should promote this kind of procurement.

Obviously there is much more research to be done. We have barely scratched the surface of understanding these matters.

An interesting possibility for the next study would be to do it on a product category that exists because of the local movement.

USA Today once picked up on our concerns about local. Although obviously a California orange is local to a store near the orchard, it strikes us as meaningless and maybe even deceptive for a retailer to sell the same old stuff it was always selling and declare it is now “local” because it created a categorization. Or, as we put it in this piece, it seems that no advocate of local will feel better about Wal-Mart simply because it opens more stores in California.

Comparing New York State apples to those from Washington probably is a best possible case for local. New York apples were a substantial industry before local became au currant. That means A) the apples were competitive in quality and price, and B) there was a marketing and distribution network that made sense.

Our sense is that advocates for local are not primarily interested in getting the citizens of New York to switch a percentage or two of their apple consumption from Washington to New York. They want to see moribund production areas blossom. So states such as Florida, Texas and New York that once grew lots of iceberg lettuce should revive those crops.

In fact, what they really want goes beyond that. They would love everything to be grown in diverse farms avoiding any monocultures.

Some of this is what Wal-Mart was talking about in its Heritage Agriculture program, which we talked about here, here and here and which focused on things such as Arkansas peaches.

It is not wise for anyone to prejudge, and we await some further research. But the very fact that these crops died out implies they were less efficient or less desirable, so we have to suspect that they would show up worse in any study. Only time … and research… will tell.

Right now, however, we are immensely proud to have Professor Miguel Gomez speak at The New York Produce Show and Conference. We hope our readers recognize that it took no small measure of courage for Professor Gomez to put his name to this research.

The “assistant” in his title does not mean he is actually anyone’s assistant. It means he has not yet been granted tenure, the means by which job security is assured for academics. We trust Cornell, at least in the Charles H. Dyson School of Applied Economics and Management, is still open to free inquiry and to the assessment of academics based on the quality of their work.

Yet, in talking to many academics, one gets the nagging feeling that in some departments, Professor Gomez would be blackballed for daring to dissent from the reigning orthodoxy regarding local.

Of course, it would be hard to stand upright for the facts while one is genuflecting to an ideology. We hope many will make it to New York City on November 9-11 to hear Professor Gomez explain what we now know… and what we have yet to learn about local.

You can learn more about The New York Produce Show and Conference here.

You can register online to attend the event and hear Professor Gomez right here.

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