Local Foods - A Guide for Investors & Philanthropists

by Amy Dickie

Enthusiasm and demand for locally grown food has increased tremendously in recent years. The rapid growth of farmers’ markets, community-supported agriculture farms, and top selling books on local food and farming systems are strong indicators of this rising demand. As both an emergent industry and an important social and environmental movement, local food systems are beginning to catch the attention of profit-seeking and philanthropic investors alike, as well as existing food businesses considering greater participation in this sector.

Given how quickly the local food movement is developing, it can be challenging to characterize the state of the industry. California Environmental Associates (CEA) has assembled the following analysis of the local food supply chain, in the hopes of distilling the opportunities we see for investors with discrete goals.

This paper outlines the opportunities in each of the major steps along the food supply chain: production, processing, distribution & aggregation, sales & marketing, and retail. Table 2 provides a summary. The analysis is informed heavily by three local food economy assessments (in Vermont, New Orleans and Wisconsin) which CEA conducted on behalf of Slow Money. It has also been informed by past engagements with investors and intermediaries working across the food chain with a broad range of objectives (e.g. the Walton Family Foundation, Roots of Change Fund, California Fisheries Fund, and the Sea Change Investment Fund).

Note: California Environmental Associates is not a financial advisor. The material contained in this paper should not be considered financial advice.

Overview

Local food markets are booming across the U.S. Farmers’ markets have nearly tripled since the mid-1990s, growing from 1,755 in 1994 to 4,685 in 2008, and this growth rate doubtless understates the rise in aggregate gross sales at these markets.¹ Community supported agriculture farms (CSAs) have grown from one in 1986 to an estimated 600 in 1996 to over 4,000 in 2007^.2 A few regions in the country are poised to begin filling wholesale supply chains with locally grown food, offering grocery stores, food service providers, and restaurants a reliable supply of local product, and potentially converting a significant share of household food expenditures from conventional to local foods.

Simultaneously, a wide number of stakeholders have realized that the growing financial toll attributable to unsustainable environmental practices in large-scale monoculture systems is too onerous to bear. Top soil stores depleted from erosion and over-fertilization, waterways contaminated from pesticide and fertilizer run-off, and crops that are losing natural disease resistance due to decreasing wildlife habitat and biodiversity in farm environments are increasingly adding real costs to our agricultural sector. Additionally, current agricultural practices contribute significantly to our country’s greenhouse gas (GHG) emissions profile. In the U.S., the agricultural sector is responsible for 6% of GHG emissions, primarily from soil and manure management. An additional 17% of U.S. emissions come from land use, land use change, and deforestation.³ These carbon inventories
do not include the energy used by farm equipment or in transporting the average American meal 1,500 miles from field to plate.⁴

Advocates of local foods see a number of social and environmental benefits to small-scale, diversified food systems including: improved habitat health (soil, air, waterways, and wildlife), enhanced viability of family farming and rural communities, and biological and economic diversity and resiliency. That said, “local” does not necessarily equate to “sustainable.” For example, there are many sustainable food systems that are not
geographically limited in their markets (e.g. Alaska’s wild salmon fishery), and there are many farms selling to local markets that are not committed to sustainable practices. Sustainable food production explicitly calls for long term stewardship of environmental, financial, and human resources. Though local food production does not explicitly embrace the sustainability mandate, it is often broadly aligned, and for purposes of this paper, we have assumed such general alignment.

Even though consumer interest in local foods is growing, the field is still in its infancy, and has yet to reach the radar screens of most philanthropic and profit-seeking investors. As such, this paper will focus explicitly on growth and investment opportunities in local foods. As the local foods sector grows, it will offer fertile ground for both philanthropic and profit-seeking investors, who will likely find opportunities across the supply chains of a range of food sectors in regional markets around the country. One entry point is Slow Money, a rapidly growing network of investors and entrepreneurs seeking to catalyze investments into local food enterprises around the country.

Some investors will see local foods primarily as an important environmental and social movement and ask, “What needs to be done to enhance the local food system and secure its benefits for the greater good?” Others will see it as an emerging industry and ask, “How can I participate in the growth of the local food economy in order to achieve compelling financial returns?” We believe strongly that there is room for investors across this wide spectrum to play a collaborative and constructive role, and this paper attempts to distill the opportunities we see for investors with discrete investment goals.