The economics and business of food systems, food safety, and food trade

This research program explores the three interconnected areas concerning the benefits and constraints challenging local food systems, issues of food safety, and the international trade of food products.Local Food Systems: The potential economic development benefits available through local food systems are diverse and seemingly large. Small- and medium-sized agricultural producers are thought to benefit by an expanded demand for their products. In turn, those who supply production inputs (including labor), and other industries that support and complement the food system, also benefit from an increase in demand for their products and services. In distilling these benefits, two mechanisms through which these benefits may be generated and assessed emerge. The first is the concept of interfirm networks that are formed through agglomeration, firm clustering, and ultimately regional competitiveness. The second means of benefit generation is through backwards and forwards supply-chain linkages.Small farms are defined as those with annual gross sales less than $350,000 (Hoppe and MacDonald, 2013). These farms, which consumers generally perceive as being the source of products sold through 'locally grown' markets (Adams and Salois, 2010), have numerous options of outlets through which they can sell their products. Direct-to-consumer channels such as sales through farmers' markets or roadside stands, direct-to-institution outlets in which farms directly supply schools, hospitals and other institutions, and intermediated outlets where farms supply restaurants, grocers, and regional distributors are primary sales channels for these farms. Total local food sales through direct-to-consumer and intermediated channels in the U.S. were estimated to be $4.8 billion in 2008 (Low and Vogel, 2011). The 2012 Census of Agriculture reported that, nationally, direct-to-consumer farm sales totaled $1.31 billion in 2011.Direct-to-consumer outlets are highly preferred by small and many medium sized farms (Low and Vogel, 2011). Several characteristics of these marketing channels make them appealing for small farms including their relative ease of entry, flexibility in the timing and volume of sale, and the relatively high selling prices which can be commanded through these channels. As such, many small and medium scale farms sell exclusively through these channels. Accessing these channels however, requires additional cost (especially time) and higher risk (of several varieties) than other marketing channels. The marketing alternatives, economic development impacts, and policy and regulatory environment which shape local food systems will be evaluated through Objective 1:Objective 1. To contribute to the understanding of the benefits and constraints facing U.S. food system, particularly as it is related to small-farm, and/or 'locally grown' farm specialty-crops and related value-added products.Food Safety: The personal and economic costs of failures in our food safety system are staggering. The USDA Economic Research Service estimates that the 20% of U.S. foodborne illnesses for which a pathogen cause can be identified imposes a burden of at least $15.2 billion on U.S. consumers each year (USDA ERS, 2014). Under perfect liability, all victims would be compensated for all of their costs. But, as it is difficult to link illnesses to a specific food product, a legal environment of imperfect liability has been fostered in which the likelihood of full compensation to victims is greatly diminished. Widely cited research by Buzby et al. (2001, 2002) shows that damage awards are very small in comparison to the damages, and illustrates the extent of imperfect liability in this market.The cost to firms of proactively addressing food safety issues is also substantial and has been increasing with new federal policies (i.e. the Food Safety Modernization Act), and production, processing, and other technology improvements. As food safety improvements are largely a fixed-cost expense, implementing these practices and improved technologies are expected to be relatively costly for small firms. (Among constraints explored in Objective 1.) Further, due to improvements in food supply chain management and traceability practices, the point of origin of foodborne illness can be more precisely determined; this, in turn, increases the potential for injured parties to successfully seek compensation for their damages. These changes may provide incentives for food firms and others in the supply chain to improve their operations and produce safer and better quality foods thereby reducing the costs shared by economic sectors (employers, private health insurers and government). These issues will be explored through Objective 2:Objective 2. To identify and assess the impacts of food safety failures and preventative actions on food consumers, individual agribusinesses, and the food industry more broadly. International Trade: Literature exploring the specific mechanisms by which multilateral, regional, and bi-lateral agreements foster international trade is still in its relative infancy. For example, the issue of to what extent observed increases in trade results from increases in trade along the intensive margin (increased trade of existing goods) or extensive margin (wider set of products) is unclear and is likely to vary across agreements. In addition, increases in trade flows between two partner countries is generated at least in part by substituting away from current trading partners; as such, the impacts of agreements on nations which are not participating is also important. Similar questions can be raised about the market access impacts of the extensive and growing variety of standards, certifications, and labelling schemes (including those related to food safety) which may be adopted by individual firms. These issues will be explored through:Objective 3. To assess the manner and to what extent agreements, policies, and programs affect the international trade of food products.