It’s widely accepted that buying locally made products from local vendors gives a bigger boost to the economy than buying imports from national companies.
But a team from the University of California, Davis, decided to not only to see if that were true for local farm produce, but if it was, just how much of an impact it had on the local economy.
It used the Sacramento area as its test market, and they found that when consumers buy from a local farm, they really do help their community’s financial well being.
An interesting feature of this study is that the team compared local direct farm marketer sales to wholesale producers.
Here’s how it breaks down in the research team’s report:
- For every dollar of sales, Sacramento area direct marketers generate twice as much economic activity within the region, as compared to producers who are not involved in direct marketing.
- Direct marketers generate fewer overall sales than non direct marketers. Sacramento area direct market producers averaged $164,631 in sales per producer, ranging from $2,141 to $4,620,000. Sales for producers in the region who were not engaged in direct marketing averaged $568,105, which is more than triple that of the region’s direct marketers.
- Where direct marketers revenue comes from: Of the direct market producers’ total revenues, 44% were generated through direct channels, 55% through wholesale channels, and one percent in commodity markets.
- Not all sales from area direct marketers were made local. 65% of the producers’ direct-to-consumer sales were generated in the Bay Area, 30% in the Sacramento Region and five percent in other parts of the state or outside of California.
- Direct marketers are also wholesalers, themselves. 73% of the direct marketers also sold through wholesale channels. Overall, their largest revenue channel was distributors with 30% of total sales, followed by farmers markets (16%), Community Supported Agriculture (14%), grocers (13%), and farm stands (9%). Similarly to direct-to-consumer most of the wholesale activity was in the Bay Area.
- Expenses for direct marketers is less than non direct marketers. The direct market producers’ annual production and marketing expenses averaged $155,235 in 2013. Expenses of the producers in the Sacramento area who are not engaged in direct marketing averaged $214,486, which is 39% higher.
- 89% percent of the inputs used by the region’s direct marketers were purchased within the region. Meanwhile, 45% of the inputs used by producers in the Sacramento area not engaged in direct marketing were purchased within the region.
- Inputs are the main reason direct marketers influence the local economy, but it outperforms non direct marketers in other areas, too. The regional output multiplier for the direct marketers is 1.86, compared to 1.42 for the region’s producers who were not involved in direct marketing. This means that the direct marketers generate $0.44 additional output within the Sacramento area for every dollar of production, when compared with producers not engaged in direct marketing. The greater economic impact of direct market producers is primarily attributable to the much larger percentage of their inputs being purchased within the region (89% versus 45%). The direct marketers’ indirect effect is .41, compared to only .09 for the producers not engaged in direct marketing.
- This impact holds when compared to other area businesses, too. The Sacramento area direct marketers’ total output multiplier of 1.86 is relatively high. Other industries in the region competing for land have multipliers ranging from 1.61 to 1.77 (1.61 for auto dealers, 1.77 building material/garden supply retailers).
- The Sacramento area direct marketers have a job effect of 31.8, compared to 10.5 for the producers who were not involved in direct marketing. This means, that for every $1 million of output they produce, the direct marketers are generating a total of 31.8 jobs within the Sacramento area, while producers not engaged in direct marketing only generate 10.5 jobs. The difference is partially due to the fact that hired labor expenses comprised 54% of the direct marketers’ operating expenses, compared to only 25% for the other producers.
- If grocery stores bought more from direct marketers, it would improve the local economy. We created a scenario in which grocery stores in the Sacramento area increased their purchases of produce grown by the region’s direct marketers from an estimated $4.6 million to $5.6 million, with a matching decrease in their purchases of produce grown by producers who are not engaged in direct marketing. Because the grocers purchase the produce from distributors, the area’s direct marketers would increase their sales by $700,000. The resulting net economic impact is an additional $1.3 million of output within the Sacramento are, including 22.3 jobs.