Benefits and Costs of Local Food Policies

I've been critical of many of the local foods policies that have been touted as solutions to economic, environment, or health problems (e.g., see here or here).  Much of my criticism is rooted in the fact that advocates have failed to meaningfully and accurately articulate how policies to, say, require local schools or hospitals to source food within a certain radius or to subsidize farmers markets will improve the environment or increase a region's economic growth.

In the debate about local foods, proponents and opponents have largely talked past one another, and one of the hindrances to more fruitful dialog is the lack of a formal mathematical model from with people can illustrate the effects they believe to disseminate from promotion of local foods.  While surely not everyone will agree with the details of any particular model and the conclusions coming from it, a model at least provides a starting-point from which one can articulate what they believe the model is missing which would justify or condemn local food policies.

Enter this new paper by Jason Winfree and Philip Watson in the American Journal of Agricultural Economics.  The authors present just such a mathematical economic model in which one can talk about the benefits and costs of local food policies.  They generally show that local food policies are more costly than beneficial.  However, they do show that in certain conditions (if there is a lot of market power and extensive externalities), it is possible (though not necessarily likely), that local foods policies can produce more benefits than costs. 

In a blog post at Oxford University Press discussing their paper, they summarize their findings as follows.   

The formal model generally concludes that the traditional case for comparative advantage remains largely unaffected by these concerns [about the environment, food security, and economic growth]. In fact, in many instances, the buy local movement harms the local economy. One of the basic tenets of economics is that two regions can be made better-off through trade. Buying local generates inefficiencies that reduce social welfare. The policies intended to support the “buy local” movement results in a region producing a good where they do not have a comparative advantage. The costs of policies increase because the locally produced good forgoes the benefits of specialization and the division of labor.

Consider the case of negative externalities generated by foods brought in from distant locales. Proponents claim that pollution generated from transporting non-local goods to local markets justifies their claim. However, if the externalities require some kind of public response, a Pigovian tax makes more economic sense than encouraging “buy local.” The tax addresses the source of the externality. Buying local leaves the externality in place and does not address the inefficiency associated with deviating from comparative advantage.