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I find this 'local food systems vs. high degree of specialization and globalization' debate absolutely fascinating right now. Particularly because I can see both sides of the argument. Here are my initial thoughts. 1/n
First is the debate under normality (i.e., not in COVID crisis mode). From the ECON 101 perspective, we're taught comparative advantage and how everyone could benefit through specialization and trade. This is why we see potatoes in Idaho, barley in the Dakotas/Montana, etc. 2/n
But a decade or so back, there was this shift in consumer preference for local food and drink. We push-aside the idea of comparative advantage. Why? Because consumers get utility from consuming local and oftentimes tell us they are willing to pay a premium for these products. 3/n
But one thing that goes overlooked is the fact that oftentimes the local agriculture is used as a final input of a local business. For example, local hops for beer or local tomatoes for pizza. In this sense, the real consumer of the local ag is the brewer or the pizza maker. 4/n
Why should specialize and abide by comparative advantage? Because those producers can produce the highest quality inputs at the lowest cost. That is why we see these local markets having higher prices and potentially lower quality (of course the quality is product specific). 5/n
In a working paper, @DrTreyMalone, Dr. Rob Sirrine, and I look at what drives a brewer’s decision to purchase locally grown hops. PNW has comparative advantage, but local hop markets are emerging all over the country. 6/n
Punchline: brewers hold localness in high regards, as many of them are the beneficiary of the localness craze themselves, but they’re not sacrificing quality if local inputs don’t meet their standards. 7/n
Another important point here is that a non-trivial number of breweries do not believe their consumers are willing to pay a premium for beer with locally grown hops. So brewers benefit from localness, but when we think of local beer, we don’t think of local inputs. 8/n
To conclude the normality case, develop local food systems and find the niche market, but there are plenty of barriers to establishing the system, including: reaching quality standards, not benefiting from economies of scale, and high transaction costs to finding buyers. 9/n
Now, what happens under these conditions of catastrophe? This has become a hot topic due to the COVID outbreak, but is not going away as I think it carries over into the debate of how agriculture will change with climate change. 10/n
There is this unexpected shock, and what happens when we are highly specialized? Here’s a slide from a @JaysonLusk talk this past Friday: “just 15 plants account for 59% of hog slaughtering” and a reduction in production capacity translates to increases in consumer prices. 11/n
Over this past week, there have been a series of reports on various outbreaks occurring at meat packaging plants. This is an area where we are most vulnerable, and it is ironically because we are abiding by the laws of comparative advantage. 12/n
So, deviating from comparative advantage can have its benefits during times like this, as we also witness trade falling off. But it is also important to think about how often events like this occur. Is diversifying and losing social welfare from specialization worth it? 13/n
Finally, let's go back to the local brewer and local pizza shop. What happens if these local businesses are forced to close their doors? Those local growers rely heavily on local businesses. Who is going to purchase the local ag now? This is a scary question for local ag. 14/n
This debate is sure to continue for years to come, and I am excited to see all the amazing research on this topic. Interested to get y’all’s thoughts. n/n
