The COVID-19 pandemic caused major disruptions in the food supply system. In some respects local and regional food systems (LRFS) were better able to respond to myriad shocks in labor supply and input and consumer markets. Since supply chains are short, local food enterprises can often be more flexible and are better integrated into downstream decisions. Producers can often respond more quickly to changes in consumer preferences and market shocks due in part to their smaller scale and in part to the social connections that producers must build with their clients.
As I have mentioned in previous posts, one of the primary disadvantages of local food enterprises is their relatively small size. When there are economies of scale, small enterprises will be less efficient, making it difficult to compete with large-scale enterprises producing for national markets.
COVID-19 has exposed both challenges and advantages for local food enterprises. Disruptions to farmers’ markets and other in-person venues that local enterprises formerly used to market their goods were disrupted during the pandemic. Nevertheless, many local enterprises began using e-commerce platforms for the first time. Prior to the pandemic only 19% of farmers conducted marketing activities or tracked prices online (Thilmany et al. 2020).
Policymakers, noticing the potential advantages that local food enterprises possess during a crisis have made suggestions to allow for more flexibility in local food supply regulations. Since local supply chains are shorter, some have advocated that traceability systems need not be as complex, and it may be advantageous to reduce food-labeling requirements.
Regulatory changes may help local meat processors compete for a larger markets share. Meat processing in the United States is highly concentrated, and only federally inspected processors can sell meat across state lines. After meat processing plant closures and meat shortages in consumer markets in 2020 there was increased congressional interest in creating a more diversified supply chain. A bi-partisan group of congressmen requested that the USDA clarify and streamline the approval process for meat labels, make HACCP compliance more flexible for smaller processors, allow smaller processors to sell across state lines, and decrease the cost of meat processing inspections. Montana initiated a new grant program to increase slaughter capacity in the state. Wyoming revised its Food Freedom Act to allow consumers to buy a portion of an animal and arrange slaughter and processing at custom facilities.
Local food enterprises will probably not become the primary food supply chains in the United States, but they may receive a stronger competitive advantage than they have had in the past. Regulatory changes and renewed interest in diversifying the food supply system may help local enterprises become more competitive. Increased expenditures in local supply chains could also have positive economic spillover effects into local communities, providing more local jobs and increasing the multiplier effect of dollars spent in the community.
For more information, see Thilmany, Dawn, Elizabeth Canales, and Sarah A. Low, Kathryn Boys. 2020. “Local Food Supply Chain Dynamics and Resilience during COVID-19.” Applied Economic Perspectives and Policies.