A number of people have asked me to write further about Pierre Desrocher’s “Locavore’s Dilemma”, particularly with respect to the economics of local food. In particular I’ve been asked about comparative advantage, which is a key point of Dr. Desrocher’s argument. Can’t this principle be disproven? Surely it doesn’t work in the real world? Well, the truth is comparative advantage is both powerful and complex, and so ignoring it isn’t an option. The question, then, is why does local food exist at all in a capitalist system? What follows is an argument I’ve been working on that involves a two-fold answer: relative advantage and diminishing marginal utility. But before we get to that, comparative advantage needs closer inspection.
Ricardo’s theory of comparative advantage states that a country or region should focus on producing the product that it can produce most efficiently given inputs of capital and labour, and then trade for everything else. If this is done, even if one country has an absolute advantage and can produce everything more cheaply and with less labour, every country will win by trading. This is just simple math, and being math it has stood up to a lot of critique. However, Ricardo did make a couple of assumptions worth mentioning. First, he assumes trade is effortless, ie. cost of trade is minimal. Second, he assumed labour is stationary. Otherwise everyone would move to the country with the highest wages. Third, he assumed capital was stationary, otherwise industrialists would move their factories to the places with the lowest wages. At least two of these impact our discussion of local food.
Richardo’s theory can be critiqued in a number of ways: firstly, capital is unfortunately quite mobile, so in a world of trade most production moves to the places with the cheapest labour and lax environmental standards. This can cause problems in the food sector with respect to labour standards, pesticides, environmental impacts, and such, as global corporations based in the developed world farm in the developing world. This is not my main argument, but adds an interesting facet which I will explore further below. Secondly, trade isn’t always cost free and effortless when it comes to food, as we will see below.
There is one other critique of Ricardo’s theory that is worth mentioning even though I’m not going to use it further here: it assumes the market can absorb an unlimited amount of a product. The problem with this is that on occasion countries have ruthlessly specialized into crops such as coffee and bananas, and produced enough to crash the market, often because price signals arrive and then one plants a crop that takes several years to a decade to mature. The book “Uncommon Grounds” by Mark Pendergrast does a great job of outlining the rise of coffee culture, and highlights why in some cases a country shouldn’t focus exclusively on one product; there is a law of diminishing returns at work at the upper end. The economic law of diminishing returns has proven resilient over the years, and suggests there is a maximum workable farm size, and a maximum level of production for almost everything.
My main argument, however, is to explain why a diversity of products will thrive in a marketplace when various regulations and subsidies are removed, even when the upfront cost is higher. I call this the microbrewery effect, in honor of the renaissance in beer making in Canada. Though the most efficient way to approach beer is to produce it all in the region with comparative advantage, when we lived in a regulatory environment that favoured a few big producers the public’s consumption of beer slowly fell year over year. We were faced with efficient beer, and we weren’t so keen on it. When restrictions on beer-making were removed, the market went in the opposite direction, leading to a flourishing of microbreweries, and a rise in total beer consumption. Why? What about the less efficient, more expensive beer made it more appealing?
To put this into economic terms, microbreweries enjoyed what is called a relative advantage, which in innovation theory is a property that influences a consumer to chose one product over another. Advertisers often stress relative advantages over that nasty old “Brand X”. Microbrewery beer had several relative advantages, including taste, and a more sophisticated image. However, it also offered something else: diversity.
In economics the human desire for diversity can be represented by the law of diminishing marginal utility. For example, I love red velvet cupcakes, and will pay four dollars for one. I don’t really want two, but I might buy two if the second one is half price. I wouldn’t buy a third, as eating the third would be a disutility; I would feel sick. Applying this to the beer argument, even if in general I like to stick to one type of beer, over time I will be willing to pay more for something different, purely because it is different. A world with one beer is boring, and people look for other options. Being different can be a relative advantage.
Now let’s consider the relative advantages of local food, and yes, I will return to comparative advantage. Ricardo assumed trade was effortless, but travel has a big impact on food. To travel food must be bred to suffer the harsh realities of the road, will suffer a loss of critical moisture and sugars, or must be treated or processed. So in effect travel for food might not have a large energy cost or be very expensive, but it costs in terms of flavour and nutrient content.
1. Thus local food’s main relative advantage is that it tastes better. This varies by crop, of course, berries being an extreme example; one study found 90% of the sample group won’t eat berries out of season. Dr. Desrocher and other critics do acknowledge this, but I feel they underestimate what a strong factor this is. We will pay extra as we are willing to trade our income for the experience of tastiness. If this wasn’t true, everyone would just eat the cheapest, blandest food possible. It would be like living in university residence, forever.
2. Local food has often found to be more nutritious. Nutrients decay during travel, but more importantly local farmers have the luxury of growing varieties with higher nutritional content and better taste as travel isn’t their main concern. Local food is also often free of preservatives and such, and though such things are tested for immediate effect, many people are concerned about the long term impact of highly processed foods. I’m writing up a paper that will summarise this literature, but it seems clear nutrition is a concern. People are increasingly worried about health, and so for the moment we are willing to pay more for food that has more nutrients, and less additives.
3. People have claimed local food is less energy intensive. Given this is now under question, I’ve been reviewing energetic studies, and it seems this varies widely, and compared to other stages in the chain it can be a major or minor effect, and local food doesn’t always come out on top. this needs further study, but it is clear some people are buying local food for this reason. But be warned, locavores, the numbers might not favour this. I’m willing to say that currently, Dr. Desrocher’s is largely correct, and energy for transit isn’t a major concern.
4. Which doesn’t mean having our farms close by isn’t of benefit. Local food is seen as having better labour and environmental practices, and is seen as more transparent. This avoids that problem with the mobile capital I mentioned earlier, and some people are willing to pay more for local food for ethical and environmental reasons, just as they are willing to pay more for fair trade products. We can, if we want, actually check out the farms. I will admit I buy my eggs from a guy I know because I know he treats his free range chickens well, and I have personally seen the ugly side of industrial egg production, and it matches any of the horrors presented about Victorian England’s local food production in Desrocher’s book. Except it is happening now. Rational actors are willing to buy peace of mind by shopping locally.
5. Lastly, but perhaps critically, it provides diversity. Local food can provide diverse varieties and flavours more easily than a food system maximized for cost. Diversity adds resilience to the system, and provides for small scale innovation to deal with climate change and other crop challenges. And, of course, diversity sells.
This argument explains why local food can thrive in a capitalist system in which rational actors make rational choices. This counters some, but not all, of Dr. Desrocher’s argument for a more deeply global food chain. And here the extreme locavores might not be too happy either. For my claim is that under a trade regime free of subsidies, distortions, and such, the amount of local food available will grow as it enjoys several relative advantages, and provides diversity in the marketplace. However, this also means a completely local food system is not my preference, and would only be possible through legislation, just as a completely global food system is only possible through legislation. I can think of times and reasons we might want to do that, but it wouldn’t be a move based on economic principles, it would be political, and it wouldn’t provide the most interesting food system. However the same goes for the economic hand-holding governments have done to create the industrial food system. As food production is full of challenges from weather and international markets, it is no wonder the large players have lobbied to protect their investment. Fortunately, I expect that we will continue to see local food expand as long as its relative advantages hold. Meanwhile I will likely keep shopping at farmer’s markets, grabbing exotics from Whole Foods, haunting Granville Island, and yes, occasionally eating a box of frozen pizza from Costco.
There is a way to frame such a system in which relative advantage is taken into account to suggest what percentage of local food versus imports is optimal. Stay tuned.