Localization is Seeding Innovative Produce Supply Chains

Editor’s Note: Chris Mejia Argueta is a Research Scientist at the MIT Center for Transportation & Logistics and directs the MIT Food and Retail Operations Lab. Alexis H. Bateman is a Research Scientist at the MIT Center for Transportation & Logistics and directs MIT Sustainable Supply Chains. Ken Cottrill is the Editorial Director at the MIT Center for Transportation & Logistics.

The COVID-19 crisis is shining a light on the vulnerabilities of food supply chains, as well as opportunities to develop inventive ways to deliver fresh foods such as fruit and vegetables from farm to table.

A key theme of these changes is localization – an increasing reliance on local growers to supply produce to retail outlets. The movement has gained momentum as a result of shifting consumer buying preferences and the need to make food supply chains resilient to a wide array of risks.

What is localization?

From a global perspective, localization can mean reorienting supply chains towards suppliers in specific countries or regions in any market. In this article, we focus on the localization of fruit and vegetable supply chains in the United States.

There are several definitions of what constitutes a “local” food supply in the US. The United States Department of Agriculture maintains that although “local” connotates short geographic distance between producer and consumer, there is no consensus on what products meet the definition. A government definition assumes that a product can be considered locally or regionally produced if it is less than 400 miles from its origin or within the state in which it was produced. A consumer survey carried out by the research firm Nielsen found that most buyers classify products across various food categories made 50 miles or less from the store, as local.

Local sources of produce are not confined to farms or small-size plots of land; They also include specialist operations such as high-tech commercial greenhouses and urban gardens. The enterprises sell directly to consumers or to retail customers such as supermarkets.

The size of the market for local food is unclear. From an industry standpoint, research from the Congressional Research Service (CRS) estimates that direct-to-consumer food sales account for about 3% of the total US agricultural production value. Up to one-half of the produce industry relies on sales to supermarkets and other chain stores, and the remainder serves foodservice companies (e.g., restaurants) and large consumers of produce such as schools and other institutions.

Pre-pandemic drivers

The localization movement was gathering steam in produce markets before the COVID-19 pandemic.

One of the drivers is the need to make produce supply chains more resilient to disruptions, like market volatility and labor shortages. Local sourcing avoids the risks associated with shipping perishable product long distances from growers to consumers. Also, shorter supply chains are more flexible, require fewer product touches and intermediaries, reduce wastage, and minimize potentially costly and delay-prone cross-border movements. There are cost advantages as well, mainly in the form of reduced transportation and warehousing costs.

Localization is finding support among consumers. Trust in food crops grown on distant, large-scale factory farms has declined as consumer interest in the safety and origins of food products has increased. Another component of this trend is the increased demand for sustainable products. For example, research by The Center for Food Integrity suggests that concepts such as “food miles” are becoming more relevant to consumers, as they place more value on shorter, more carbon-efficient supply chains.

The localization movement also aligns with the need to provide underserved communities with sources of fresh, nutritious food. One way to combat the spread of so-called food deserts – communities where access to fresh fruit and vegetables is limited – is to connect these communities with local growers.

These forces drive demand for locally grown fruits and vegetables and increase the premium that consumers are willing to pay for “locally produced” and “farm to table” product labels.

Coronavirus-related market shifts

Today, the COVID-19 crisis is reinforcing many of these market changes by illuminating weaknesses in produce supply chains. The pandemic shuttered restaurants and other places where large numbers of people congregate such as schools – effectively depriving fruit and vegetable producers of a primary market.

An obvious response was to pivot to other customers, notably supermarkets and other retail outlets. However, these are different channels with distinct specifications for product packaging and unit sizes. Reorienting supply chains geared to foodservice and institutional buyers towards customers in the retail business proved extremely challenging. To solve this issue, some farmers turned to selling their produce directly to the consumer, highlighting the value of locally produced foods as a source of revenue for farmers during supply chain disruptions. Some farmers may never go back to the original model.

The pandemic also exacerbated the labor shortages that plague growers in agricultural regions of the US. Restrictions on migrant workers crimped the supply of labor before the pandemic. The coronavirus’s health threat made it even more difficult to recruit the workers that growers need to harvest and pack food crops.

While localization does not address all pandemic-related supply chain issues, it does promote the flexibility, agility, and resilience needed to mitigate the risks associated with COVID-19 disruptions. This is one reason why the pandemic has underscored the advantages of local sourcing, especially for perishable products such as fruit and vegetables.

Moreover, preference for neighborhood markets may grow beyond food deserts. A recent study from mathematician Elena Polozova indicates that buying in corner stores is less risky than in big retail formats.

Innovations hone local models

The localization movement also benefits from a number of supply chain innovations in the agricultural industry. Here are some notable examples.

Local supply programs. As NPR reported recently, the movement known as community supported agriculture (CSA) is experiencing growth in various parts of the country. Members of CSA programs typically commit to buying regular deliveries of fresh produce from local growers. The coronavirus pandemic has raised the profile of CSAs for the reasons described above, although the model is mainly growing in wealthy communities.

Veggie box models. The so-called veggie box model is an evolution of the CSA movement. In this variation, groups of farmers create boxes of produce items in accordance with consumer preferences.

Commercial veggie box models such as HelloFresh are expanding, and provide a new buying channel for fresh produce. However, they do not offer the variety and quantity that most customer segments need. In addition, these services are configured for middle-to-high income population segments and assume that there is enough last-mile delivery capacity to perform dozens of deliveries effectively. However, the capacity is not always available, a problem exacerbated by the COVID-19 crisis.

Dr. Chris Mejia, Dr. Lars Sanches, along with master’s students Jamal Taylor and Luiz Barreto from the MIT Food and Retail Operations Lab have collaborated with colleagues from Tufts University, and the City of Somerville, MA, to explore the veggie box model, in underserved communities. The options under review use neighborhood markets as pickup points for veggie boxes, analyze the impact of ride-sharing systems and extend the impact of grocery delivery models in the city. Despite its complex design, the researchers found that the veggie-box model can support a local economy, decrease food insecurity, and address shortages of healthy food items. However, neighborhood market owners or managers need to widen the choice of produce, promote the veggie box service to the appropriate customers, and allocate space to store the boxes of produce.

A future article in this series on food supply chains will give a detailed account of the veggie box research described above.

Innovative growing models. Growers are harnessing novel agricultural methods such as hydroponics, advanced sensing, and information technologies to develop alternatives to traditional farms. An example is BrightFarms, a company that grows produce sustainably in high-tech, hydroponic greenhouses located in Pennsylvania, Ohio, Illinois, and Virginia. The greenhouses typically supply local supermarkets. In January 2020, the company opened a 280,000 sq. ft facility in Selinsgrove, PA, that can deliver over 2 million pounds of fresh, local produce year-round in PA and the PA-NJ-DE tri-state area. It has partnered with local supermarkets, including the Giant chain.

Urban and Container Farms. Small urban farms that sell to retail, food service, or restaurants have also become increasingly common with open fields, rooftops, brownfields, and other open spaces being utilized in cities to grow fresh fruits and vegetables. Urban farms that serve public demand reduce product transit and storage needs and increase food freshness in most cases.

Container farms use shipping containers to create self-contained growing environments for fresh produce, often in urban settings. One example is FreightFarms, which provides the container and set up that enable people to grow produce anywhere in the world.

Diversity programs. Traditional farmer’s markets allow residents to shop for a variety of produce items at specific locations in city locations at weekly times. However, these markets may not cater to the fruit and vegetable needs of ethnically diverse communities. World Farmers Organization in Massachusetts is implementing an innovative strategy to support culturally diverse farmers who grow their preferred products in small parcels and connect them to retail outlets. Some of these outlets are located in neighborhood markets.

Small growers, big potential?

While the localization of fruit and vegetable supply chains is attracting interest, most conventional, large-scale growing operations are not under threat.

Not all food crops are viable candidates for small, local suppliers. Moreover, the competitive advantages of localization are subject to tradeoffs between economies of scale, the capital cost of growing facilities, and transportation costs. Also, more emphasis on locally grown produce increases the importance of supply chain transparency. Consumers who buy local produce want to be reassured that their purchases are sourced locally, and this will require relevant sourcing information at the point of sale. The availability of investment funds also influences the commercial success of localization – a factor that could become more critical while the US economy remains mired in recession.

Still, consumers switching to local growers pre-COVID, in combination with the changes wrought by the pandemic, are creating a significant market for locally sourced produce that poses new supply chain challenges and opportunities. Researchers across MIT CTL are working on research projects to better understand this trend.

SC
MR