Farm business financial performance in local foods value chains

The purpose of this paper is to identify the factors associated with farm financial success for those farms known to produce for local supply chains. The analysis considers alternative measures of farm financial performance and considers the role of the local foods supply chain in the choice to market locally.

The paper uses a two-stage Heckman approach which addresses the possibility of sample selection bias. In the first stage, the choice model to engage in direct marketing is estimated. In the second stage, the authors estimate a model of the financial performance of those in the sample that direct marketed which includes an IMR term calculated from the parameters of the first stage equation. The analysis uses national farm-level data from the Agricultural and Resource Management Survey of the US Department of Agriculture and combines data from 2009 to 2012 to overcome the constraint of small samples.

Indicators of the development of a local foods supply were positively related to the choice to engage in direct marketing. Factors affecting farm financial performance varied significantly between a short-term and a long-term measure. The results emphasize the importance of considering multiple outcome measures, developing local supply chains and provide implications about beginning farms.

If a local foods system is going to thrive, the farms that market the agricultural products in the local food system must attain a certain level of profitability. The value of the analysis is an improved understanding of the financial performance of farms producing for a small, but growing segment of the food supply chain.