Want to support local food businesses? Don’t just buy from them—invest in them.
Did you know that more than a dozen studies1 have shown that every dollar spent at a locally owned business generates two to four times the local jobs, local income, local taxes and local charitable contributions of a dollar spent on an equivalent non-local business? Despite these impressive statistics, most of the country’s long-term investable dollars go into government bonds or big corporations on Wall Street.
Michael Shuman, a well-known economist, author, attorney and entrepreneur, estimates that less than 1 percent of Americans’ long-term savings in stocks, bonds, mutual funds, pension funds and life insurance funds—totaling approximately $30 trillion—touches local small businesses, even though roughly half of the jobs and the output in the private economy come from them.
Investments in local food enterprises are no exception. Despite rhetoric about competition and the “free market,” public policy is mostly geared toward enabling a small group of companies to control virtually every aspect of the food system. For instance, 20 food corporations currently produce most of the food eaten by Americans, including organic brands, while direct-to-consumer sales of edible agricultural products made up less than 1 percent of total agricultural sales in 2007.
If Americans could shift just 1 percent of that $30 trillion in investments to locally owned companies, more than $300 billion would be injected into the Main Street economy. However, as of today, there is not a single investment fund in the country that provides retail investors with investment access to small, local businesses.
This is starting to change. “We are now in the midst of two incredible revolutions—one around the appreciation of the critical importance of local business, and the other around the expanding possibilities for local investment in these businesses,” explains Shuman.
What Does “Local Business” Even Mean?
Local means closer proximity between producers and consumers, which fosters relationships of trust between consumers and farmers, maximizes the level of economic activity within a community and minimizes the carbon footprint of shipping.
Local also refers to the proprietor’s greater likelihood to re-spend her earned dollars locally, which increases what economists call the “multiplier effect.” Local businesses also nurture local culture, and the presence of diversified local businesses tends to strengthen indicators of community well-being, like political participation (see “The benefits of locally owned businesses”).
A Case Study
A robust, better financed food movement is emerging in places like the Pioneer Valley in Massachusetts, thanks in part to a growing cohort of forward-thinking citizens.
In 2008, the leaders of the local food movement in the valley came to two conclusions about how to scale up local investing opportunities. First, they needed access to flexible capital and related business services that could support local entrepreneurs. Second, they needed to collaborate and network better. This was the beginning of PV Grows, a network of foundations, nonprofits, government agencies and financial institutions that invests in small farms and local food businesses.
The partners began by targeting a relatively small pilot fund ($2.5 million to $10 million) as a way to invest and learn through experience. In the end, PV Grows, along with tens of thousands of like-minded people throughout New England, is committed to the revitalization of a local food economy that could ultimately utilize billions of dollars of patient investment.
Scaling Up
PV Grows aims to mitigate some of the apparent risk by building deep community engagement and local, professional expertise into the investment fund. Their design rests on the thesis that there are many local residents who want to take this risk with some portion of their assets but have yet to be offered the opportunity. The group is now working to launch a successor fund, and over four years the network has grown from 30 to 450 representatives in government, agriculture, finance and more.
Done properly, greater localization of food can compensate for higher production costs (and more farmer income) with much lower distribution costs. Shuman predicts that the local food movement will expand substantially in the years ahead, leading to growing local investment options.
What if communities around the country started applying the PV Grows model to expand capital available to a suite of other local businesses? Then the opportunity to invest in local food would move beyond just the local farmers market and locally sourced restaurants to opportunities to invest dollars for a return.
While almost no investable options exist today, Align Impact, an impact investing joint venture that Abacus co-founded, is tracking options for local investment as they become available.
The author, Logan Yonavjak (@Loganyon), would like to thank Michael Shuman, Jeff Rosen and Tom Willits for their original review and contributions to this article when it appeared on the Ashoka Changemakers Forbes blog on April 4, 2013. This blog was originally part of a series on Ashoka’s “Nutrients for All” campaign, a movement to encourage leading social entrepreneurs and innovators to look at nutrients as the core deliverable and to design direct nutrient interventions at each stage of the agricultural and food value chains—in ecosystems, farming, food production and wellness.
Note: As of recently, there have been few studies quantifying the size of local food markets. But in 2010 the U.S. Department of Agriculture came out with a comprehensive literature-review-based overview of the current understanding of local food systems, including estimates of market size.
For more information on PV Grows and to access information about starting a local revolving loan fund in your community, visit www.pvgrows.net.
For more information on Michael Shuman’s work, see The Small Mart Revolution: How Local Businesses Are Beating the Global Competition (2006), Going Local: Creating Self-Reliant Communities in the Global Age (1998), and Local Dollars, Local Sense: How to Shift Your Money from Wall Street to Main Street and Achieve Real Prosperity (2012). His website is currently www.small-mart.org.
Citations:
- See Civic Economics and New Economics Foundation.
