An Economic Analysis of “Local” Production: Is it Efficient or Inefficient

It is well recognized that the production of many farm commodities, especially fruits and vegetables, has become geographically concentrated, with larger but fewer farmers involved in production. This concentration, according to critics, has resulted in the production of less flavorful commodities and added unnecessary costs to marketing. To address these shortcomings, several groups have advocated “local” production of farm commodities, especially fruits and vegetables. According to proponents of “locals”, such production is preferred by consumers because these commodities are fresher, more nutritious, better tasting, and grown with fewer pesticides. Further, local commodities provide income opportunities for small farmers and they serve to lower food miles and transportation costs. While acknowledging these described attributes and benefits, this paper uses a specific commodity, potatoes, to illustrate the true costs of “locals”. Results show efficiency gains from comparative advantage and other factors that far exceed the most optimistic returns to “locals”. In dollars, “local” production of potatoes would add, as a minimum, $3.8 billion of additional cost. Further, it would require an additional 961,000 acres of land. Local production costs for all commodities that make up consumers’ diets could possibly rival that of the $90 billion food stamp budget.