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Can The Local Food Movement Scale Up?

The local food movement in America is gaining steam. The question is whether can it attract sufficient capital from the private sector to build large, profitable businesses. Without that, it's just a fad.

Energy and agriculture have more in common than you might think. Food and fossil fuels prices are rising at the same time as land and water are becoming increasingly scarce commodities—and both energy and agricultural production processes are harming human health and the environment. At the same time, both industries suffer from complex and inefficient distribution systems and heavy government regulations that favor the status quo. Each industry is also supported by government subsidies that benefit incumbent producers over young companies that might have solutions to some of these problems.

And then there is the inextricable link between energy and agriculture. The food industry in the U.S is one of the largest and most wasteful consumers of energy. Various studies estimate that the food industry consumes around 10% of the nation’s energy with only about 20% of it used in the actual production of food. The rest goes to processing, home refrigeration and preparation, and of course, transportation. Transportation costs also are a major factor in food prices, especially for water-heavy vegetables such as romaine lettuce.

For all of these reasons and others, the local food movement in America is gaining steam. Families, restaurants and schools are purchasing more of their food from farmer’s markets. Community, school, and backyard gardens are springing up all over. And in places where land is scarce—large, densely populated urban areas—consumers and some businesses are taking to the sky and growing food hydroponically in rooftop greenhouses.

The question we must ask is, "Will this scale?" For anything to scale, it must solve a real problem, be cost-effective and replicable, and have the right systems in place to support it. To do that, it must attract sufficient capital from the private sector to encourage entrepreneurs to build large, profitable businesses.

In 1999, when I was an MBA student, I came up with a solution for selling solar power to businesses at or below the going rate for electricity. My idea was to form a company and raise money from big investors to cover the upfront costs of buying photovoltaic solar panels for commercial customers’ rooftops. The company would install, own and operate the plants. In return, customers would sign power purchase agreements locking in electricity prices for as long as 20 years. This would create a steady revenue stream for the company and an affordable way for customers to use (very) locally generated clean power for their businesses, instead of paying the rates du jour for power generated by utilities at central stations and transmitted over aging and congested transmission lines. 

I wrote a business plan, but it was the height of the dotcom era and no one was interested in financing a company that did not have a sock puppet for a mascot. It wasn’t until 2003 that I actually got SunEdison off the ground. It was not easy because we had to overcome the qualms of conservative investors and, in many states, push to get laws and regulations that posed potentially insurmountable barriers. But over the next few years, we created a thriving multi-billion industry with scores of competitors.

Now, a company called BrightFarms is taking a similar approach to rooftop farming. In business since 2006 as a consultant to rooftop farmers, the company recently adopted a new business model. BrightFarms contracts with supermarkets to build, own and operate onsite greenhouses on store rooftops. There are no upfront costs for the retailers—just the obligation to purchase food grown hydroponically on store rooftops farms through long-term, fixed price contracts. BrightFarms has a policy of not announcing customers until its farms are delivering produce, but it has signed up eight supermarket chains as customers so far. (In the interests of full disclosure, I am an investor in BrightFarms.)

Retailers purchasing food grown on their premises completely disrupts the complicated and expensive food industry supply chain. It reduces transportation costs to almost zero—offsetting the higher upfront costs of greenhouse farming over conventional methods—and increases margins because the produce has a longer shelf life. It also lowers water, fertilizer, and other inputs by over 90%. And it gives consumers what they want: fresh, tasty, affordable produce. Most importantly, the model requires local labor to work, so it keeps and adds jobs in local communities.

Only time will tell if this new model catch on with enough U.S. supermarket chains to make a difference in our nation's food supply. But what is clear now is that no silver bullet exists for America's energy and food production issues. Just as solar rooftop systems meet some but not all of our energy needs, rooftop gardens can make some but not all of our nation's food production and distribution more efficient. Finding the right answers for energy or food production will require us to invest in thousands of technologies that are scalable and make an impact. But given the economic and environmental benefits of rooftop gardening, it is worth it to start trying.

[Image: BrightFarms]

Jigar Shah is CEO of the Carbon War Room, a nonprofit that harnesses the power of entrepreneurs to implement market-driven solutions to climate change and create a post-carbon economy. 

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  • Joe Spender

    Any other readers feel like they're taking crazy pills???  The article seems to take a supply side approach to the issues...which, last time I checked has led to more than a few economic missteps over the years.    The author suggests that, "the question is whether can it attract sufficient capital from the private sector to build large, profitable businesses." This is off the mark by a wide margin.
    The whole point of local food systems is to build many small and diverse profitable businesses producing, transporting, and adding value that for consumption in local economies.... A more accurate measure of success is not the returns to outside investors...but how well money stays circulating within local communities. To many, this is a foreign, and uncomfortable concept.  

    Local food systems are typically comprised of a number of medium to large farms, the majority of which are located in an agricultural setting located within a feasible transportation distance of population centers (hence the need enlightened land use policies, that are SO important to successful local food systems) and many small food distribution outlets (restaurants, grocers, farmers markets, farm stands, etc.) where consumers can access food on a regular basis (i.e. more often than one day a week). Another characteristic is a number of community gardens.  

    I can see how many people would approach the issue of local food from the perspective of the author....local food is about business after all, and businesses operate to create wealth. But as an "industry" local food systems are more about resilient and diverse local economies than they are about concentrating wealth for investors,and gaining an edge on competitors...

    That is to say, the industrial wisdom of local food systems, i.e., the true measure of success of this industry is its ability to build resilient and healthy communities. 

    Besides scale up of production, a topic that is majorly lacking in the public discourse on localism is distribution.  Until there are convenient and readily available options for consumers to access local food, the local foods movement will not reach its potential....having  private investment support the many businesses along the local supply chain is probably just as important (and probably less of an investment risk) as supporting those growing the food.

  • Melanie Cheng

    The real, "non-fad" benefits of local are really
    about small/med farms supplying our food via distributed regional
    networks. Not just for distance, but for local economies &
    stewardship of the land/ecosystems. Capital is needed for
    this regional infrastructure. This article is off in several ways, most
    glaringly saying we need "large profitable businesses" for a healthy
    food supply (opposite is true: we need a large profitable NETWORK of
    SMALLER producers), and that grocery rooftops are going to save the day
    (maybe they can feed some, but rooftops most definitely won't scale to
    feed entire communities or the world).