Don’t Mix Apples and Oranges When Designing a Local Food System

On Monday, 24 November 2008, I attended a Poultry Processing Working Group meeting convened by Megan Schoenfelt at the Ohio Agricultural Research and Development Center (OARDC) in Wooster, OH with a video link to the main campus for The Ohio State University in Columbus, OH. Over 20 interested individuals and key representatives from various agencies, institutions, and businesses gave thoughtful consideration to the feasibility of designing, developing, manufacturing, operating, and maintaining mobile poultry processing units, e.g., slaughterhouse or abattoir, in support of small to medium sized poultry production enterprises throughout Ohio. At the conclusion, commitments were made by several to develop plans further, put them into action, and move the concept forward. Megan’s minutes will provide you with an excellent overview of the session.

Although the meeting achieved its objectives and assured progress to goals, one topic that surfaced frequently during the session concerned the design criteria for local food systems versus those for a global food system. The difficulty arises when elements of a global food system are mixed into the specification for a local / regional food system. The two systems have unique organizing principles. The business model / value proposition for one is fundamentally different than the other. For this reason, comparing the two haphazardly or indiscriminately blending elements from both into a hybrid is the equivalent of mixing apples and oranges — doing so puts subsequent plans at risk for unsuccessful implementation.

So what are the main characteristics of a global food system versus a local food system?

Characteristics of a Global Food System

Below is a diagram that illustrates the flow of food from production to consumption in a global food system. Key points include the following:

Producers have a narrow portfolio often consisting of a near monoculture of crops, e.g., corn and soybeans, animals for meat, e.g., cattle and hogs, or dairy and poultry. Their objective is to produce as much as possible of one item for the least unit cost.
Aggregators and distributors span significant geographic distances in support of the overall system as it relentlessly pursues lowest cost labor, easiest access to natural resources, and highest performance of technology wherever that may be in the world. Their objective is to optimize transportation payloads from one value-add stage to another.
Value-add processors and packagers make major investments in capital equipment and facilities to increase capacity and automate operations. Their objective is to appropriate technological innovation that facilitates economies of scale in their operations, amortizes investments across high volume runs, provides consumers with an array of choices within discrete product groups and reduces dependency on human labor.

To quickly summarize, global food systems prompt producers to focus on growing / raising a limited portfolio, logistics and distribution become big ticket items due to the global reach of the system, and value-add processors centralize their operations to command as much margin as possible.

Characteristics of a Local Food System

The diagram below depicts the flow of food from production to consumption in a local food system. The main elements include the following:

Producers have a diverse portfolio of crops grown and animals raised. Many of the entries in such a portfolio are indigenous, have mixed use applications, and are interspersed / intercropped. The objective is to optimize the portfolio to include as wide a selection of offerings as possible and effectively leverage assets. This combination provides a hedge to protect revenue and cap costs despite unexpected swings in supply and demand for particular products or failures due to unexpected conditions.
Food processing, preparation, and retail occur within a contained geographic space – 1-100 mile radius – so that as food is produced it travels a short distance for just-in-time delivery to the next step in the value chain. The objective is to place the sale of fresh food in close proximity to food preparation and processing so that quality, taste, freshness, ripeness, and appearance are maximized and waste and spoilage are minimized. What doesn’t get sold as retail or is used in preparation moves immediately to value-add processing. This type of highly-integrated stacking of functions assures the highest return on investment of time and resources.
The dynamics of a local / regional market create a situation where the community or cluster of communities participating in the local / regional food system impart a “brand” on the food produced, processed, prepared, and sold within it while consumers enjoy a wide variety of locally-produced foodstuffs. The objective is to draw upon the virtues of economies of scope, leverage brand recognition within the community, and establish sufficient market participation due to ample selection to drive the emergence of a local economy. And as widespread participation persists, the local economy is sustained and the community is stabilized.

As a recap, local food systems encourage participants to diversify their portfolios, leverage investments, take advantage of integrated food processing, preparation, and retail operations within a 10 – 100 mile radius, and utilize economies of scope to lay the groundwork for local economies to be established.

Beware Mixing Global and Local Food Systems

As is obvious by their definitions, the differences in organizing principles and business models between global and local food systems are significant. While both certainly can and must co-exist within the total food system, an indiscriminate mix of one with the other almost always disadvantages the local food system. In many instances it will prevent such a system from forming or becoming sustainable.

So, what about that mobile poultry processing unit? How would a local food system work with poultry?

Diversify the production portfolio by including as many different kinds of domesticated birds, waterfowl, game birds, and exotic / specialty species as possible distributed across a wide range of small-scale producers.
Keep the processing unit in close proximity to clusters of food retail, preparation, and value-add processing facilities to assure quality, timeliness, variety, and price advantages in local markets.
Develop a strong brand identity in the local / regional market for the complete package of locally produced, processed, and prepared poultry products which obviously includes the mobile poultry processing unit.

Of course, attempting to operate as a global food system would be fraught with danger. Three actions to avoid:

Limit producers’ portfolios to one of two kinds of birds. Worse yet, consolidate the number of producers into one or two large-scale producers.
Distance the mobile poultry processing unit from the producers or those in downstream food preparation and value-add processing.
Target consumer markets that are far afield from the point of production and processing so that local branding is difficult. Worse yet is to limit the range of product offerings so severely that sustainability is at risk due to lack of market exposure and penetration.

While this example of sorting through local and global food systems characteristics concerns poultry operations, it applies to all other food products. Perhaps you will find this checklist a useful guide when developing such food systems.

Originally posted to Local Food Systems by Steve Bosserman on Saturday, November 29, 2008 09:59

Thoughts about Value-Add

Value-add dominates our economic scorecard. It is relatively easy to calculate in a manufacturing setting where value is added through material transformation at each step as a product moves from raw material to finished goods. Customers monetize this value by the purchase of products they anticipate will add value to their processes. Value-add also pertains to certain services, like financial and legal, that require a certified, licensed, or bonded provider that possesses or delivers specialized skills or knowledge. The consequence for not utilizing these services is the customer assumes risk.

The concept of value-add also plays a role in information technology and data services. Here, though, the meaning is vague. What value can be assigned to having data or to having data in a usable format? This instance of value is intangible and determined by the receiver of the message. Nowhere is intangible nature of value-add more evident that in marketing strategies and advertising campaigns. Information that induces a user to pay for a product or service has value only to the producer. Value-add for the customer or client occurs at the next step — the point of utilization.

So much for the traditional view of value-add. Here is where the current issues of globalization – localization come into play. A robust business strategy can entertain and exercise both sides!

On the globalization side, value-added products are produced and services provided far from their points of utilization and consumption. Success is driven by appropriate economies of scale. This situation will continue for many years to come as customers and clients exploit lower cost alternatives. On the localization side, value-added products and services are produced in close proximity to their points of utilization. Success here is driven by economies of scope. This situation enables products and services to be integrated into specific applications or solutions that are tailored for highly localized contexts.

How, though, does one put a value-add strategy in place? Re-enter data and information. Essentially, a successful strategy is a contextually relevant plan of action, conceived through the knowledgeable (and hopefully, wise!) interpretation of data and information, and executed by a skillful tactician. No matter how similar or unalike the challenges, relevant data and information are the common denominator.

Assuming everyone has access to the same data and information, there is no value-add. With universal access to the same data and information, there is a significant benefit. The rates increase in the discovery of new knowledge, application of knowledge already learned, and transfer of experience with applied knowledge from one place to another. In other words, accessibility to data and information makes the global human system of knowledge generation and utilization more effective, efficient, and expansive.

Since data and information carry no particular value unless one does not have access to them, they form a unique type of “commons“. Anyone may contribute to the pool of data and information, all benefit, and the quality of what is available is not diminished or compromised by the number of users. In fact, the quality and variety increases with more participants as evidenced by Wikipedia.

This “commons” approach is a cornerstone in “open source” philosophy wherein volunteers contribute entries and edits and the content is free to use. Originating in the realm of software development and usage, open source applies to any instance where people collaborate in the development, sustainability, and scalability of a system whereby end-users freely pull what they need from the system and respond to their unique circumstances. Participants increase the working knowledge about the system as they act locally and provide feedback to designers / developers so they improve the system’s robustness, range, and ease of use.

A comprehensive business strategy judiciously positions an “open source” / “free knowledge” dimension on the globalization and localization continuum. What to share in open forums, what to hold as proprietary and reserve for limited audiences, how much to contribute in the development and sustenance of open source endeavors, how much to invest in products, services, and technologies for satisfactory returns, where to standardize products, services, and technologies for economies of scale, where to proliferate economies of scope solutions within localized contexts – these are the kinds of questions about openness, standardization, and uniqueness that drive effective business strategies for all organization types.

Technology gets smaller, faster, stronger, more embedded, more integrated, and more intelligent. Localization increases. The value-add equation is redefined and a greater significance is placed on unique solutions. Addressing the above questions helps organizations adapt within their ever-changing operational landscapes. The implication being that organizations network and collaborate more broadly to energize, inspire, and focus their subject matter experts where it counts most – learning what customers and clients need in their business and social contexts and responding with value-added alternatives. Isn’t that “business as usual”?

Originally posted to New Media Explorer by Steve Bosserman on Thursday, July 12, 2007

Lessons from the Grid

The electrical power grid is a study in organizational behavior. Take how electricity is generated and distributed to the point of consumption. Huge power plants or arrays – fueled by “green energy” sources such as solar, wind, biomass, geothermal, and hydroelectric, or “brown energy” sources such as fossil fuels and nuclear – concentrate electrical power generation to take advantage of “economies of scale.” The resulting current is transmitted through an extensive redundancy of power lines, cables, substations, circuit breakers, switches and transformers – oftentimes referred to as the “power grid” – to individual consumers across wide areas.

Organizationally, this is a centralized model. Power is concentrated in a select number of locations and authority is distributed to other points as needed and according to priorities driven by limited supply during periods of peak demand. The overall system, no matter how inefficient or costly, strives to be convenient, available when needed, standardized in delivery, and transparent during use. The goal is to please the most and dissatisfy the least so that fundamental assumptions about the design of the system are unquestioned, significant investments in infrastructure modernization or extensive system redesign are delayed, and increases in operational costs, along with services, are passed fluidly to the consumer. In other words, the existing power structure prevails and remains unchallenged and the consumer is dependent on that structure to get what is needed and wanted.

For every movement, there is a counter-movement. There are those who regard being “on the grid” as a lifestyle that epitomizes wanton consumerism, promoting waste, excess, banality, and destruction of the environment. Their alternative is to live “off-the-grid” disconnected from public services including electrical power. Initiated during the 1960’s and ’70’s, the “back to the land” movement is often synonymous with off-the-grid solutions such as energy from solar, wind, and biomass sources.

The off-the-grid approach represents an alternative organization structure – a decentralized model. In this instance, power is held by a wide range of relatively small, independent individuals / families who are in total control of an electrical power system that meets their consumption requirements. As with many decentralized structures, one’s destiny is in one’s hands. However, the limits of these structures become apparent when consumption patterns change and more power is required or disaster strikes and there is no opportunity for a quick recovery.

As the title of this blog article, “Solar Power FAQs: Will The Electricity Meter Run Backwards?” posted on the Alba Energy website suggests, some homes with photovoltaic (PV) panels generate sufficient electricity during the day to meet and exceed the immediate consumption needs of the home. In a different twist to back to the land homes sporting off-the-grid solar-powered systems, the scenarios presented in this article illustrate how consumers can load surplus electrical power generated by solar panels onto the grid and receive financial credit for doing so through various net metering plans.

While a national mandate for electric power companies to offer fair net metering practices is not in place – albeit Jay Draiman of Northridge, CA, author of “Mandatory Renewable Energy – The Energy Evolution – R12,” touts this as a necessary step in overcoming our dependence on fossil fuels – momentum is gaining in several states as commitment to renewable energy is strengthened. One of these is New York where the New York Energy Research and Development Authority (NYSERDA) promotes net metering / remote net metering and interconnections ¹ through a range of incentive programs directed toward offsetting the installation costs for small-scale solar systems and encouraging connection to the public power grid in order to facilitate net metering.

From an organizational standpoint, this represents a very different structure – the integrated model. Although neither centralized nor decentralized, integrated structures blend a centralized surplus distribution and backup system with a decentralized network of small-scale operations. Such interdependence distributes responsibility and authority to individual members in the social system so they can engage in self-sustaining behavior patterns while linked to a broader network of resources and markets. Individuals are in control of investments, operating expenses, and utilization of resources. They can take care of themselves first, sell the surplus, or if circumstances warrant, buy what they need or want when they are unable to provide enough by themselves.

The combination of electrical power grid, PV panels, and net metering represents one way developments in technology influence organization structure and design. As systems technologies become more powerful, pervasive, and transparent, sub-systems will become more embedded, integrated, and interdependent. The same concept applies to computers, the Internet, and payment for posting articles on a website or blog. As information and communication technologies continue to evolve, they will empower individuals to THINK independently, work openly and in parallel, and collaborate when opportunities arise for bargains and balances to be struck among the various comparative advantages, surpluses, and deficits in the larger system.

Thereby comes one of the unintended but inevitable consequences of pursuing “green energy” sources for power generation in lieu of “brown energy” sources: the fundamental organization structure and assumptions for organization design shift. Control is no longer held by a central body, be it a corporation, government, or special interest group; nor is it fractured and splintered to such a degree that collective effort is no longer possible. Instead, it is held in balance at the point where production, distribution, and consumption work in unison with one another for the advantage of the system rather than favoring the interests of a few at the expense of the many. Conventional wisdom may differ, but the world will be a better place for it!

Originally posted to New Media Explorer by Steve Bosserman on Wednesday, February 7, 2007

The original New York Energy $martSM Program is no longer available ↩