Supply and Demand Size Constraints – Incorporating Opportunity Cost and Countervailing Effects
Two studies provide useful examples about ways to incorporate opportunity costs and countervailing effects into your local and regional food system assessment. In Evaluating the Economic Impact of Farmers’ Markets Using an Opportunity Cost Framework, a study evaluating the economic impact of West Virginia farmers’ markets, use primary data collected from producers who participate in West Virginia farmers markets to inform an IMPLAN-based input-output study. They account for the opportunity cost by assuming the positive impacts associated with money spent at farmers’ markets results in decreased spending at local grocery stores, building material, and garden supply stores. The study finds that while farmers’ markets do result in a net positive impact on the state economy, accounting for the opportunity cost of spending reduces the economic impact of the markets.
In The Regional Economic Development Potential and Constraints to Local Foods Developed in the Midwest, a study of local foods potential and constraints in the Midwest, the author addresses the “no resource constraint” supply side assumption in his economic impact study by assuming that cropland in the region is fixed. Using secondary data the study shows that the land, water, and other resources that are required for the growth of local foods production must come from existing conventional crop production. The study estimates county-level fresh fruit and vegetable production potentials (supply side) for the states of Minnesota, Wisconsin, Illinois, Michigan, Indiana and Iowa, as well as expected sales (the demand side). Given that corn and soybean are the dominant crops in these states, the study estimates net impacts that would occur from shifts from one form of crop production for another. Results show that the amount of land needed to satisfy regional fruit and vegetable demand is small, and the overall production consequences to the corn and soybean industry would be nominal.
For more information, see: https://www.econ.iastate.edu/sites/default/files/publications/papers/p12697-2011-03-30.pdf
