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Local Food Movement Thrives Thanks to Entrepreneurship

By John Tozzi--BusinessWeek |

Entrepreneurs are flocking to local food, starting businesses devoted to producing and delivering food within their communities. Just as consumers focus new attention on what we eat and where it comes from, farmers, foodmakers, restaurateurs, retailers, distributors, and processors are rethinking the business models behind it. They want to create enterprises that will succeed in the long run for local food to be more than just a fad or a luxury for wealthy Western consumers.

A report, "Community Food Enterprise: Local Success in a Global Marketplace," spotlights 24 ventures around the world that are pioneering models for local food.They range from the sprawling Organic Valley farmer co-operative, which ships more than $500 million in dairy and other products annually, to a caterer in Zambia that has branched out to selling processed food and equipment. The examples include private companies, co-ops, and nonprofits. Whatever the form, all the enterprises are locally controlled and aim to be sustainable business operations, not dependent on grants or government subsidies.

The 190-page report, funded by the Bill & Melinda Gates Foundation and the W.K. Kellogg Foundation, highlights the role local food businesses play in economic development -- creating jobs and bringing money into a community. Michael Shuman, an economist at the Business Alliance for Local Living Economies and co-author of the report, sees economic development intertwined with developing local food systems.For example, the Appalachian Harvest Network in the Appalachian region of Virginia and Tennessee helps mostly poor former tobacco farmers switch to growing organic fruits and vegetables for specialty stores and grocers, replacing a shrinking market with a growing one.Likewise, researchers found that the majority of the small farms that sell their crops at New York City's green markets could not survive without the access to the city's customers that the program provides.

Beyond Financial Goals

Staying economically viable can be a challenge for food enterprises. Consider the growth of small farms in the U.S. Between 2002 and 2007, the number of American farms increased by 76,000, according to the latest data from the U.S. Agriculture Dept.'s Census of Agriculture, compared to a decline of 87,000 in the five years before that. But half of all farms in the U.S. have sales of less than $5,000, and just 5% have sales above $500,000.

Local food ventures often have goals that are not strictly financial. Most of the companies examined in the report factored in some nonfinancial issues into business decisions, such as their impact on the environment, workers, and communities. They're also not interested in growth at all costs. "In the mainstream business universe, growth is the indicator of competitiveness," Shuman says. "Most [local food enterprises) really see stability as a marker of competitiveness."

Advocates for local food say success depends on nurturing an interlocking network of small companies that produce, process, distribute, and sell food. "We as a society and as an economy need to start optimizing for a large number of small things, not just relying on a small number of large things," says Woody Tasch, founder of the Slow Money Alliance, a year-old nonprofit inspired by the Slow Food movement that is raising money from small donors to seed local food ventures.

Funding Hurdles

One of the barriers to developing stronger local food systems is financing. People can't invest in local businesses as easily as they can buy shares of stock in publicly traded companies, because securities laws make it impractical for small companies to issue stock. For the same reason, the vast wealth in pension funds and philanthropic and educational endowments doesn't flow to small, local enterprises. Both Shuman and Tasch envision ways to get more of that capital into local food businesses.

"Does anybody here think it's revolutionary if I say we should invest 1% of our assets in local food systems?" Tasch asks audiences at conferences. Many people raise their hands, he says, even if they agree with the goals such an investment would support, like preserving soil fertility, fighting obesity, and improving childhood nutrition.

Changing that attitude and creating mechanisms to let people easily make such an investment are no simple tasks. But even without these changes, entrepreneurs have begun to transform food systems across the world. Says Shuman: "We found this incredible range of businesses that really show how mature this industry is becoming."

For snapshots of each of the 24 enterprises featured in the report -- from restaurant chain Cabbages & Condoms in Thailand to the Zingerman gourmet food empire in Michigan -- flip through this slide show.

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