New Growth Associates - EIA Overview
New Growth Associates - Partners in Growing Your Ideas

ECONOMIC IMPACT ASSESSMENT OVERVIEW AND RESOURCES

Local food systems are important for a variety of reasons. You’ve each become champions of the movement for personal reasons but now you’re in a situation where you have to convince others that its important based on their values. We tend to value economic capital over others and measure impacts to the community and economy in dollars and jobs. Fortunately, local food systems work, like most systems work, spans many value structures and types of capital. The example framework outlined here starts with a discussion of economic development and financial capital, but then takes a total community capital approach, including social, human, and natural. Ultimately, communities must decide what balance of capital they want and based on which value structures.

Very Brief Intro to Economic Development and Impact Analysis
Economic development is a practice of picking winners and losers and in food systems work we pick winners based on locale. For example, when we implement policies such as a 10 cent per meal reimbursement to schools for purchasing Michigan grown apples, Michigan apple producers win, but Washington apple producers lose. In this case, free market economists would argue that our current supplier of apples (i.e. Washington) is more efficient than our local apple producers and that our policy intervention is value laden. We, as Michiganders, are saying that Michigan producers are better, or at least more important to us than non-Michigan producers. There’s nothing inherently wrong with this protectionist policy, however, economists love policies that increase efficiency and promote economic growth[1]. Therefore, as local food systems advocates, we’re regularly faced with the need to supply economic growth evidence for our development goals.
 
This need or pressure to supply economic growth arguments for policy interventions or public investments led to the application of economic impact modeling to food systems. Economic impact computer software has been around for a long time and is based on economic theories developed in the late 1800s. The most popular and widely used software for economic impact modeling is IMPLAN. It was developed in the 1970s with the goal of comparing various forestry management programs. The models were developed commercially and released for general use in the 1980s and since then, its been used to evaluate any number of policies and programs, or “shocks”, on a defined region. It’s only been in the last 10 years though, that this modeling practice has been applied to local food systems work. 

What an Economic Impact Assessment Is
 
An Economic Impact Assessment (EIA) is an evaluation of the economic effects of a proposed policy or investment, otherwise known as a “shock”, on a defined region. For example, a Local Foods Promotion Program grant may cause a $150,000 shock in a local food system. An Economic Impact Assessment will provide insight on how that $150,000 influx trickles through an economy. 
 
EIAs provide snapshot of economic growth at a single point in time.
 
What an Economic Impact Assessment Is Not
·      
  • A feasibility study
  • A return on investment analysis
  • A market analysis
  • Accurate, nor precise
  • An evaluation of economic development
  • An evaluation of health, wellness, prosperity, or social capital
  • A crystal ball that reveals the long-term impacts of an investment in a community

 
Current State of Economic Impact Analysis and Food Systems Work
Economic impact studies that tout the benefits of food systems development as economic development are pretty common. The punch line is usually something like, “If residents spent 20% of their food bill at local farms, 16,000 jobs will be created,” etc. Because local food systems work is a new application for this technology, there are a number of different studies saying different things. As industry experts, we’re honestly still trying to figure out if and how our current models accurately represent local food systems. Recently, the Michigan State University Center for Regional Food Systems and the Union of Concerned Scientists convened a meeting with national experts to determine what we do know and what else we need to figure out in order to accurately discuss food system work in the context of economic growth. That meeting inspired the USDA AMS Local Food Systems Economic Toolkit.[1]
 
Here’s what we do know:

  • All other things being equal, buying a Michigan apple is better for the Michigan economy than buying a Washington apple. (But all other things are never equal.)
  • Our models don’t represent small scale, local agriculture well, if at all.


So, Why Conduct an Economic Impact Analysis?
Economic Impact Analyses are often conducted for any number of reasons, but they are only adequately able to estimate the economic impacts of a CHANGE or a “shock” in the economy due to some policy, program, or investment. They estimate the NET impact of the “shock”.
 
Often, communities want to be able to speak to the total economic value of an industry. If this is the case, an Economic Contribution Analysis is more appropriate, as it estimates the GROSS impact of an industry.
 
The primary issue with conducting either types of analysis, however, is that neither accurately represents small or local agriculture or food systems. These sectors within the various models are totally aggregated. In order to sufficiently disentangle them, extensive amounts of primary data must be collected, and even then, the marginal differences between the new, separate sectors, may be so small that the ends don’t justify the means.

When Should My Community Conduct an Economic Impact Assessment?
The primary data collection process can be quite costly and time consuming. It should only be undertaken under the following conditions:

  • As an academic exercise or research project (i.e. is the apple industry in Michigan fundamentally different from the national apple industry?)
  • When it is known that the regional industry in question is fundamentally different than state or national averages due to some anomaly (i.e. greenhouse grown micro greens request substantially more hand labor and have increased yields)
  • There is significant funding at stake.

 
A community or organization will most likely encounter the third condition, instead of the first two. As such, the EIAs can be helpful in the following situations:
  • Inform the allocation of funds amongst competing projects
  • Justify the expenditure of funds on one industry versus another
  • Identify how the effects a one-time investment in a sector will ripple through the economy
  • Estimate the consequences of the removal of funding, an event, or an industry



[1] Economic growth is an increase in output. For example, increasing the sale of agricultural goods may be an economic growth goal. Economic development is an increase in quality of life indicators. For example, increasing the sales of healthy foods in low-income, low-access neighborhoods may be an economic development goal.

Additional Resources



Critical Analysis of Economic Impact Methodologies



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