Do Food Hubs warrant a federal subsidy?

Andrea Fonesco CC 3.0

The New York Times reports that the USDA is getting under way with funding for a raft of programs relating to local and regional food infrastructure (and research into organic practices).

“These are significant increases over what it was before I became secretary and certainly over the 2008 bill,” Mr. Vilsack said, referring to the previous omnibus farm bill.

He said local food systems were good investments for government. “Small and medium-sized operations end up helping to generate more employment than commercial operations because of their different distribution systems and their local natures,” Mr. Vilsack said. “And food hubs hire about 20 people on average.”

Mr. Vilsack said there were about 300 food hubs around the country, and he is eager to see more. These enterprises, like Appalachian Sustainable Development in Virginia and La Montañita in New Mexico, help small farmers market and distribute their products and offer a variety of other services.

I have to say that this would have thrilled me just five years ago. At this point I’m much more ambivalent.

I absolutely have no interest in pushing food miles as meaningful metric, nor do I think that the federal government should be subsidizing “local” food. If state and local governments choose to do that, that’s a different matter.

What I’m interested in is whether there are market failures that can be productively addressed at the regional level to connect producers with consumers in a more robust way. One of the main things of interest to me is the obstacle to diverse crop rotations. When I ask, What are the obstacles that exist for farmers to use more diverse rotations and grow a wider range of crops? One if the answers that comes up, is that it makes no sense to grow a crop if there is no local infrastructure to sell into. Could regional food hubs address this?

Another issue is that as the age of American farmers rises and their numbers decline, farming is becoming more capital intensive, even while a new generation of farmers enter the market without the capital necessary for larger farms. The new generation seems to be skewing towards produce and away from commodity crops, while the nation really could use a few more servings of produce in their diet. Does this generation of farmers need a little help grabbing their bootstraps in the form of some subsidized infrastructure, geared towards their needs?

I’m open to the idea that regional food hubs are worthy of federal subsidies, but I’m hard pressed to put my finger on a market failure that justifies it. It seems to me that if a regional food hub was a viable idea, then an entrepreneur or an existing business would step in to meet the demand. To some extent, companies like Walmart and Whole Foods are building that infrastructure for themselves. And of course we have regional distributors in place, they just don’t find it profitable to do business with dozens of individual small farmers.

There is an old economist joke about an economics professor and a grad student walking across campus.
Grad student: Look, a $20 bill on the sidewalk.
Professor: That’s impossible, if there was a $20 bill lying on the sidewalk, someone would have picked up by now.

The point of the joke, is that the efficiency of markets doesn’t always live up to the predictions of economic models. My question about regional food hubs is whether they reaching for a $20 bill that no one has picked up yet, or is the professor right in this case. If there was a $20 bill lying on the ground, someone would have picked it up by now.

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