Evaluating the Economic Impact of Farmers' Markets Using an Opportunity Cost Framework

By Hughes, David W.; Brown, Cheryl et al. | Journal of Agricultural and Applied Economics, April 2008 | Go to article overview

Evaluating the Economic Impact of Farmers' Markets Using an Opportunity Cost Framework


Hughes, David W., Brown, Cheryl, Miller, Stacy, McConnell, Tom, Journal of Agricultural and Applied Economics


Farmers' markets presumably benefit local economies through enhanced retention of local dollars. Unlike other studies, the net impact of farmers' markets on the West Virginia economy is examined. Producer survey results are used in estimating annual direct sales ($1.725 million). Using an IMPLAN-based input-output model, gross impacts are 119 jobs (69 full-time equivalent jobs) and $2.389 million in output including $1.48 million in gross state product (GSP). When the effect of direct revenue losses are included (primarily for grocery stores), the impact is reduced to 82 jobs (43 full-time equivalent jobs), $1.075 million in output, and $0.653 million in GSP.

Key Words: farmers' markets, input-output models, net economic impact

JEL Classifications: R15, Q13, Q18

The number of fanners' markets has increased significantly over the last decade, from 2,410 in 1996 to 4,385 in 2006 (AMS). Thus, farmers have the potential for gaining a greater share of the consumer market. Presumably, local and regional economies benefit from an enhanced retention of local dollars. Several studies have examined the economic impact of farmers' markets on local and state economies. Regional input-output models have been used to quantify this contribution. However, like most impact studies, such efforts have not accounted for the opportunity cost of money spent at farmers' markets. That is, estimates of economic impacts are gross as opposed to net impacts. We present the application of a simple method where inferences can be drawn concerning the net impact of such market activity on local and regional economies. This approach is used in examining the impact of farmers' markets on the West Virginia economy with a combination of producer survey data and an IMPLAN-based input-output model (Minnesota IMPLAN Group, Inc.).

Initially provided is a review of the literature, encompassing a discussion of the potential benefits and economic impacts of farmers' markets on local or regional economies. Also covered are the few studies that have used an approach similar to our opportunity cost approach. The approach used in surveying producers and relevant survey results are then examined. A discussion follows concerning how the survey data was integrated into an IMPLAN-based input-output model of the West Virginia economy. Also discussed is how the opportunity cost of such spending was estimated. Impact results are then reported for the farmers' market impact itself, for the opportunity cost impact analysis, and for the net impact analysis. Finally, study results are summarized, conclusions are drawn, and areas of future work are highlighted.

Literature Review

Farmers' markets are a form of direct marketing, where producers sell directly to final consumers thereby bypassing market middlemen. Direct marketing, especially important for small produce growers, is in part a response to low farm-gate prices and wholesalers who only wish to deal with large volume producers (Eastwood et al.). There are a number of possible direct market venues in addition to farmers' markets. These include you-pick operations, on-farm and roadside stands, and a subscription service or community supported agriculture (CSA). Farmers' markets provide a convenient venue for direct marketing along with an important way for directly connecting with final consumers. Producers of organically grown products and specialty items also may receive premium prices at farmers' markets. This study only considers farmers' markets due to data limitations and the importance of these markets for small farms, which make up a majority of West Virginia producers.

Consumers also benefit from farmers' markets including having access to products that might be otherwise unavailable. Products are often of a higher quality, especially in terms of freshness, in comparison to agricultural commodities purchased through standard marketing channels. Many consumers also like the direct interaction with local producers. …

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