Economic Impact Analysis
This analysis was prepared by Common Market Philadelphia for Community FARE as part of the Frederick Food Hub Feasibility Analysis, July 2016
A food aggregation, distribution and marketing “hub” in Frederick Co MD (referenced as the Frederick Food Hub) would create the infrastructure to connect farmers to fair and transparent market opportunities and is perhaps the best way to improve the vibrancy, viability, and diversity of regional agriculture. It is, in fact, the disappearance of this infrastructure—both social and physical—that has contributed to the decline of rural economies in many regions of the country while food systems have shifted from a regional orientation to a global one. In communities like Frederick and the surrounding counties, the disappearance of farm activity has been exacerbated by suburban sprawl from Washington, DC and Baltimore. An initiative to create a “hub” seeks to counter these trends by offering a viable economic alternative for farmers and policy makers to justify investment in the growth of sustainable agriculture and the implementation of wise land use legislation.
At the center of this strategy is the Frederick Food Hub (FFH), which seeks to establish itself as a fair and transparent intermediary between regional demand segments and food producers in the Maryland counties of Frederick, Washington, and Carroll. In order for FFH to be an effective and sustainable intervention, it needs to operate as a viable social enterprise and demonstrate the ability to sustain itself financially after a period of startup investment. This study analyzes the potential economic impact of the Frederick Food Hub using a regional development tool provided by the Bureau of Economic Analysis (BEA) called the Regional Input-Output Modeling System (RIMS II), see the study flow chart and explanation of methodology in Appendix 14. While this economic analysis does not attempt to demonstrate a detailed financial model of proposed activity for FFH, it does build upon the study of the food hub as a business model that has emerged in more than 225 communities throughout the country. Studies commissioned by the USDA have identified the key sales levels and margins needed to reach break-even are $1.7M in five years, based on surveys of the food hub sector and intensive aggregate financial modeling.
Based on the five-year aggregate sales data projections of FFH, totaling $4,976,359 in final demand change after discounting to the present dollar value (2016), the Frederick Food Hub holds the potential for the following regional economic impacts based on the application of RIMS II (model, see Appendix 14 for explanation) multipliers:
- Final Demand Output of $7,995,768- This value includes the projected sales of FFH and of all the backward-linked industries, such as the farms, farm-input industries and service providers, as well as the markup on product which covers internal operating costs and the external services of FFH.
- Final Demand Earnings of $1,671,325- This is the value of income paid to workers within FFH and in the backward-linking support organizations.
- Final Demand Job creation of 48.85 Full Time Equivalent (FTE)- These positions are both part-time and full-time jobs and includes job creation within FFH and backward-linking support organizations.
- Final Demand Value Added of $3,961,345- This value is comparable to Gross Domestic Product. Value Added is the sum of total output across all industries minus the intermediate inputs (the goods and services used in production of final goods). Value Added is a non-duplicative measure that describes the net output of FFH’s activity; for this reason, it is named the “Value Added.”
|Frederick Food Hub Estimated Sales Growth|
|Sales by category||Year 1||Year 2||Year 3||Year 4||Year 5|
|Colleges & Universities||$ 25,000||$ 75,000||$ 225,000||$ 270,000||$ 324,000|
|Distributors||$ 24,000||$ 48,000||$ 72,000||$ 96,000||$ 120,000|
|Eldercare||$ 5,000||$ 6,500||$ 8,450||$ 10,985||$ 14,281|
|Direct-to-Consumer||$ 32,400||$ 48,600||$ 72,900||$ 109,350||$ 164,025|
|Hospitals||$ 22,500||$ 45,000||$ 67,500||$ 101,250||$ 151,875|
|Local Farm Box Programs||$ 24,000||$ 48,000||$ 72,000||$ 96,000||$ 120,000|
|Private Schools||$ 44,500||$ 75,650||$ 113,475||$ 170,213||$ 255,319|
|Public Schools||$ 39,000||$ 66,300||$ 112,710||$ 191,607||$ 249,089|
|Restaurants||$ 90,000||$ 157,500||$ 196,875||$ 295,313||$ 442,969|
|Retailers||$ 13,000||$ 26,000||$ 52,000||$ 104,000||$ 208,000|
|Total||$ 319,400||$ 596,550||$ 992,910||$ 1,444,717||$ 2,049,557|
|Cumulative Sales over 5 years:||$ 5,403,134|
|2016 Present Value of Sales Volume:||$ 4,976,359|
|Discount rate= 2.2%|
FFH five-year sales projections by market category, calculated in both 2016 and real-time values . The percentage of year-over-year growth is anticipated to level-off over time. Sales projections are conservative given the anticipated new market growth and yet well exceed the USDA’s $1.7M break-even five-year model for food hub viability.
See Appendix 14 for more information on RIMS II and its use to estimate economic potential for the Frederick Food Hub.
Population Growth Projections:
local food market development and sales growth can happen without a cannibalization of existing food sector activity
|Forecasted Regional Population Growth|
|Counties||2015 Population||2020 Pop.||Pop. Growth||Percent Change|
|Regional Forecasted Growth||142,284||5.99%|
|MD State Forecasted Growth||214,370||3.60%|
The need to justify farmland preservation and cultivation has never been more pressing. While new housing development experienced a lull beginning with the recession in 2007, regional population is projected to grow significantly in the next five years. In fact, forecasted population growth in the counties surrounding and including Frederick (Washington, Carroll, Montgomery, Howard, Loudoun (VA), and Adams (PA)) between 2015 and 2020 is 6%, far surpassing projected growth in the state of Maryland (3.6%) over the same time frame. This population growth clearly presents opportunities for an expanded food economy while simultaneously threatening the farmland needed to meet this growing demand, suggesting the urgency of need for the proposed intervention.
The projected growth in the regional population of 142,284 between 2015 and 2020 will generate increased annual regional food spending per year of $375,743,587 by 2020, based on average annual per person spending of nearly $2,641 as sited by the Bureau of Labor Statistics in 2013. FFH 2020 annual sales projections of just over $2M equate to half of 1% of anticipated new food spending (.0054), which is an achievable, if not conservative estimate of new market capture.