Rebuilding infrastructure of the middle

 

Introduction

Characterizing the middle

The current state of infrastructure of the middle

Current government actions

Solutions

Efficiency

Substitution

Redesign

Funding the transition

 

Introduction

Canada imports almost as much processed food as it exports, by value, and this is not commensurate with what happens on the production side, meaning that we continue to be a major exporter of raw commodities. In other words, we do not optimize domestic production and processing. It is also well established that Canadian small to medium enterprises (SMEs) generate more sectoral employment and regional economic multipliers than do large firms with an export focus (for theory on why, see Bendavid-Val, 1991).

Making demand supply coordination operational requires infrastructure, particularly of the middle (Stahlbrand, 2016; 2017; 2019), the food supply chain infrastructure that has been partially lost in the era of global trade and trade agreements, scale increases, and firm consolidation. Infrastructure of the middle is essentially coordinated, effective, and equitable relations, both physical and soft networks of linkages, between buyers and sellers of mid-scale. It has a focus on regional markets but not exclusively so.

One need only look at consolidation in the meat packing industry, unopposed by government regulators, to see how scale and concentration have eliminated smaller and regional firms (Omidvar et al., 2006). There is recognition by decision makers and food firms that the loss of this infrastructure is contributing to a lack of system resilience because having limited supply options under stresses like COVID creates more uncertainties, but actions to address the situation are not commensurate with the scale of the problems (cf. Finnigan, 2021). In part, this is because decision makers are unable or unwilling to address the numerous forces explaining mid-scale infrastructure demise (see Get Started, Problems, Place, Loss of Regional Infrastructure for details).

In response to globalization, many producers and eaters have focused on direct-marketing channels, but these are not always profitable given their small scale, implying the need for a scaling up in some co-ordinated way (Gerhart and Howard, 2023).

The scale question is complex. Traditional economic interpretations associated greater scale with lower per unit costs and greater economic welfare. However, Daly (1987:323) long ago argued that economists use growth and scale as an inaccurate proxy for "qualitative improvement in the structure, design, and composition of physical stocks and flows, that result from greater knowledge, both of technique and of purpose”. Daly's view implies that traditional conceptions do not necessarily address purposes with knowledge driven characteristics - such as sustainability, food quality and health, and equity - that are often visible at lower levels of scale if one knows what to look for. In other words, large operations deal well with undifferentiated product, but not so well with niche goods, or flexible production scenarios. The efficiency and capacity utilization requirements of large-scale plants contradict equity considerations related to input prices and access to slaughter for producers and working conditions. The COVID pandemic reveals how these realities create vulnerability in supply chains  (Rude, 2020 and Get Started, Problems, General, Lack of Resilience). There are also significant questions about whether "efficiencies" continue upward with scale increases or instead flatten out or even deteriorate past a certain threshold  (cf. Duffy, 2009; Ikerd, 2023), an issue few conventional economists are willing to tackle in part because it challenges the industrial economic model, in part because it lies at the heart of many debates over what level of corporate concentration is actually negative for social welfare (see Goal 3, Reducing Corporate Concentration), in part because a fuller assessment of efficiency requires attention to the negative externalities associated with the conventional food system and excessive scale increases.  The consequence is that most conventional analyses of scale and scale efficiency are not helpful for identifying paths towards sustainability, health, and equity. They also fail to account for "diverse economies", those wide-ranging activities that account for community vibrancy and cohesion that are not captured in many conventional economic interpretations and indicators (Gibson-Graham, 2008; 2014).

A related difficulty is how the regulatory environment essentially assumes that scale increases are the norm and in so doing makes small to medium scale operations more challenging to sustain. Applicable across most foods, the difficulties are particularly acute in meat slaughtering where a wide range of human and animal health and safety, zoning, and waste management regulations govern activities. Many of these assume significant scale and trade across provincial borders and consequently many smaller operations are held to a standard that doesn't fit with their reality and the associated additional costs and management create financial burdens (see Goal 4, Scale appropriate food safety). There is evidence that such rules have contributed to plant closures and consolidation, leaving some regions significantly under-served.

Characterizing the middle

Stahlbrand (2017; 2019) has coined the concept "infrastructure of the middle" that builds on "agriculture of the middle" of Kirschenmann et al. (2008) and the "missing middle" of Morley et al. (2008). Kirschenmann et al. were describing mid-sized farms and ranches that "operate in the space between the vertically-integrated commodity markets and direct markets" (Kirschenmann et al., 2008:3). Morley et al. were highlighting the need for a "mechanism by which small producers can collectively access a middleman facility that enables them to trade with large customers..." (Morley et al. 2008:2). According to Stahlbrand, infrastructure of the middle addresses both hard and soft infrastructure - networks, resources, logistics, facilities, and relationships - required to allow mid-size values-based and alternative farmers and mid and larger buyers to develop meaningful connections. This is the infrastructure required to both move beyond direct marketing, and to challenge export-oriented commodity supply chains. It is one of the failures of food markets that these buyers and sellers often struggle to create linkages.

Adapting from Stahlbrand (2016),10 actors and processes can contribute to infrastructure of the middle:

  1. Anchor institutions - e.g., large public and non-profit institutions with purchasing power
  2. CSOs - that can act as brokers, enablers, and facilitators of value-based food logistics, acting because the state has been slow to take up this issue
  3. Certification schemes and authentication systems - to verify that espoused values of sustainability, health and equity are actually delivered in the product and process (see Goal 5, Sustainable Food)
  4. Individuals within organizations that champion the undertaking - particularly important is their ability to break down internal and cross-institutional barriers.
  5. Avoiding the dominant firms and doing it within your organization - the dominant food system actors do not have infrastructure of the middle as a priority (see Goal 3, Reducing Corporate Concentration)
  6. Related to #5 is linking with values-driven innovative food firms
  7. State rules and regulations that do not get in the way of this approach - a huge challenge in the current environment and what much of this website focuses on
  8. Market promotion - from both private firm and state funding sources
  9. Linkage to the local - since infrastructure of the middle is not primarily about global trade, the focus is on local and regional distribution channels
  10. Food hubs and other scale-appropriate infrastructure including processing and food service - this is often the most challenging since much of what existed has been effectively dismantled by market forces and inappropriate state policy; rebuilding it requires interventions as discussed under Solutions.

Interestingly, soft infrastructure can sometimes serve in place of hard infrastructure.  Relations can often help move goods around more quickly than formalized and hard infrastructure, a key part of reducing transaction costs (cf. Connelly and Beckie, 2016; Goldenberg and Meter, 2019; Shreiber et al. 2023).  Elton et al. (2023) highlighted how personal connections at a public mid-scale wholesale produce market with diverse supply sources sustained the movement of fruits and vegetables during COVID, overcoming to a significant degree the structure problems of long distance supply lines. Gerhart and Howard (2023:11) highlight the need for "“piggy-backing” on traditional supply-chain infrastructure, building new value chains, and collaborating horizontally among producers."

However, hard infrastructure in regional settings helps to make those relations possible. In some ways it can be argued that the dominant model favours hard infrastructure because it is easier to monetize and has thereby replaced soft infrastructure to an excessive degree, ultimately compromising the regional movement of goods. Managing relationships requires a different skill set than managing hard infrastructure, especially in complex environments, and in general Canadians are not good at managing complexity (see Instruments). As the food system has become more distant, firms use technology to create consumer appeal in part because the relational dimensions are lost.

So, a strategic understanding of when hard or soft or both is needed is an important consideration.

Solutions

The ultimate question is whether we can transition over the medium to long term to a model of food production and distribution based on diversity and integrated relations of trust and proximity, but with fewer transactions and fewer people along supply chains that have to each get paid. By diversifying the number of actors (reducing corporate concentration) and simplifying supply chains, can we make it more feasible for producers to sell quality goods at wholesale prices and still make a living? Can we build resilience in the face of disruptions with access to a diverse pool of domestic suppliers? Long term, can we devise a system of near daily shopping by skilled cooks who can work with whatever is available and affordable, at a range of shops, with proximate and flexible distribution, reduced expectations of status (but not necessarily variety and quality), diverse scales of production including backyard farmers and lower waste? Can such an aggregated relatively high-volume system be designed to be lower in cost and therefore lower in price, its elegant supply chain simplification allowing actors to make reasonable returns without driving up costs? Given that this flies in the face of current approaches to profit maximization, what government interventions are required to facilitate the shift to this approach? How might government interventions shift how financing is structured so it better supports food systems of the middle?

Although there are some encouraging examples of this shift, current market and policy arrangements make this difficult. Perhaps it is particularly in certain ethnic produce markets that we can see the possibilities of this happening because some of those markets have worked hard to insulate themselves from some of the problems of the dominant North American model (cf. Imbruce, 2007; 2016). Such produce markets often eschew technology and retail aesthetic appeal in order to be more affordable. They avoid the costs of large central warehousing systems, and the speed of movement of goods reduces to some extent the need for refrigeration infrastructure. As a result, markups may be lower (Imbruce, 2016 reports 10-12% rather than the dominant industry standard of at least 15%). Growers in such networks may also already employ a range of ecological growing practices. In the case of many Asian vegetables produced and sold in North America, much of the production comes from small-scale producers in South Florida. It must be acknowledged, however, that distribution is made affordable by collaborating and piggybacking on the brokering and distribution infrastructure used by importers and large grower networks. These markets may also suffer from coercive economic relations of a different kind, may benefit from different approaches to financing that are uncommon in the dominant banking sector, and expectations of wage levels and profitability may be lower for a range of positive and negative reasons (i.e., to maintain relations, growers may accept lower prices from wholesalers), so such models are not entirely adoptable. Brokers typically charge a 10% markup, so the challenge is balancing that cost against the access they can provide to established distribution channels. Obviously, simplification becomes more difficult the more hazardous the food, but how does food waste reduction change the cost equation? In other words, can system redesign for waste minimization reduce costs in combination with certain other distribution design changes (see Goal 5 Reducing Food Waste)?

Different relationships also mean re-organizing supply chain logistics to meet the needs of multiple actors in collaborative relationships.  For example, a farm-to-school arrangement may mean buying cosmetically imperfect produce that farmers otherwise can't sell and having a local processor cut/chop/freeze/bag it, so schools can easily turn it into cafeteria offerings for students because they have limited cooking facilities (cf. Lakind et al., 2016). The freezing operation also extends the season for buying local produce.

Redesign

Ultimately, scaling down and supporting infrastructure of the middle requires a new approach to economics and a different understanding of regional resilience. The diversification of many food system firms requires an economics of scope (assessing costs across a range of goods, rather than scaling up of a limited number of goods) . Such an approach is also more suitable for scenarios where resource inputs are shared to produce multiple goods, minimize consumption and build resilience. In this sense, it fits better with aggregation and food hubs and clusters. In other words, some of the current challenges of infrastructure of the middle and aggregation are strongly related to the flawed ways in which our economic models value and reward these functions.

Increasingly regional economic resilience is understood as informed by complex adative systems theory (cf. Bristow and Healy, 2014).  In this conception, an internal self-organized direction can facilitate adaptation of an existing system, sometimes in combination with external shocks. In this sense the approach integrates resistance to shocks and decline, recovery, and most importantly re-orientation with a focus on system structure, function, human agency and overall performance. A more functional diverse regional economy, as long as the degree of interconnection is not excessive, will be more resilient than a specialized economy.  In contrast to dominant economic models,  there is little evidence that regions will automatically renew or re-orient themselves based on market signals, so interventions to create new directions are important, especially by the state.  However, at this point, the actions of the state and other actors to create this redesigned conception of a regional economy is not well understood, except as it relates to small scale niche activities that are frequently pointed to as emblematic of the required changes. It will be difficult to elaborate redesign interventions as a result until our understanding in this area has improved.

Financing the transition

There's already billions devoted to infrastructure in the food system, it's just not the right kind of infrastructure. More broadly, the 2016 Investing in Canada Plan is a long-term federal infrastructure involves $188 billion over 12 years. Money is not the issue, it's the priorities and the effectiveness of the investments as it relates to sustainability, health, and equity.

Klein (2020) argues for Green Victory Bonds, based on the Victory Bond program of WWII which raised very significant amounts for the war effort. Canada has been slow to issue green bonds compared to other jurisdictions. The COVID experience suggests the Bank of Canada could be a major purchaser of green bonds.

"Our governments already spend billions of dollars a year on infrastructure, but far too many of these dollars go towards traditional projects that seek to accommodate our car-centric economy or facilitate the extraction and expansion of fossil fuels. Even in the face of the climate emergency, we continue to pour billions into expanding roads and bridges and airports, upgrading port facilities that manifest all that is wrong with our current carbon-intensive globalized economy, and in electricity infrastructure whose sole purpose is to carry energy to the oil and gas fields"

The federal government issued its first set of green bonds in March 2022, amounting to $5 billion for investments in environmental projects. Some of the funds raised could be devoted to the National Climate Smart Solutions Fund which includes projects related to "climate smart farming and agricultural practices, sustainable fisheries and aquaculture, as well as sustainable forestry practices". Also supported is the Canada Nature Fund for biodiversity and species at risk. However, all these programs are limited relative to the proposals on this site.