When New York state agencies buy local food for schools, healthcare facilities, prisons and other public entities, local economies benefit and tax revenue rises. But by how much? And when does it make sense to spend a little more on local products to reap those benefits? With New York state spending $1.3 billion annually on food, the answer matters.
Cornell researchers have developed an economic model that calculates the additional business activity and tax revenue generated from purchases of specific local products. Using the tool, decision-makers can determine when the economic boost from a New York state purchase is greater than its slightly higher sticker price. The research published in Applied Economic Perspectives and Policy on April 20; the tool is available on request.
"A lot of public procurement is based on the lowest-cost bidder. But that ignores positive multiplier effects we should consider," said Todd Schmit '94, Ph.D. '03, professor of applied economics and policy in the Charles H. Dyson School of Applied Economics and Management at the Cornell SC Johnson College of Business and the College of Agriculture and Life Sciences. Schmit developed the tool with Xiaoyan Liu, M.S. '23.
For example, buying a hot dog from a local producer supports that business in addition to its suppliers, its employees, and through sales and income taxes in the state. Each transaction effectively multiplies the impact of the first purchase.
The tool captures these multiplier effects by accounting for the origin of the meat, the manufacturer's location, and the economic activity generated. It then adjusts bids from each producer accordingly, resulting in a "net bid" that more accurately reflects each product's true cost. Such a calculation might reveal that a Pennsylvania hot dog company using 100% New York beef generates more economic activity for New York than a local producer using 55% New York beef.
Several state programs encourage buying local food. Gov. Kathy Hochul's Executive Order 32 directs public agencies to increase their local food purchasing to 30% by 2027. And schools can participate in the 30% NY Initiative, which provides higher reimbursements to schools that spend 30% of their food budget on New York products.
While some agencies already use a geographic preference method to account for the indirect benefits of buying local in the bidding process, Schmit says the net-cost tool is more precise and opens a possible avenue for more accurate, data-driven reimbursements from the state.
"I'm really excited about conversations we are currently having with some school districts that are looking at implementing the net-cost tool," Schmit said. "And we're also in discussions with public officials in Albany about a broader approach to implementation."
The Rockefeller Foundation provided funding for the project.
Alison Fromme is a writer for the Cornell SC Johnson College of Business.
