Local Economic Systems Session 2 The development of successful eco-social enterprises Tim Crabtree Focus of session •Exploration of the 5 capitals model, and the way in which these can be combined to create economic goods and services: –The environment as a provider of resources & a sink for wastes. –Assessing the requirement for physical equipment and buildings. –Understanding the motivations and potential roles of the people involved in an enterprise, including the potential for citizens to become active agents within the enterprise (for example as investors or volunteers). –Understanding the role of money – including grants, equity, debt and retained surpluses. –Exploring the importance of social capital and legal structure and the inter-relationship with finance. •Exploration of the area of operations, and the potential to create a “circular” model of enterprise which entails recycling wastes, eliminating pollution and being powered from renewable sources. Centre for Local Food Farmers’ Markets Community gardens Food Festival Local Food Directory Food Week Cookery workshops Wessex Reinvestment Trust Grow it, Cook it, Eat it Soup scheme Older People’s Catering School catering Fruit scheme Vocational training 2010 2005 2006 2008 2004 2001 2003 2002 1999 1999 2000 2003 1998 1998 Discussion point 1 Activity Outcome Health Social development Environment Economy Framework Outcomes Need/baseline Activities Outcomes for older people Impacts for the community Health & well-being -High incidence of malnutrition in older people -High incidence of diet-related ill-health, e.g. cancer & heart disease -Mobility restrictions, e.g. getting to shops -Disability restrictions, e.g. difficulties preparing food -Local Food Clubs (food co-operatives) established -Supply of prepared fruit & vegetables into Food Clubs -Provision of catering for lunch clubs in community settings -Lunch clubs linked to Cookery workshops, e.g. older people sharing skills with younger people, lessons for single men, etc -Community Kitchen sessions at Centre for Local Food -Produce meals & soups to be cooked in older people’s homes -Creation of catering services operating from hub kitchens & satellites - support catering services in day centres and care homes/ nursing homes -Reduction in malnutrition -Improved health -Improved sense of well-being -More older people feeling they are making a positive contribution -Reduced sense of dependency -Improvements in health reflected in reduction in costs of malnutrition & diet related ill-health -Older people able to stay at home longer Community development -Increasing isolation felt by some older people -Sense of dependency felt by some older people -Limited opportunities to get involved and contribute -Pressure on existing carers -Reduced links between the generations -Reduced isolation through greater opportunities for socialising over food -Inter-generational links created through work with schools -Increase in the number of carers drawn from older people -Volunteering opportunities -More people volunteering and caring for others -Improved community cohesion -Greater cross-generational links -A more positive food culture, with more people eating together Economic development -Affordability is a major concern for older people on low incomes -Limited capacity to produce meals for older people in Dorset -Lost opportunities to create local jobs or provide a market for local producers -Improved affordability of quality food -Improved accessibility through range of initiatives -Employment opportunities -Training opportunities -Reduction in “food poverty” -Jobs & training opportunities created -Opportunities for local suppliers -Import substitution: local economic activity created -Local multiplier improved -Increase in value added locally (GVA) Environmental sustainability -Environmental impact of food transportation -Limited sourcing from sustainable food producers -Consequent pollution -Enhanced understanding of food provenance & the sustainability implications of food choices -Increase in sustainable food production -Reduction in carbon output has positive impact on climate change LM3 Analysis of Local Food Links: Eva Kralikova •LM3 for LFL is approximately 2.11, which means that every £1.00 spend by LFL (of the gross project income) can result in the circulation of an additional £1.11. in the defined geographic area. •“LFL is having a considerable economic impact in its local area in terms of increased circulation of money within the local area when compared with a non-localised food procurement system (based e.g. in Nottingham or London)” Money flows for Company X Round 1: £294,318 LFL´s turnover per annum Round 2: £198,887 (local spend) Spending by LFL LFL spent £126,496 on local staff and contractors and £72,391 on local suppliers of goods and services. Round 3: £126,498 (local spend) Spending by LFL’s staff and suppliers STAFF (£84,752) spent this on local food, entertainment, rent etc. SUPPLIERS (£41,987) spent money on similar items as LFL in Round 2 – local staff, local suppliers, goods and services. Round 2: £17,856 (non-local spend) Like most businesses, LFL spent money outside the area on employer’s NI and pensions for staff, fuel, utilities and taxes. It also spent money on non-local staff and non-local suppliers. Round 3: (non-local spend) Like all employees, LFL’s STAFF spent money outside the area on income taxes, home costs etc, non-local goods (supermarkets, chains) and services. SUPPLIERS spent money on non-local staff, non-local suppliers. Money staying in local area Money leaving local area Money flows for Local Food Links Ltd. Money staying in local area Money leaving local area 1991 Large Agri-business Large Processors Large Retailers & Caterers versus Dominant food system Local food systems: key focus = “defending the local” Small processors Mills Abattoirs White rooms Dairies Small primary producers Small processors Small retailers & caterers Small primary producers Family farms Organic “pioneers” “Pick your own” Small retailers & caterers Green grocers Butchers Bakers Country Markets 2001 Ever larger agri-business Ever larger processors versus Dominant food system Local food systems: key focus = food miles & food quality & defending the local Ever larger retailers & caterers Increasing distances & lack of transparency Increasing distances, lack of transparency Fewer small primary producers CSA’s Community gardens City Farms Fewer small retailers & caterers Farm shops Box schemes Farmers’ Markets Fewer small processors Mills Abattoirs White rooms Dairies Fewer small primary producers Fewer small processors Fewer small retailers & caterers 2011: new concerns Ever larger agri-business Ever larger processors Ever larger retailers & caterers Natural capital as key input Dominant food system Resource depletion Pollution Waste Concentration of ownership Health Concerns Social injustice Source: Morris and Martin Disposable chopsticks = convenience for consumers Disposable chopsticks instead of durable chopsticks = higher GNP & greater profits for chopstick manufacturers Disposable chopsticks = de-forestation in the Philippines BUT Two types of food system “Linear” food systems Even larger agri-business Even larger processors Even larger retailers & caterers Over-use of natural capital Consumers “Circular” food systems Waste Operations: Primary Production – Processing – Distribution – Marketing – Retail / Food service Inputs: The 5 Capitals Waste Consumption Local food enterprises – an economic analysis Local food systems •A system is a set of things working together: •“A system is an interconnected set of elements that is coherently organised in a way that achieves something……a system must consist of three kinds of things: elements, interconnections, and a function or purpose.” •Meadows, D. (2008) Thinking in Systems. A Primer London: Earthscan Food operations Food services Inputs: the building blocks of a system All food systems transform inputs into goods & services Understanding inputs: the key building blocks Social Capital, e.g. networks & legal format Human Capital, e.g. staff & volunteers Physical Capital, e.g. buildings & equipment Natural Capital, e.g. land, water, sunlight Financial Capital, e.g. grants, loans, reserves Food “operations” Food “services” TRANSFORMATION INPUTS OUTPUTS The 5 capitals model Human Capital Social / Organisational Capital Manufactured Capital Financial Capital Capitals combined in production operations Supply to customers Natural Capital Natural capital •“Natural capital (also referred to as environmental or ecological capital) is any stock or flow of energy and matter that yields valuable goods and services. It falls into several categories: resources, some of which are renewable (timber, grain, fish and water), while others are not (fossil fuels); sinks which absorb, neutralize or recycle waste; and services, such as climate regulation. Natural capital is the basis not only of production but of life itself.” •Forum for the Future Accessing natural capital Physical capital •“Physical (or Manufactured) capital comprises material goods – tools, machines, buildings and other forms of infrastructure – which contribute to the production process but do not become embodied in its output.” •Forum for the Future Hostetin Apple Juicing Plant, Czech Republic - supporting local small orchard owners Human capital •“Human capital consists of health, knowledge, skills and motivation (all of which are required for productive work), as well as an individual’s emotional and spiritual capacities. Enhancing human capital (for example, through investment in education and training) is central to a flourishing economy .” •Forum for the Future Manchester Land Army •Mission - to establish a financially resilient 'land army', which: • Has the capacity to involve a large 'unskilled' pool of individuals, resulting in potential increases in yields and income for growers. l Nurtures a small number of committed and trained individuals that growers are able to call upon in times of need. l Offers progression for potential new growers to meet increased demand. • Financial capital •“Financial capital plays an important role in our economy by reflecting the productive power of other types of capital, and enabling them to be owned and traded. However, unlike the other types, it has no intrinsic value; whether in shares, bonds or bank notes, its value is purely representative of natural, human, social or manufactured capital” •Forum for the Future The different types of finance From “fundraising” to “investment” •Recognition that some community services are best delivered through a business model •Growing public appreciation that businesses can be run for a social purpose, not private profit •Historic shift in financing community enterprises: from fundraising approach (events, gifts, donations) to investment in community shares •Greater autonomy for communities Wessex Community Assets – a secondary structure helping communities raise local finance through share issues and loans £152,775 raised £105,000 raised Community share society registrations Jan- Jun 2011 Projected total 2011 Community share societies Trade sector Post 2009 societies Pre 2009 societies Members Share capital Renewable energy 34 13 8,831 £15,304,000 Community shops 20 9 2,492 £903,000 Community regeneration 14 9 3,041 £1,908,000 Food & farming (CSAs) 18 4 10,228 £1,171,000 Consumer co-operatives - 20 8,553,000 £191,275,000 Pubs and brewing 10 2 687 £733,000 Community finance 1 9 1.837 £2,114,000 Community land trusts 7 2 318 £25,000 Fair trade 2 1 9,222 £26,151,000 Other 9 9 38,530 £7,345,000 Totals 115 78 8,629,000 £247m Members improve competitive advantage Members roles How these roles improve competitive advantage Investor Lower cost of capital; greater acceptance of risk Customer Greater loyalty; accept higher prices & dividend Service user Demonstrates support to funders; better feedback Activist More engagement; better feedback; better targeting Volunteer Lower labour costs; access to specialist skills Suppliers Greater loyalty; lower input prices Workers Greater loyalty; lower input prices; better feedback Directors Access to specialist skills; lower input prices Social capital •“Social capital takes the form of structures, institutions, networks and relationships which enable individuals to maintain and develop their human capital in partnership with others, and to be more productive when working together than in isolation. It includes families, communities, trade unions, voluntary organisations, legal/political systems and educational and health bodies.” •Forum for the Future Social capital – linking with existing networks Barriers to developing supply Human Capital Natural Capital Manufactured Capital Financial Capital Leadership & management skills. Absence of incentive structures for entrepreneurs. Community / volunteer engagement has a cost. High cost of all land & limited availability in urban areas. Access to suitable premises can be difficult – “food hubs” could be one solution. Cultural barriers: lack of entrepreneurship or understanding of legal structures & types of finance. Cost barriers: difficult to pay market rates. Social / Organisational Capital Choice of organisational structure & governance. Big Society fatigue…… ICT could be powerful tool, but cost / skills barriers. A word of caution •Referring to people as “human capital” of course runs the risk of reducing them to instruments of production, in the same way that referring to “natural capital” can devalue Earth and its wealth of living systems (Ekins, 1992: 50-54). The important point is that capitals should be “appreciated” not just depreciated – hence they require investment if they are not to be treated as a mere commodities to be exploited. Investing in capital stocks Investment in Social Capital Investment in Human Capital Investment in Physical Capital Investment in Natural Capital Increased Financial Capital Investment: grants Food operations Food services Investment: loans Investment: equity working capital Discussion point 3 •If a local food enterprise in the Czech Republic wishes to access any of the 5 capitals, what barriers might they face? •How would your answer differ if you were looking at Taiwan, Spain or Portugal? Task 4 •You want to set up a Farmers’ Market • •Describe the 5 capitals which you would require Task 5 •Draw a diagram of Local Food Links’ school meals operation, showing key inputs, operations and customers • •Indicate where resource consumption could be reduced • •Indicate where recycling could take place Social Enterprise • Co-ordination • Purchasing • Menu design • HR and Training • Other back office/admin Satellite Catering Facility A e.g. Hub kitchen Meal production & Distribution Satellite Catering Facility B e.g. Community Centre Meal production Satellite Catering Facility C e.g Kitchen in larger school Meal production Producer Producer Producer Producer Producer Producer Producer School School School School School School School School School Operations Food in Distribution Final storage Cleaning Cooking Initial preparation Initial storage - 1 x Cold room - 2 x Refrigerator - Potato rumbler - Veg prep machine - Food mixer - Steam kettle - 2 x Brat pan - 6 x Combi oven - Pass through dishwasher - 3 x Blast chiller - 2 x Cold room - Refrigerated van Central Kitchen Food in (& other inputs) Bulk preparation Bulk cooking Holding chill Finishing Food out To schools Hot transportation Catering & Food Production Personnel Development & Training Product Development & Sourcing/ Purchasing ICT systems Financial Systems Strategic Development & Fund-raising Local food enterprises – an economic analysis Task 5 •Draw a diagram of Local Food Links’ school meals operation, showing key inputs, operations and customers •Indicate where resource consumption could be reduced •Indicate where recycling could take place Re-solarisation, re-localisation, re-silience •“The only way to avert a sequence of food crises resulting from supply disruptions and price spikes in oil and gas over the next twenty years is to systematically reduce our dependency on stored solar energy (fossil fuels) in favour of real-time solar energy. All farms must therefore become powerhouses of renewable (solar) energy…….. Whichever way you cut it, a combination of high oil prices, high input prices, growing demand for food, an additional seventy million or so people every year, and growing pressure on soil, water and biodiversity, compounded by accelerating climate change and the kind of high carbon prices that are inevitably on their way, leads to only one rational conclusion: increased resilience by reducing the length (and vulnerability) of our supply chains. The more high-quality, healthy food we can produce close to the point of consumption, the more resilient our food supply chains are going to be.” •Jonathan Porritt Schumacher: Small is Beautiful •In Small is Beautiful, Schumacher explained that the “modern private enterprise system ingeniously employs the human urges of greed and envy as its motive power”, but then asks: “Can such a system conceivably deal with the problems we are now having to face? The answer is self-evident: greed and envy demand continuous and limitless economic growth of a material kind, without proper regard for conservation, and this type of growth cannot possibly fit into a finite environment. We must therefore study the essential nature of the private enterprise system and the possibilities of evolving an alternative system which might fit the new situation.” Discussion point: Do you agree? •Is Jonathan Porritt right, in your view, that we need to re-solarise, re-localise and become more resilient? •Is Schumacher right, and do we need new economic systems which are not based on self-interest and profit-maximisation? Final task •Decide on the local food enterprise which you will work on in session 3