There has been marked growth in the local food movement. These markets are sometimes perceived as providing an opportunity for beginning small-scale farmers who cannot yet take advantage of economies of scale and have higher production costs. They often have low barriers to entry and consumers are often willing to pay premium prices. Local foods are sometimes promoted as helping local economies, and such initiatives are often supported with public funds. An important question is whether selling through local markets is indeed the most profitable and most economically sustainable option for growers. Some research finds that farmers choosing the strategy of sales only through direct-to-consumer outlets report earnings significantly lower than those from other strategies. Other research suggests that at the margin, relatively higher prices that farmers may receive from selling directly to consumers more than compensates for the increased marketing costs relative to selling through a distributor. Research also suggests that less experienced farmers are more likely to sell directly to consumers whereas more experienced farmers are more likely to sell through a distributor.
Small-to-medium sized oyster farms have two general strategies to get their product to market: selling directly into local farmed/branded half-shell market or selling dockside to a wholesaler. The direct-sale strategy provides farmers with the highest price potential but requires farmers to act as both farmer and distributor. It also limits sales to whatever the local market can absorb. Oysters that the local branded/farmed half-shell market cannot absorb will likely end up in the lower-value traditional half-shell market or the shucked-oyster market. The wholesale strategy allows the farmer to focus on production and to reach more distant markets, but reduces the price potential.
This analysis investigates the relative performance of these two marketing strategies using Monte Carlo simulation to estimate local market supply, demand, market shares, prices, and profit. It is particularly focused on emerging markets for farmed (off-bottom) oysters on the half-shell, that is, on markets where supply chains for locally farmed oysters may not yet be fully established. In the U.S., this means markets along the Gulf and southern Atlantic Coasts. The local market is modeled based on several factors, including the number and size of competing local oyster farms, the number of local buyers (restaurants), and number of oysters demanded per buyer. Results indicate that a marketing strategy focused on selling product at the farmgate to a wholesaler is likely to provide the greatest opportunity to be profitable relative to a strategy focused on selling directly into local markets. This result is due primarily to the inability of the local market to absorb all locally grown oysters. This result holds across a range of farm sizes, prices, growing conditions, transportation distances, number and size of competing farms, and number and demand of local buyers.