Ag-Bio Cluster Leadership Council: During September 2009, the Agriculture-Biosciences Cluster Leadership Council will convene its first meeting.  This group is chartered by the Fund for Our Economic Future (FFEF) to develop business opportunities within the agricultural and biosciences sector throughout the 16-county area of Northeast  Ohio.  To fulfill its purpose, the Leadership Council will establish an ongoing portfolio management process that enables Council members to solicit and field business cases, evaluate each one for likelihood of success and risk of failure, promote the most promising entries into a business planning cycle that culminates in an allocation of resources to put the strongest business plans into play.

Investment Portfolio Evaluation: Key to the effectiveness of the Leadership Council's investment portfolio is a set of objective, easy to understand, and simple to apply criteria with which to fairly evaluate the project proposals and business cases in it.  These criteria are based in the principles of diversification and integration within local economies introduced in the posting, Economics of a Local Food System.  The diagram, "Global - Local Theoretical Framework"  included in the referenced posting and embedded below depicts three continua that contribute to diversification and integration: portfolio selection, food value chain, and economic foundation.

Global to Local: As the title suggests, another dimension represented in the graphic is the flow from global in the bottom, left-hand corner to local in the upper, right-hand corner.  In their extreme, global agriculture systems are characterized by a single product (commodity) in the portfolio, production-only in the food value chain, and geographic separation and unfamiliarity between the producer and the consumer in the economic foundation.  In contrast, local food systems have a wide array of products in their portfolios, production is supplemented by downstream value-add steps of processing and preparation, and agriculture is joined by renewable energy, distributed manufacturing, and community currencies to establish an economic foundation at the neighborhood / community level.

Portfolio Selection: The progression from global to local is marked by a series of gradations that denote stages along the way.  For instance, portfolios closer to global have one or more items in the same category such as corn and soybeans rather than one or the other.  Further shift toward local invites the addition of specialty crops or livestock as complements to commodities.  As another step, season extenders like hoop houses and greenhouses are added so that crops bound by weather conditions are given wider latitude.  Eventually, local production expands from traditionally rural settings to suburban and urban locations where more ethnic and cultural items are added to the portfolio and spaces dedicated to "turf and tree" landscaping give way to commercial food production.  In other words portfolios are influenced by spatial qualities and variety which opens the door for integration.  Add to that a diverse agriculture - bioscience portfolio that goes well beyond food to include feed for animals, biofuels, and fiber to name a few and the drive for deeper integration is assured.

Food Value Add: The path to integration touches upon value-add steps as well.  Production marks the beginning of the food value chain, but it is the least compensated stage.  Subsequent steps of processing and preparation garner more than double the share of every retail dollar spent for food.  As examples, grape and milk production capture 20% of the food dollar spent.  Process them into wine and cheese and the percentage grows to over 60%.  Of course, add to prize-winning wines and heirloom cheeses a full meal of locally-sourced foods, and perhaps a comfortable bed and breakfast or vintage restaurant imbued with the cachet of a fine dining experience raises the percentage to over 80%. 

Economic Foundation: A similar integration occurs as agriculture / food is complemented by renewable energy, distributed manufacturing, and community currencies.  This combination of food, energy, goods and a medium of exchange forms the foundation for a local economy.  In effect, it lays the groundwork for total life cycle assessment and management which plays into community and neighborhood interests because it fosters reinvestment, recycling, and reuse.  As an example, bio-waste from food systems is converted to biofuel which powers generators for electrical use in food production, processing, or preparation, or heat for hoop houses and greenhouses.  Also, small scale manufacturing facilities produce the parts, components, and assemblies necessary for installation, operation, and maintenance of equipment and facilities for other residential and commercial applications within a neighborhood / community.  To facilitate reinvestment, transactions among residents and business people are conducted with local or regional mediums of exchange.  Interest-bearing capitalization strategies are reserved for national currencies.  As the name suggests, community currencies and national currencies are complementary.

Subsidy to Sustainability: The advent of a strong local economy promotes sustainability.  This feature sets-up another critical dimension along the global - local continuum represented by the double-headed "subsidized - sustainable" arrow in the above diagram.  As already noted, the more global, the more dependent an operation is on distant markets for a single product that is mass produced according to the dictates of economies of scale.  It is also dependent on discounted or ignored externalities.  This subsidy is further exercised by artificial price support on the revenue side or the provision of lower cost / no cost inputs, facilities, equipment, labor, etc. on the expense side or both.  The net result is a level of profitability that is not possible otherwise.  On the other hand, the more local the more diversity within the investment portfolio and the more integration within the skill-set of the community / neighborhood.  Such diversity and integration raises the level of interdependence among entries in the portfolio and elements of the value chain thereby clarifying and strengthening community / neighborhood ownership and leading to a higher assurance of sustainability.

Investment Portfolio Evaluation Criteria: This sets up the possibility of a project or business case evaluation based on the dimensions outlined above.  The graphic below illustrates one way those elements can be placed in a simple matrix to compare one entry in the investment portfolio to another and approximate the total value of the portfolio.

Each category, be it economic foundation, food value chain, or portfolio selection, can be "checked" in the appropriate box if it possesses general qualities of localization, sustainability, diversification, or integration.  The relationships between categories and qualities can be assigned a numerical value that captures the degree of localization (globalization is lower value), sustainability (subsidized is the lower value), diversification (monoculture or commodity crops such as corn, rice, soybeans, and wheat is the lower value), and integration (single, separate function is the lower value).  These numbers can be multiplied across each row, by category, to determine a weighted value for the complete entry.  The result with either approach is an evaluation methodology that permits comparison and contrast between portfolio entries as well as note areas to strengthen project proposals and business cases submitted for consideration.

Next Steps: The set of interrelationships suggested by the evaluation spreadsheet are incomplete.  The purpose is to provide a starting point for consideration of critical characteristics and their weighted values when evaluating investment portfolios and the merit of individual projects and business cases that comprise them.  As the Agriculture-Biosciences Cluster Leadership Council convenes in September 2009 and takes ownership over this approach, further developments and adaptations will ensue.  Those changes will be noted in future postings so that the reader remains current.  Any feedback in the form of questions, critique, or commentary is most welcome.  Thanks in advance for your consideration.  More to follow...