We can’t afford local.

Large aluminum kettles at a Louisville processing plant hold 2500 gallons of simmering beef, beans, tomatoes and spices, bubbling away to create a chili that’s destined for public schools all across Kentucky. Mike, the plant owner, will eventually put the chili in 1- or 5-gallon plastic bags. In public schools from Paducah to Pikeville – some of whom have few kitchen amenities or equipment – school lunch managers can tear open the bags and pour them into in sheet pans, and serve them in the cafeteria lines.

What makes this chili different is that it contains Kentucky-grown butternut squash. Inspired by the requirements of the federal Healthy, Hunger-Free Kids Act of 2010, Mike adds butternut squash puree to the chili. HHFK requires that schools serve more orange and dark green leafy vegetables.

Inspired by USDA’s Know Your Farmer, Know Your Food program, Mike is buying squash grown by a Kentucky farmer – the man you see in the photo that accompanies this missive. While schools are not required to buy local food, they have been encouraged to by the federal government, and supported with grants that pay for Farm to School programming. In Kentucky, there is a Farm to School coordinator whose peripatetic work includes driving from county to county, encouraging and enabling the use of local food in school lunch.

If a school lunch serves this chili, a child will consume more red and orange vegetables. That’s great for health.

And it’s great for Kentucky’s agricultural economy, providing alternatives to the once-mighty tobacco economy. The man who arranges to buy the squash from farmers — his name is Doug – bought 40,000 pounds of Kentucky-grown squash last year. His company removed the peel and seeds from the squash; then cubed or pureed and froze it.

With Mike’s purchases – and other interest – Doug is preparing to purchase 120,000 pounds of squash during the 2014 growing season.

For people who support the use of nutritious local food in schools, who want to shorten supply chains to help their region’s farmers and food businesses, this model is pretty perfect.

In my experience, it is the first bona-fide food-system-chain-shortening event that involves produce.  Produce is not a lucrative product like meat. It must be grown and sold in high volumes to support a farmer. While the growing number of farmers markets can make us believe direct markets are viable venues for farmers, it’s common knowledge that the 20 or so food companies listed in the Fortune 500 (NOT including WalMart) had revenues more than 500 times what ALL  farmers markets had in 2012

Wholesale is where most produce farmers will make a dependable income.

And now we have a crucible of local food. Kentucky’s squash value chain — potential providing a partial living on medium or small farms — show themselves instead to be perhaps too inefficient to be actually viable. These virtually inevitable inefficiencies beg the question, how much do we want local farmers to prosper? To what ends will we go to see that farms “of the middle,” and smaller farms succeed? In Kentucky, both of them did well growing tobacco, augmented with income they earned selling weaned calves to western CAFO feedlots.

Though building a local food supply is about knocking down barriers, and I fully accept that we have more barriers to knock down, rubber is meeting the road right now in Kentucky.

Public school systems have (roughly) between 90 cents and $1.25 to spend on food for a school lunch. Most directors like to think that their protein-containing entrees will cost 55 to 70 cents per serving, though they’ll pay more. At least one county in Kentucky pays more than 90 cents for Domino’s pizza, but it’s the day of highest participation, and high participation makes the top 2 list of a nutrition director’s priorities.

Right now, Mike’s super-healthy butternut squash chili – which has received high marks in taste tests with Kentucky students – costs more than twice what it needs to for him to sell it to schools. The ingredients in Mike’s aluminum kettle of chili cost $5000. The most expensive ingredient in it? Local butternut squash.

This has caused trepidation throughout the supply line. Mike is pursuing cost reduction through other means. What might those be? Reducing labor costs? That has its own negative implications. Reducing the cost of other ingredients? At what cost to whom?

And Doug is stuck in a difficult place. He says he has lowered his production costs as much as he can and still keep his company viable (the company makes most of its money selling salsa to WalMart). His processing is mechanized – the company employs people to operate equipment, not to physically peel squash. Doug is paying the farmer an agreed-upon and seemingly fair price.

My agriculture-economist friend asks what the farmer is doing to become more efficient, to reduce his costs to the customer. That’s a valid question and one I ask every time I pay $3/pound for tomatoes at a farmers market. But it also gets perilously close to the questions that local-food supporters always ask – efficiency at what cost, at what detriment to the land, the air, the water, the community?

Here’s my issue.We have completed a food supply line. Farmer Ben has sold his squash to a local processor, who has converted that product to a form more usable by the consumer. Mike has added value by making it ready-to-heat-and-eat. These men have worked diligently to put nutritious food on the table of the region’s diners, specifically school children, many of whom come from homes that make them eligible for free- and reduced-price lunch (in Jefferson County, Ky., a majority of those who eat school lunch qualify).

Where do we go from here? With everyone’s best intention, the food has been grown, processed, and cooked. But without efficiencies that may be outside the realm of a small- or medium-sized farm, the cost of a simple vegetable that makes school meals healthier may be out of bounds for virtually everyone in the system.

If the school food system can’t afford to buy it, then Mike can’t make the chili. If Doug loses Mike as a customer, he informs farmer Ben that there’s no need for 40,000 pounds of squash. Farmer Ben then loses – let’s estimate – ¼ of his yearly income. A quick check of butternut-squash harvesting equipment shows that it could cost half a million dollars. Efficiency at a high cost.

Perhaps Farmer Ben could buy the machine and rent it to others in the region. But that would require massive amounts of butternut squash to be raised in a geographical area that allows for large, slow farm equipment to be moving up and down the road – driving such a machine from Louisville to Frankfort can’t be cheap. All of these scenarios add cost.

There are local food proponents who say we don’t appreciate the true cost of food. I agree, but that can’t convince a school to buy food that costs $1.50 per serving when it has 90 cents. There are others who say that farmers deserve a fair price for what they grow. I agree. I buy all my meat and many other foods directly from farmers.

There are those who say that the demand for local food exceeds supply, and that infrastructure is key — all that’s needed is the infrastructure to transport the food to the destination.  But we have completed that system in our squash scenario, and it raises more questions than it answers. More than a few buyers will be stumped by a price tag that is twice (or more) what they usually pay.

I believe that these Kentucky entrepreneurs have done us the service of creating a microcosm food system that provides a fair price for the farmer, access to good and nutritious food for thousands of children from poor families, a system that shortens the supply chain and provides employment for workers in our own community, where taxes will be paid to build our own roads and schools.

But, in fact, the system, as we see it, is untenable.

What now?