Economic impact of partial agriculture sectors

dcv2683

March 18, 2015 01:48

Hi, I want to determine how economic activity would change under a few scenarios where land is taken out of agricultural production and moved either into development or conservation. First I need to to determine the baseline contribution of a few agricultural sectors (hay farming, beef and dairy cattle, and sheep and goat farming to be exact) to the state (actually I want to repeat this analysis for five states: Arizona, Colorado, New Mexico, Utah and Wyoming), then make some changes by transferring production to development and/or conservation. The problem is that I am trying to determine the economic contribution of a few industries under baseline and alternate scenarios that only make up a fraction of the IMPLAN sector they represent. The industries I am interested in are (NAICS/IMPLAN): hay farming (111940/10), beef cattle ranching and farming (1112111/11), dairy cattle production (111212/12), and sheep and goat farming (1124/14). Except for dairy cattle I am only interested in the effect of a portion of the IMPLAN sector on the economy. How can I determine this? My thought was to use the USDA Census of Agriculture to determine the portion of market value and multiply the IMPLAN output by this number. For example, 1112111 accounts for about 23% of the market value of 1112111 and 1112112. Does multiplying the IMPLAN output by 0.23 give me the approximate output for just 112111? Can I then do this for each industry and use the multi-industry analysis to determine the baseline contribution? The IMPLAN output is close to the USDA market value for all industries except hay, which is way off. Is there a better way? This would be for the baseline scenario. Then I want to compare the baseline to a few possible scenarios. For example: Status Quo 5,000-acre New Mexico ranch is currently classified as agricultural. Property tax rules require a stocking level of 51% of carrying capacity as pre-defined per region/land type. In this case, the ranch could theoretically run 31 steers but must run at least 16 to qualify. The rancher leases pasture at a rate of $12/head per month for 16 steers, generating $2,304 in gross income. Each head of livestock provides some economic benefit to the community—from agricultural supply stores to trucking. What is the total economic value of this ranching operation to the community? The ranch’s lower tax rates also result in an increased burden to the average tax-payer of X. Diversified Management The same 5,000-acre ranch reduces its stocking level to one third of the carrying capacity—10 steers. Gross income is now $1,440. Some amount of reduction in economic benefits to the community results—how much? At the same time, the landowner enrolls in a state program to enhance wetlands and improve riparian vegetation. The landowner receives $2,000 in payments for ecosystem services and an additional $5,000/year in income from bird watching or other wildlife-related activities. The landowner invests $1,000 per year in planning and improvements. The increase in income, attraction of tourists and support of a partial job generates X in economic benefits to the local community. Tightened Ag Compliance Same 5000-acre ranch technically is required to run minimum of 16 steers. However, the cost of maintaining infrastructure and managing the livestock or lease exceeds the value of the income. Increasing the number of livestock is not feasible due to drought, degraded lands, market conditions, absentee ownership or other concerns. Rather than pay the increased property tax resulting from failure to comply with minimum agricultural requirements, the landowner chooses to sell the parcel to a developer. The cost burden to other taxpayers shifts by X amount on average. However, the county now spends $1.25 in services for every dollar of property tax generated by the new subdivision. Agricultural and ecosystem services are lost, resulting in X impact to the community. Etc. Alternatively I could do this on an industry level instead of a parcel level. For example the baseline contribution compared to losing agricultural land on a large scale (statewide). Where do I start? Exactly what kind of analysis am I doing? And what data do I need? I only have public data from sources like the USDA Census of Agriculture and IMPLAN data. I have determined cost estimates on a per acre basis for conservation projects along with their NAICS and IMPLAN codes (for example conservation cover can be modeled with IMPLAN sector 2 at $150 per acre). Can I determine the net change on the economy if for example 100,000 acres are lost from the agricultural industries and transferred half to conservation and half to development? Can I just manipulate the output of the sectors of interest in a multi-industry analysis? Is it ok to devide output by acre figures from the USDA and do the whole analysis on a per acre basis? Thanks, Dan

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3 comments

IMPLAN Support
March 19, 2015 21:53

Hi Dan. Thank you for your post. Given the variety of questions you are asking, we have several recommendations for things you should bear in mind: Whether to do an impact analysis or a contribution analysis depends on whether you want to estimate the impact on your economy of an entire industry (or industries) or of change or event within that industry (or industries). If the scenarios you’re describing don’t entail the value of the entire industry in your area, it probably is not necessary to do a contribution analysis. If your general goal is to compare the relative impact on an economy of doing either of two activities, growing corn or conserving a natural environment on a piece of land, you will need to estimate the value of each. For example, an acre of growing corn might equate to $10,000 of industry sales, and an acre of doing conservation might equate to $10,000 of tourist spending and $5,000 of constructing footbridges for tourists. You will need to associate the tourist spending with sectors, and the same thing for construction of footbridges. Each of these scenarios would be impact Events in IMPLAN. You can then compare Output, Value Added, jobs, etc., between the two different uses of the land. There may also be non-market values such as increased species health, water conservation, etc. that would not be captured by IMPLAN. If you’re trying to isolate a certain amount of Output from an IMPLAN Sector, e.g. estimating the value of sheep & goat farming as a share of the entirety of the other animal production Sector (Sector14), the general method you describe based on the Census of Agriculture would be useful. You should be able to obtain state-specific rates from the Census of Agriculture, at least for certain products. In addition, the USDA’s National Agricultural Statistics Service might also have similar data on a state level: http://www.nass.usda.gov/Data_and_Statistics/. The Help > Sector Search feature in IMPLAN will show you all the NAICS Codes that belong to a given IMPLAN Sector. With payments to landowners in the form of revenue from tourists or payments from government, you will need to be careful to consider the alternative. For example, how would those tourists or the government otherwise have spent the money? If the government has a choice between paying a landowner for conservation or hiring a groundskeeper somewhere, the net benefit would be only the difference. Similarly, if the tourist would have spent money on something else in the same area, then the net benefit is the difference between the two types of activities. If the tourist would not have come to the area, or would have gone outside of the area, then it is more reasonable to consider the impact of all of the tourist spending as a benefit. We expect you may have some follow-up questions, but wanted to try to give you this framework to start.

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dcv2683
March 20, 2015 20:04

Thanks for trying to understand my confusing questions, maybe I can clarify: I am interested in learning the impact of changing the amount of land in agricultural production on the entire regional economy. We want to include in our analysis the net effect - so we are interested not just in the change due to agricultural production but also the contribution of the alternate uses (conservation or development). We want to first measure a baseline or statusquo scenario and compare to several scenarios where we remove agricultural land from production in bring it into other industries. We would want to know both the effect a change in production on an archetypal farm would have on the economy (firm level) and the overall effect of these changes on an industry level on the economy. How would the procedures and results for these two types of analysis differ? Is multi-industry contribution analysis the right way to go about answering these questions? I have data from the USDA Census of Agriculture and have been following this thread (http://implan.com/index.php?option=com_kunena&view=topic&catid=84&id=18731&Itemid=1679) as a guide to redefining sector 10 as only hay production, sector 11 as only cattle ranching and farming and sector 14 as only sheep and goat faming. To do this I am using USDA data on total market value of agricultural products sold to set total output. From Table 68 I am using spending on hired farm labor as employee compensation, cash rent for land, buildings and grazing fees as other property type income, and property taxes paid as tax on production. Then the difference between total market value of agricultural products sold and total farm production expenses, minus the above categories, would be total proprietor income. Am I using this data correctly? Would rent and lease expenses for machinery, equipment, and farm share of vehicles, contract labor, or interest paid need to be included as EC, PI or OPTI or are they truly intermediate expenditures? Would putting in only the data related to the NAICS codes I am interested in accomplish my goal of making the IMPLAN sector represent that industry? For the beef industry changes in cattle ranching are likely to have effects on cattle feedlots, so I am thinking I should use both sources to redefine the sectors total output, does this make sense or is it unnecessary because I am constraining output in the even anyway? (For example if ranching output is X and feedlots are Y I would do baseline output X1+Y1 results minus scenario output results X2-Y1, the changes in output cancel but would I be missing important regional multiplier effects?) Can I do the same thing for individual farms (put in the individual farms output, value added, income, etc) to measure firm level changes? I am not yet changing the production functions, just the industry data, but may also want to do this per the other thread. So in sum: Important affects - Beef cattle ranching and farming (modeled as industry change) - Sheep and goat farming (modeled as industry change) - Hay farming (modeled as industry change) - Conservation spending on natural grass conservation cover (modeled as industry changes) - Construction spending on new residential development (modeled as industry change) - Conservation income (modeled as change in income/spending) - Grazing fees (modeled as change in income/spending, rather than land use) For scenarios I think we can define them as either or both - Changes in economic activity due to changes individual archetypal farm production decisions between agriculture, conservation and development - Economy wide changes in output due to changes in industry level production allocation between agriculture, conservation and development

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IMPLAN Support
March 24, 2015 17:10

Hi Dan, We will reiterate that running an impact in IMPLAN gives you just the change – i.e., it does not give you the current level of output PLUS the change, but rather ONLY the change. Stated differently, when you run an impact in IMPLAN, it does not change the underlying base case data – if you were to examine the Study Area Data before and after running an impact, it will look the same. Thus, there really is no need to ‘run’ anything for the status quo base case, unless your report requires that you report the current contribution separately and in addition to the changes. If it is the case that you truly do need to report the current contribution, we would suggest running a contribution analysis (https://implan.com/index.php?option=com_content&view=article&id=467) on the sectors of interest and then report just the proportion of those impacts that belong to the specific NAICS codes you are interested in (using the proportion method discussed previously). Regarding modeling specific NAICS codes: usually when users edit the Study Area Data, it is because they have more up-to-date or specific proprietary information about that sector as a whole and can fine-tune IMPLAN’s estimates. Editing the Study Area Data is not necessary for running an impact on a specific NAICS code; furthermore, editing the existing sectors to represent your specific NAICS codes will result in the model no longer fully reflecting the other NAICS codes in those sectors – i.e., it will not really represent the economy anymore - and thus is not something we would recommend. Rather, we would suggest using Analysis-By-Parts (http://implan.com/index.php?option=com_content&view=article&id=373:basics-analysis-by-parts&catid=323&Itemid=1588), where you import the industry’s spending pattern and edit it there (i.e., in the Activity rather than in the Study Area Data). Editing the Study Area Data changes the entire picture of the economy and changes the multipliers, whereas Analysis-By-Parts only changes the impact results, not the underlying picture of the economy. Regarding the ranch’s lower tax rates resulting in an increased burden to the average tax-payer of $X, you could run the increased tax burden amount as a negative Household Income Change Activity with the Activity Level set to -$X. For fees that the rancher receives, if he/she is charged payroll taxes on these fees, they should be modeled as a Labor Income Change (Proprietor Income option), else they should be run as a Household Income Change. This is of course assuming that the rancher doesn’t use those funds to purchase inputs to run/maintain the ranch. If it is a mix of the two, I would recommend running the value through the cattle ranching sector, which will split the funds among input purchases, Labor Income (set EC to zero and add its value to Proprietor Income), taxes, and profit. IMPLAN Group

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