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The Contributions of Agricultureto Idaho’s Economy: 2006
by Philip Watson, Garth Taylor, and Stephen Cooke CIS 1144
“[In 2006, Idaho] agriculture was
responsible for generating $21 billion in
total sales, 156,599 jobs, $4.2 billion in
wages, and $8.4 billion in gross state product
(GSP) ... Based on this analysis, agriculture
is the single biggest contributor to the
economic base of Idaho.”
THE CONTRIBUTION OF AGRICULTURE TO IDAHO’S ECONOMY: 20062
WHY THIS PUBLICATION?
The diversity of Idaho agriculture is remarkable. Its agricultural portfolio is far more diverse than the Midwest Corn Belt states, forexample. Also, the recent shift in Idaho’s agricultural economy from crops to livestock has been swift and dramatic.From a gross contribution perspective, agriculture is a mid-size sector in the Idaho economy, providing $12 billion in goods and services.However, from a base contribution perspective, agriculture is the single largest sector in the Idaho economy at some $21 billion in 2006.This paper explains why both figures are true, and it presents ways to consider Idaho agriculture’s impact on the state’s economy.
TABLE OF CONTENTS
Executive summary................................................2
Introduction.............................................................3Agriculture and Idaho’s economy......................3
Gross and base contributions ..............................3Two questions ........................................................4Importance of exports .........................................4
Gross and base contributions ofIdaho’s agriculture..................................................5
Output contributions ...........................................5Gross output...........................................................5Base output/New dollars ....................................6Value-added contribution (GSP) .......................7Wages paid contribution......................................7 Employment contribution...................................8
APPENDIX I Methods and IMPLAN ....................8
APPENDIX II Definitions .....................................10
Figures ...................................................................1-6
1. 1997 to 2007 farm sales trend..............................5
2. Ag/Tech mfg and Idaho’s GSP ..............................6
3. Gross and base measures of total salesby sector: Idaho 2006.............................................7
4. Gross and base measures of valueadded by sector: Idaho 2006................................7
5. Gross and base measures of wagesand salaries paid by sector: Idaho 2006 ............8
6. Gross and base measures of employmentby sector: Idaho 2006 ............................................8
EXECUTIVE SUMMARY
Agriculture in Idaho has grown from family farmsteads into anagribusiness industry, providing food, jobs, and income in Idaho and foodfor the nation and the world. Agriculture is defined as the production andprocessing of crops and livestock.
Gross contribution analysis: When looking only at the economicactivity directly generated by Idaho agriculture in 2006, agriculture is amid-sized sector. It:
• Generated $12 billion in total sales—11% of Idaho’s total;
• Employed 56,000 Idahoans—6% of Idaho’s total workforce; and
• Paid more than $1.2 billion in wages—4% of Idaho’s total.
Additionally,
• Agriculture was directly responsible for generating approximately$2.9 billion in value added, or about 6% of the gross state product(GSP).
The numbers above are an example of a “gross contribution analysis.”
Base contribution analysis: The economic activity of agriculturealso supports many other local industries and brings a great deal of newrevenue into Idaho through agricultural sales out of the state—agricultural exports.
In this way, the economic activity of sectors like fertilizer sales,farm equipment sales, and food processing input providers all depend onrevenue generated by the agricultural sector.
When total sales of all sectors in the Idaho economy are attributed to thesector that is originally responsible for generating the revenue, a muchgreater picture of impact on Idaho’s economy emerges. This is called an“economic base analysis.”
From an economic base perspective, Idaho agriculture in 2006 wasresponsible for generating:
• $21 billion in total sales—20% of Idaho’s total;
• 156,599 jobs—17% of Idaho’s total workforce;
• $4.2 billion in wages—15% of Idaho’s total; and
• $8.4 billion—17% of Idaho’s gross state product (GSP).
Based on this analysis, agriculture is the single biggest contributor tothe economic base of Idaho.
UNIVERSITY OF IDAHO EXTENSION 3
INTRODUCTION
AGRICULTURE & IDAHO’S ECONOMY
Agriculture in Idaho is a set ofmutually supportive economicsectors needed to produce, process,and market food and fiber forconsumption at home and abroad.The production and marketingchannels of the agribusiness industryextend from farm suppliers to farmersand ranchers, from food processorsthrough food retailers, ending withconsumers in Idaho, the nation, andinternational markets.
Idaho industries are grouped intoten standard industrial sectors.These sectors include: (1) agriculture,(2) forestry and mining, (3)construction and utilities, (4) hightech manufacturing, (5) othermanufacturing, (6) retail andwholesale trade, (7) services, (8)government services, (9) households,and (10) capital investment.
While most industry definitions areself-explanatory, the definitions foragriculture, high tech manufacturing,and other manufacturing requireelaboration.
Agriculture: Agriculture is theproduction and processing of cropsand livestock. The demand for
agricultural output extends throughouteach sector of the economy and intotheir households. Within agriculture,producers sell to processors, andprocessors sell to distributors. Outsideof agriculture, distributors sell toretailers and restaurants. Retailgrocery stores are considered part ofthe retail and wholesale trade sectorwhile restaurants are part of theservice sector.
Not part of the agriculture sectorare purchases of food, whether athome or away from home. Suchpurchases are made by consumerswho are considered to be part of thehousehold sector. Also not includedin agriculture are grocery stores.They are in the retail sector because,for example, they would sell importedpotatoes even if Idaho did not growpotatoes.
The potato, cheese, or sugarprocessing industries are in theagricultural sector because of theirclose association with adjacentpotato, dairy, and sugarbeet farmers.
High tech manufacturing is themanufacturing of electronic products(i.e. DRAM, communicationequipment, etc.).
“Other manufacturing” is a largecatchall category that includes everybusiness that makes goods other than
processed agricultural and forestgoods or high tech products.
GROSS & BASE CONTRIBUTIONS:2 WAYS TO MEASUREAGRICULTURE’S IMPACT
The importance of the agriculturalsector to the economy can bemeasured in two complementary ways.
The first is a gross measure,which simply counts all the measuresof economic activity (output,employment, wages, and value-added)that are generated from all sales withinan industry.
The second is a base measure,which gives credit to the industry thatbrings new dollars into the regionthrough exports for the economicactivity that it supports in the regionaleconomy.
For example, in a gross analysis,if a tire merchant sells a tire to a localagricultural producer, the value of thistransaction (and the associatedemployment, wages, and value added)would be counted in the “tire store”or retail sector. However, becausethis sale is only possible because ofthe new dollars that are brought intothe region by the agriculturalproducer (exports), the base analysisgives credit for this transaction to theagricultural sector.
photo © Tom
asz Tulik/dreamstim
e.com
THE CONTRIBUTION OF AGRICULTURE TO IDAHO’S ECONOMY: 20064
TWO QUESTIONS: ONE FOR GROSS,ONE FOR BAS E OUTPUT
Total gross and base measures ofeconomic activity differ by how youview the contribution of each sector.If the question is: “What is the directeconomic activity of Idaho agriculturefor both exports and domestic use?”then the answer is the gross analysis.
In gross analysis the sales,employment, wages, and value added
that occur in any sector are simplyadded up. If there are 1,000
people directly employed inthe service sector, then the
gross employment of thesector is simply 1,000.
This is the type ofanalysis that istypically reported ineconomic statisticsreports. But,suppose thequestion is, “Whatis the total outputof the Idahoeconomy acrossall sectors that isgenerated byagriculturaloutput?” Now you
must take a muchbroader view. The resulting base
analysis measureseconomic activity
across all sectors thatagriculture touches as it
creates agricultural productsfor export, thus bringing new
revenue into the state. So, in a base analysis, if several
farmers get together for a cup ofcoffee at 6 a.m. at the local café, thenthat money spent and the job createdis credited to the agricultural sectorrather than the service sector becauseit is agriculture that is responsible forgenerating the revenue that made thesale of that coffee possible.
Same if the farmer buys new tiresfor his equipment and so on.
The same logic applies for coffeepurchased by workers in themanufacturing sector before theirshift. In a base analysis, themanufacturing sector would get creditfor revenue from that sale of coffeerather than the service sector.
The base output of agriculture or
any other sector is the sum of itsexports plus associated indirectstimulation of sales from othersectors within Idaho. Economistshave developed formulas for suchcalculations (see Appendix I).
IMPORTANCE OF EXPORTS:ECONOMY’S DRIVING FORCE
Economic base theory maintains thatthe exports of one sector bring aboutadditional economic activity in othersectors. The export revenue from onesector is responsible for stimulating acertain portion of the output and jobsin other sectors as well. The analysisof these relationships is accomplishedthrough an economic base SocialAccounting Matrix (SAM) model
(see Definitions or IMPLAN sections).Money from exports ripples through-out the economy as each businessseeks to fulfill demands of its exportcustomers. Exports provide the driv-ing force for an economy. Exports arethe new money from outside Idaho’seconomy, fueling purchases fromother businesses within Idaho or stim-ulating imports.
Exports are sales of goods andservices to customers outsideIdaho—to other states as well asinternational markets. Milk, cattle,sugarbeets, and potatoes are forwardlinked to agricultural processorswithin Idaho, not exported as rawagricultural products.
An increase in agricultural exportsincreases the contribution of farms
and the indirect contribution of theother sectors as they purchase morefuel, fertilizer, machinery, and labor tomeet the increased demand foragricultural exports. Similarly, theother sectors support agriculture byproviding goods and services neededto produce agricultural exports.
These reverberations wane as aportion of each round of spendingleaks out to savings, taxes, andimports. The greater the “leakage”the faster the effects die out and thesmaller the multiplier.
An economy without exports isless able to generate new money andwill slowly leak out existing moneydue to purchases from outside theregion.
Idaho-produced inputs toagriculture from the state’s other ninesectors are important to the health ofthe economy by keeping as many ofthe dollars recycling through Idaho aspossible and slowing leakage out ofthe local economy.
If an economy is like a garden …
The analogy can be made that if aneconomy is like a garden, then baseindustries provide the rain, bringingin new resources, while the soil is likethe indirect sectors holding on toexisting water as long as possible.Just as sandy soils cannot hold thewater well, an economy withoutstrong indirect sectors cannot holdon to the dollars brought into the localeconomy by the exporting sector.
To fully analyze the health andsustainability of a given state orregional economy, both primarilyexporting and primarily indirectsectors must be strong.
Economic base theory alsoprovides insight into how much eachsector is responsible for bringingvalue added, wages, and jobs into thestate’s economy. This information canbe used to make informed decisionsas to how policy actions will affect theeconomy and what new primarilyexport or indirect sectors might bedeveloped through policy decisions toincrease jobs and income.
Idaho agriculture exports
73% of its output
The agricultural sector in Idahoexports 73% of its output (total sales).The high tech sector is another
“Exports are thenew money fromoutside Idaho’seconomy, fuelingpurchases fromother businesses... Idaho agricul-ture exports 73%of its output”
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photo by Mark LaM
oreaux
UNIVERSITY OF IDAHO EXTENSION 5
example of a primarily exportingsector, selling 55% of its productionout of state. On the other hand, theservice sector is a good example of anindirect sector, with 85% of its outputgoing to support other sectors inIdaho. Retail and wholesale trade,construction and utilities, and othermanufacturing are also primarilyindirect sectors that support theprimarily exporting sectors.
In summary, base contributionsare propelled by exports and theoutput of other sectors indirectlygenerated in support of agriculture’sexport production. The base output ofagriculture, or any other sector, is thesum of its exports and the associatedindirect stimulation of the output ofother sectors in the process. Thegross output contribution ofagriculture, or of any other sector, isthe sum of exports and the domesticoutput needed by other sectors intheir export production.
GROSS & BASE CONTRIBUTIONSOF IDAHO’S AGRICULTURE
The absolute and relative contributionof agriculture to Idaho’s economy in2006 was measured in terms of 1)output, 2) employment, 3) wages paid,and 4) total value added (also knownas gross state product or GSP). Thissection considers those fourcategories.
The interpretation of thesemeasures for the gross contributionsis the activity of the agriculturalsector necessary to meet both exportand domestic demand. The basecontribution of agricultureinterpretation of these measures is theactivity of agriculture as well as othersectors necessary to meetagriculture’s export demand. The basecontribution approach assumes thatagriculture’s domestic production isdemanded by other sectors to meettheir export demand.
Note that in Figures 3 through 6total dollars added up across all 10sectors reach the same sum for bothgross and base contributions. ForFigure 3, total sales were $108 billionin 2006; for Figure 4, value addedtotaled $50 billion, and so on.Differences occur in the wayscontributions are distributed.
OUTPUT CONTRIBUTIONSGROSS OUTPUT—NATIONAL RANKING;SUPERSTAR PRODUCTS
Idaho ranked 20th in the nation in thetotal output of agricultural productssold in 2002 (USDA 2004). Idaho hassome “superstar” crops, ranking firstnationally in potato production, secondin barley, and third in sugarbeets.Idaho’s huge dairy industry ranksfourth behind California, Wisconsin,and New York.
The diversity of Idaho agriculture isremarkable. Lacking the temperateclimate of California, Texas, or Florida,Idaho’s agricultural portfolio is far morediverse than the Midwest Corn Beltstates. What gives Idaho agriculture itsimpact is not its sheer size, but ratherthe magnitude of the forward linkages(people and businesses Idaho agproducers sell to). Idaho’s principalagricultural products—potatoes, beef,and milk—create additional economicbenefits in the forward-linkedprocessing industries, which add value.In contrast, many of the Midwest statesexport their major farm products (corn,wheat, and beans) without processing.
Idaho’s 2006 cash receipts fromfarm output were more than $4.5billion, a new all time record. Whenthe gross sales of processing areadded to production, the total sales oroutput of agribusiness in Idaho in2006 exceeded $7.4 billion.
Crop revenues were estimated at$2.09 billion, 12% above the 10-yearaverage. For the sixth year in a row,livestock revenues exceeded croprevenues. Prior to 2000, crop revenuessurpassed livestock revenues everyyear since 1979.
For 2006, livestock revenues
were estimated at $2.4 billion,(Figure 1), 21% higher than the 10-yearaverage. Cash receipts from cattle andcalves were 4% lower than in 2005,topping the $1 billion mark for thefourth consecutive year. Cash receiptsfrom milk were $1.28 billion, down 9%from 2005’s record $1.42 billion.
Idaho agriculture’s shift from
crops to livestock
The shift in the Idaho agriculturaleconomy from crops to livestock hasbeen remarkably swift and dramatic.Over the past decade, Idaho’s potatoeshave struggled to maintainapproximately 15% of cash receipts.Conversely, milk, at 19% of totalagriculture cash receipts in 1997, isnow at 29%.
The center of Idaho agriculture hasshifted geographically to the dairies ofthe Magic Valley, and the businessesthat are backward and forward linkedto dairy (meaning businesses dairiessell to and buy from) have shifted inresponse. The decline in the sheep,fruit, seed, and mint crops hasnarrowed Idaho’s agriculturaldiversity, and the overall financial
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4
5
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Livestock Receipts Crop Receipts Total Receipts
19971998
19992000
20012002
20032004
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Figure 1: 1997 to 2007 SALES TREND—Farm cash receipts for production (not includingprocessed product sales) in Idaho between 1997 and 2007 increased all years except in2003. Note that livestock receipts have outstripped crop receipts every year since 2002.
THE CONTRIBUTION OF AGRICULTURE TO IDAHO’S ECONOMY: 20066
health of Idaho agriculture hasbecome increasingly dependent onmilk and beef.
In 2006 Idaho’s GSP (in currentdollars) rose to a new record of morethan $48 billion. See Figures 2 and 4.Over the last ten years (1997 to 2006)GSP has grown at an average annualrate of 4.6% per year.
Over the same ten yearsagribusiness has grown from 5.4% to6.9% of total GSP. High techmanufacturing has grown at anaverage annual rate of 36%. In 1996high tech contributed 1.7% of thestate’s GSP; by 2005 high tech hadrisen to 18% of Idaho’s GSP.
BASE OUTPUT—AGRICULTURALEXPORTS BRING IN NEW DOLLARS
The gross output numbers foragriculture—Figure 3—mask its abilityto induce economic activity in othersectors needed in the production ofagricultural exports. Agriculture bringsnew revenues into the state throughthe export of agricultural products.These export sales are the economicbase of Idaho’s economy, injecting newdollars into the economy to create jobsand income throughout other sectors.
Total exports in Idaho were $51.2billion in 2006. The $10.4 billion (20%) incapital investment was the single largestexport from Idaho, followed byagriculture’s $8.9 billion (17%). The other
major exporting sector was techmanufacturing at $7.3 billion (14%). Theretail and wholesale trade sectors ofIdaho’s economy accounted for morethan 10% of the gross output in theeconomy, but less than 2% of the exports.(NOTE: Totals just mentioned differslightly from totals in Figures 2 and 4because data came from two differentofficial sources.)
Thus, the contribution of retail andwholesale trade businesses are indirect
in that their output supports theprimarily exporting sectors. The othermanufacturing sector is relatively smallwith 3% of the exports. Manufacturingis traditionally an important exportsector in many regional economies.While technology manufacturing,agricultural products manufacturing,and wood products manufacturingare all significant components of theexport economy in Idaho, other manu-facturing in Idaho also primarily
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Agriculture Tech Manufacturing Total Gross State Product
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and
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n $
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Figure 2: AGRICULTURE/TECH MANUFACTURING AND GROSS STATE PRODUCT—Top blueline tracks Idaho’s total gross state product from 1997 to 2006 with the corresponding axis onthe right. Left axis compares gross contribution of two similar-sized Idaho sectors to Idaho’s GSPduring those same 10 years. Middle red line represents Idaho agriculture. Bottom green line trackstechnology manufacturing. Agriculture has been much less volatile over this time period. Source:U.S. Department of Commerce, Bureau of Economic Analysis.
phot
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contributes indirectly bysupporting the exportoutput of other sectors.
The base output of agricultureis 20% of Idaho’s total output. Thebase contribution of Idaho agricultureis $21 billion, which equals the sum ofagricultural output for exports ($8.9billion) and the indirect output fromother sectors ($12.2 billion) needed bythe agricultural sector to producethese exports.
VALUE ADDED CONTRIBUTIONAND GROSS STATE PRODUCT (GSP)
The value added within a sector equalsthe sum of the returns to labor, capital,and payment of business taxes. Thesum of value added across all sectorsequals the gross state product (GSP).Returns to labor and capital includewages and salaries, proprietors’income, as well as dividends, interest,and rents. In 2006, Idaho agriculture’sgross value added was $2.9 billion(6%) of Idaho’s value added. SeeFigure 4. Within the agribusinesscomplex, 61% of agriculture’s valueadded can be attributed to productionagriculture and 39% to the processingsectors.
Idaho agriculture’s base valueadded was $8.4 billion (17%) in 2006.Because agricultural processing sellsa larger proportion of its output toexports, the economic base effect ofprocessing is relatively larger thanthat of production agriculture, with46% of agriculture’s contribution tothe GSP coming from productionagriculture and 54% from processing.
Indirectly, many of Idaho’s othersectors owe a portion of their valueadded to agriculture. Services, retailand wholesale trade, and governmentservices ranked as the top three sectorswhose value added, in part, was brought about by agricultural exports.
The service sector alonecontributes 34% of agriculture’s basevalue added, which is greater than theagriculture sector’s 32% that includesindirect (5%) and export contributions(27%). Across all the industries, theindirect value added created byagricultural processing exceeds thatof agricultural production. This again
illustrates the magnitude of thebackward linkages of agriculturalprocessing. Impacts are driven by theexporting industry; cheese exportsthus induce value added in thebackward-linked dairies.
WAGES PAIDCONTRIBUTION
Idaho agriculture paid grosswages and salaries of $1.2 billion(4%) in 2006 (Figure 5). This comparesto the service sector that paid grosswages of $11.3 billion or 40% of thestate’s economy. However, the servicesector is primarily an indirect sectorof the economy whose jobs and wagessupport base sectors like agricultureto meet its export demand. The base
UNIVERSITY OF IDAHO EXTENSION 7
“Within the agribusiness complex, 61% ofagriculture’s value added can be attributedto production agriculture and 39% to the processing sectors.”
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0
5
10
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Gross Output 12,128 13,318 0 37,695 4,190 5,351 6,408 10,516 7,254 10,930 107,791
Base Output 21,060 20,632 14,865 14,031 10,086 9,327 7,901 4,620 3,230 2,040 107,791
Gross Output 11% 12% 0% 35% 4% 5% 6% 10% 7% 10% 100%
Base Output 20% 19% 14% 13% 9% 9% 7% 4% 3% 2% 100%
Agri culture
Tech manuf
Capital invest Service House
holdsForest / Mines
Govt service
Const / U�lity
Other manuf
R/W Trade
Total
Out
put (
$ bi
llion
s)
5
10
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Gross V. Added 2,895 20,042 0 1,627 3,741 6,110 2,170 4,455 2,011 7,257 50,309,720Base V. Added 8,358 7,559 7,258 6,855 5,629 5,444 4,387 2,291 1,304 1,226 50,309,720Gross Percent 6% 40% 0% 3% 7% 12% 4% 9% 4% 14% 100%Base percent 17% 15% 14% 14% 11% 11% 9% 5% 3% 2% 100%
0Agri
culture Techmanuf
Capital investService House
holdsGovt
serviceForest/Mines
Const / U�lity
Other manuf
R/W Trade
Total
($ b
illio
ns)
Figure 3: TOTAL SALES—Gross and base output measures for 10 Idaho sectors in 2006 showagriculture leading in base output with $21 billion; the service sector leads in gross output with$37.7 billion. Source: IMPLAN
Figure 4: VALUE ADDED (Gross State Product)—Gross and base measures of value added(equivalent to GSP) in 2006 show agriculture leading all 10 sectors in base value added with$8.4 billion; Service sector leads in gross value added with $20 billion. Source: IMPLAN
THE CONTRIBUTION OF AGRICULTURE TO IDAHO’S ECONOMY: 20068
sectors bring about jobs and wages inthe indirect sectors. The servicesector is responsible for 38% of thebase wages paid in the agricultural
sector, which is greater than the26% paid by the agriculture
sector itself to meet exportdemand (22%) and its own
needs (4%). Whenlooking at wages that
can be directly orindirectly attributedto the economicbase output ofagriculture, thetotal increases tomore than $4.2billion—or 15%of total Idahowages —werepaid in 2006. SeeFigure 5.
EMPLOYMENTCONTRIBUTION
Employment as usedin this study includes
both full- andpart-time jobs. The gross
employment of Idahoagriculture is about 56,000
full- and part-time workers or6% of the state’s employment
(Figure 6). Idaho’s largest grossemployment is in the service sectorwith 440,000 jobs (49%). The servicesector has a larger share of Idaho’semployment (49%) than either valueadded (40%) or wages paid (40%)because of its relatively low wagesand labor intensiveness.
As big as Idaho’s gross servicesector is, it stimulates only about halfthe indirect jobs (83,000) from othersectors as agriculture does (116,000).Most service sector jobs are indirectjobs and are induced by the exportsfrom the primarily exporting sectors.
Jobs are directly created in theexporting industry or indirectly inbackward linked businesses. Forevery million dollars of agriculturalexports, 18 jobs are created inagriculture and other sectors. Ineffect, we assume that jobs-per-dollarof exports is constant, but notnecessarily equal across all industries.
Idaho agriculture’s baseemployment is about 157,000 jobs ormore than 17% of total employment.
Of the 157,000 jobs contributed byagriculture in Idaho, more than 70%are indirect, created by thecontribution of agricultural exportsrippling throughout Idaho’s economy.Of the base employment, 41% werecalled forth in the service sector and31% in the agricultural sector itselffrom exports (26%) and to help createthe exports (5%).
APPENDIX IMethods and IMPLAN
Gross and base measures of a sectorare an accounting task. Grosscontributions entail counting the
number of people employed, the totalsales, or the total value added createdby each sector domestically andabroad. To maintain consistent sectordefinitions, we report the grossmeasures from the 2006 IMPLANdatabase (see Definitions), but wecould have used the state’s gross stateproduct and employment data.
Base contribution measuresdepend on the interrelationshipsbetween exports from one sectorand the other supporting or indirectsectors in an economy needed toproduce exports. Some sectors existprimarily to support other sectors soare called indirect sectors.
“The grossemployment ofIdaho agricultureis about 56,000full- and part-timeworkers or 6%of the state’semployment.”
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
500,000
TIO Jobs 55,678 440,409 0 15,764 123,560 0 19,129 83,640 136,560 27,676 902,417Base Jobs 156,559 149,340 134,827 114,793 101,956 96,352 64,744 40,037 22,556 21,252 902,417 TIO Percent 6% 49% 0% 2% 14% 0% 2% 9% 15% 3% 100%Base Percent 17% 17% 15% 13% 11% 11% 7% 4% 2% 2% 100%
Agri culture
Tech manuf
Capital investService House
holdsForest / Mines
Govt service
Const / U�lity
Other manuf
R/W Trade
Total
Empl
oym
ent
Figure 6: EMPLOYMENT/JOBS—Gross and base measures of employment by sector in Idahoin 2006 show agriculture leading for base jobs (156,559), while service provided 440,409 TotalIndustry Output jobs. Figures include part-time and full-time jobs. Source: IMPLAN
0
5
10
15
Gross Wages 1,240 1,478 11,305 0 5,976 0 738 2,453 1,163 3,843 28,196
Base Wages 4,216 4,200 4,157 4,116 4,013 2,872 2,046 1,201 710 666 28,196
Gross Percent 4% 5% 40% 0% 21% 0% 3% 9% 4% 14% 100%
Base Percent 15% 15% 15% 15% 14% 10% 7% 4% 3% 2% 100%
Agri culture
Tech manuf
Capital investService House
holdsForest / Mines
Govt service
Const / U�lity
Other manuf
R/W Trade
Total
($ b
illio
ns)
Figure 5: WAGES/SALARIES—For Idaho wages and salaries paid by sector in 2006, agricul-ture edges out all other sectors for base wages at $4.2 billion; service at $11.3 billion leadsfor gross wages. Source: IMPLAN
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UNIVERSITY OF IDAHO EXTENSION 9
Other sectors are primarilyexporting sectors whose output, inpart, forms the export base of thestate’s economy. It is assumed thatfinal demand, of which exports is themajor component, drives an economy.Exports help by bringing new moneyinto an economy. Other componentsof final demand besides exportsinclude household consumption,investment, and government spending.
For example, assume an elementaleconomy comprised of two industriesof equal size in terms of grossmeasures. Each industry is half theeconomy whether measured by grossemployment, output, or value added.The first industry only producesoutput for export in this simpleeconomy. The second industry onlyproduces output to support theproduction of exports from the firstindustry.
This example of a simple economyillustrates that the gross contributionof each industry is 50% of the economy.
Gross contribution is the sum ofexports and domestic output. Eachonly produces one or the other, andoutput is of equal magnitude.
However, the base contributionof the first industry is 100% and thebase contribution of the second
industry is 0%.
Base contribution measures theexport and indirect contribution of anindustry or sector. Industry one has allthe exports and calls forth all theoutput of industry two. Without thepresence of the first industry, therewould be no demand for the outputof the second industry. Basecontribution, whether measured asoutput, value added, wages paid, oremployment, is attributed entirely tothe first industry.
To assess the contribution of
agriculture, we analyze agriculture’sbase contribution both in terms ofexports and indirect contributions ofother sectors needed to produceagricultural exports. Besides agri-culture’s exports, the agricultural sectoralso contributes in a service or indirectrole by providing goods and service toother businesses within Idaho.
Gross contribution of agriculture
is the sum of export and domesticproduction.
Base contribution of agriculture isthe sum of export production inagriculture and indirect production inother sectors needed to produceagricultural exports. The gross andbase contribution of agriculture will
differ if agriculture’s domesticproduction needed by other sectors ismore or less than the indirectproduction from other sectors neededby agriculture to meet its exportdemand.
Base export multiplier reveals howthe exports from a single industrycreate demand for all the otherindustries in a regional economy. ASocial Accounting Matrix (SAM)model was constructed to measurethe base export multiplier effect. TheIdaho SAM model accounts for outputand purchases among Idahoindustries in 2006. The data sourcewas the 2006 IMPLAN database.
A SAM model of the Idahoeconomy includes an agriculturalsector that buys goods and servicesfrom other Idaho businesses, the restof the U.S., and abroad. It includesother sectors that buy and sell goodsand services from each other and theagricultural sector. Numerous roundsof inter-industry transactions occur.
Agricultural transactions create amultiplier effect; agricultural exportsgenerate or induce changes in theoutputs of many other industries inIdaho’s economy. Therefore, totaleconomic activity or output increasesby a multiple of the export demand.
photo © Ludm
yla Kashtalian/dream
stime.com
THE CONTRIBUTION OF AGRICULTURE TO IDAHO’S ECONOMY: 200610
APPENDIX IITerms & Definitions
Agriculture: The production and processing of crops andlivestock.
Base contribution (output) of agriculture: It measures theeconomic activity across all sectors that agriculture involves as itcreates agricultural products for export. The base output ofagriculture or any other sector is the sum of its exports and theassociated indirect stimulation of the output of other sectors inthe process.
Direct effect: Economic activity that is generated by the exportsof any of Idaho’s 10 industrial sectors.
Economic base theory: It maintains that exports of one sectorof an economy bring about additional economic activity in othersectors. The export revenue from one sector is responsible forstimulating a certain portion of the output and jobs in othersectors as well. Analysis of these relationships is accomplishedthrough an economic based SAM model.
Exports: Sales of goods and services outside of Idaho—bothdomestic and international sales.
Gross contribution (output) of agriculture: Jobs, output, wages,and value added generated as Idaho agriculture meets bothdomestic and foreign demands. The gross output contribution ofagriculture, or of any other sector, is the sum of exports and thedomestic output needed by other sectors in their exportproduction.
Gross state product (GSP): GSP is the sum of value added acrossall sectors of the economy. Also see value added definition.
IMPLAN database: IMPLAN (IMpact analysis for PLANning) can beused to measure the effect on a regional or local economy of agiven change or event in the economy's activity. It also allows usersto build economic models estimating effects of a proposed changein a specific economic region. The IMPLAN database containscounty, state, zip code, and federal economic statistics, which arespecialized by region, not estimated from national averages. Usingclassic input-output analysis in combination with regionalspecific Social Accounting Matrices and Multiplier Models, IMPLANprovides a highly accurate and adaptable model for its users.
Indirect effects: These are generated by industries purchasinginputs from other local businesses that support the sales ofexports. For example, the indirect effect from Idaho agriculturegenerates dollars that ripple throughout the state’s economy tocreate additional jobs, sales, and value added in other Idahobusinesses
Induced effects: These are generated by industries paying wagesto employees who are involved in export activities. The wages arethen used to purchase goods and services from other localbusinesses.
Input: An item that is used by a sector to produce its output. Anoutput from one sector may be used as an input in another. Forexample, corn is an output from crop production but is an input(as animal feed) into livestock.
Jobs: Full- and part-time employment as specified by the U.S.Department of Commerce.
Manufacturing—Technology manufacturing: One of Idaho’s10 standard industrial sectors involving the manufacture ofelectronic products—i.e. DRAM, communication equipment, etc.
Manufacturing—Other manufacturing: One of Idaho’s 10standard industrial sectors involving a large catchall category thatincludes every business that makes goods other than processedagricultural and forest goods or high tech products.
Multiplier effect: The multiplier effect refers to the idea that aninitial spending rise can lead to an even greater increase inregional or national income.
For example: a company spends $1 million to build a factory. Themoney does not disappear, but rather becomes wages to builders,revenue to suppliers, etc. The builders will have higher disposableincome as a result, so consumption—aggregate demand—will riseas well. If all of these workers combined spend a total $2 milliondollars, the multiplier is 2 because there was an initial $1 millioninput, which created a $2 million output.
Output or sales: The gross sales of businesses. When a businesssells a product to itself (a farmer feeding home grown hay to herown cattle), this is recorded as output or sales even though theproduct was not traded in a market. The output or sales of theretail and wholesale trade sectors are margined, meaning thatonly the markup or margin is recorded as sales of the retail andwholesale sector.
SAM model: A Social Accounting Matrix (SAM) model is anumerical scheme of the circular flow that can be used todetermine changes in the impact of economic agents. The IdahoSAM model accounts for output and purchases among 10 Idahoindustry sectors in 2006. Data source was Idaho’s 2006 IMPLANdatabase. A SAM model of the Idaho economy includes anagricultural sector that buys goods and services from other Idahobusinesses, the rest of the U.S., and abroad. And it includes othersectors that buy and sell goods and services from each other andthe agricultural sector.
Value added (VA): The total of: (1) wages and salaries; (2)proprietor’s income; (3) indirect business taxes; and (4) dividends,interest, and rents. The sum of VA across all sectors of theeconomy equals the gross state product (GSP).
Wages: Wages and salaries paid are the paychecks of full- andpart-time workers in Idaho businesses.
UNIVERSITY OF IDAHO EXTENSION 11
REFERENCES
Bureau of Economic Analysis,U.S. Department of Commerce,Washington, D.C.
Eborn, B., Paul Patterson, G. Taylor.The Financial Condition of IdahoAgriculture: 2007. Farm Financial Seriesnumber 5, Jan 2008. University of Idaho,Moscow, Idaho.
U.S. Department of Agriculture (2004).National Agricultural Statistics Service(USDA-NASS). 2002 Census ofAgriculture. Washington, D.C.
Minnesota IMPLAN Group. IMPLANProfessional User’s Guide. MinnesotaIMPLAN Group, Inc. Stillwater, MN.April 1999.
Waters, E., D. Holland, and B. Weber(1999). “The role of agriculture inOregon’s economic base: Findings froma social accounting matrix.” Journal ofAgricultural and Resource Economics24(1): 266-280.
photo © D
enise Fortado/dreamstim
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ABOUT THE AUTHORS
PHILIP WATSON is a University of IdahoAssistant Professor of Regional Economics andBioregional Planning; GARTH TAYLOR is anAssociate Professor of Agricultural Economicsfor UI Extension; STEPHEN COOKE is anAssociate Professor of Agricultural Economics.All three are in the UI College of Agriculturaland Life Sciences, Department of AgriculturalEconomics & Rural Sociology and are locatedon the Moscow campus.
Issued in furtherance of cooperative extension work in agriculture and home economics, Acts of May 8 and June 30, 1914, in cooperation with the U.S. Department ofAgriculture, Charlotte V. Eberlein, Director of University of Idaho Extension, University of Idaho, Moscow, Idaho 83844. The University of Idaho provides equal opportunityin education and employment on the basis of race, color, national origin, religion, sex, sexual orientation, age, disability, or status as a disabled veteran or Vietnam-eraveteran, as required by state and federal laws.
December 2008 © University of Idaho Free
