Contribution of Agriculture to Oklahoma s Economy: 2015

Transcription

1 Contribution of Agriculture to Oklahoma s Economy: 2015 E-1046 Department of Agricultural Economics Division of Agricultural Sciences and Natural Resources Oklahoma State University

2 Dave Shideler, Ph.D. Associate Professor and Extension Economist Acknowledgments Thanks to the Oklahoma Agricultural Experiment Station and Oklahoma Cooperative Extension Service for funding this initiative. Appreciation is also extended to the University of Arkansas Division of Agriculture for sharing their methodology, format and experiences during the generation of this report. Lastly, thanks to colleagues at Oklahoma State University for reviewing the completed document and providing thoughtful suggestions.

3 Contents Executive Summary...ii Definitions...iii Section 1: Introduction... 1 Section 2: Oklahoma Agriculture... 4 Section 3: Contribution Analysis Methodology... 9 Section 4: Contribution Analysis Results Section 5: Conclusions and Policy Considerations Appendix A: Industry Definitions and IMPLAN/NAICS Bridge Appendix B: Sector Specific Contribution Analysis (sorted by total value-added, a measure of economic activity) Data Sources and References List of Figures Figure 1. Number of Farms by County, Figure 2. Farm Employment as a Percentage of Total Employment by County, Figure 3. Oklahoma Industries as a Percentage of Total State Employment, Figure 4. Agricultural Components as a Percentage of A State s Economy for Selected States, Figure 5. Agriculture s Level of Contribution to Economic Activity, Figure 6. Agriculture as a Percentage of Oklahoma s Economy, Figure 7. Agriculture Components Level of Contribution to Oklahoma s Economy, Figure 8. Value of Exports as a Percentage of Total Exports, Figure 9. Crop Production Measured as Cash Receipts, Figure 10. Distribution of Crops Production, Figure 11. Livestock Production Measured as Cash Receipts Figure 12. Distribution of Livestock Production, Figure 13. Distribution of Agricultural Processing, Figure 14. Food, Beverage and Tobacco Product Manufacturing Contribution to the Economy, Figure 15. Paper Products Manufacturing Contribution to the Economy, Figure 16. Wood Products Manufacturing Contribution to the Economy, Figure 17. Apparel, Leather and Allied Products Manufacturing Contribution to the Economy, Figure 18. Furniture and Related Product Manufacturing Contribution to the Economy, Figure 19. Textile and Textile Products Manufacturing Contribution to the Economy, List of Tables Table 1. Oklahoma Ranking in Selected Farm Characteristics... 2 Table 2. Peak Production Years and Amounts for Selected Commodities... 5 Table 3. Top Five Export Countries for Oklahoma Agriculture and the Amount Exported, Table 4. Agriculture s Contribution to Oklahoma s Economy, Table 5. Contribution of Agricultural Sectors to Agricultural Production, Table 6. Contribution of Agricultural Sectors to Agricultural Processing, Table 7. Employment Generated by Agriculture by NAICS^, Table 8. Output Generated by Agriculture, 2015^ for the Top Five NAICS Industries * Table 9. Economic Activity Generated by Agriculture, 2015^ for the Top Five NAICS Industries * Table 10. Crop Sector s Direct Contribution to Oklahoma s Economy, Table 11. Top Crop Production Sectors (by Output) Table 12. Livestock Sector s Direct Contribution to Oklahoma s Economy, Table 13. Top Livestock Production Sectors (by Output) Table 14. Forestry Sector s Direct Contribution to Oklahoma s Economy, i

4 Executive Summary Oklahoma agriculture is a significant part of the state s economy. Oklahoma is known for its wheat and cattle production (being the third largest producing state in the U.S. for winter wheat and the second largest producing state in the U.S. for beef cattle). Farmers and ranchers also produce corn, soybeans, rye, sorghum, cotton, peanuts, hay, various fruits and vegetables, nursery and floriculture products, forestry products, hogs, chickens, sheep and goats, among other commodities. The processing of these commodities makes additional contributions to Oklahoma s economy creating jobs and income for the state. In 2015, Oklahoma agriculture, defined as the production and processing of commodities in addition to agriculture-related services, directly contributed 175,658 jobs and over $6.7 billion of economic value added to the state s economy. Because agriculture is linked to other industries in the state through supply chains, an additional 27,001 jobs and $2.7 billion of economic activity can be attributed to this sector. These jobs and output encompass such activities as wholesale purchases, transportation services, financial services and other inputs. Lastly, household consumption (e.g., purchasing groceries, clothing and personal services like haircuts or car maintenance) from income derived from agricultural activities generates another 118,795 jobs and $8.8 billion in economic activity. The total contribution of Oklahoma agriculture to the state s economy is 321,454 jobs and over $18.2 billion in economic activity, suggesting that 1 in 8 jobs in Oklahoma s economy is related to agriculture. The direct contribution of Oklahoma agriculture can be further disaggregated by type of agriculture (crop, livestock or forestry) and activity (production or processing). Crop production provides 22,608 jobs and almost $0.9 billion of economic activity; livestock production generates 116,966 jobs and over $2.9 billion in economic activity; and forestry production creates 1,147 jobs and $59 million in economic activity. Agriculture-related services generate 4,627 jobs and over $205 million in economic activity. Crop processing contributes 11,994 jobs and $994 million of economic activity; livestock processing accounts for 11,157 jobs and almost $880 million of economic activity; and forestry processing provides 7,160 jobs and $892 million in economic activity. Agriculture is an important part of Oklahoma s economy, but it is also valuable to Oklahoma s future. Agriculture, which uses 76 percent of the state s land area, is a steward of Oklahoma s natural resources. It enhances the quality of life to its residents and provides stable supplies of food that are affordable and safe to its citizens, the U.S. and the world. Definition of Agriculture Used ii

5 Definitions Industry References: Agriculture: this term is used throughout the report to reference the entire agricultural sector, which includes agricultural production, processing and agriculture-related services; from Appendix A. Agriculture includes IMPLAN sectors 1-19, , , 373 and 374. (The corresponding NAICS sectors can be identified from Appendix A, also.) Agriculture-related services: businesses classified in this category provide nearly all of their goods and services exclusively to commodity producers and/or processors; IMPLAN sectors are included. Crops: only those sectors in agriculture that produce or process plant-based products are included, with the exception of those items included under forestry ; from Appendix A, crop sectors include IMPLAN sectors 1-10, and Forestry: only those sectors in agriculture that involve tree planting, harvesting or processing are included; from Appendix A, forestry sectors include IMPLAN sectors 15-16, , , 373 and 374. Livestock: only those sectors in agriculture that produce or process animal-based products are included; from Appendix A, livestock sectors include IMPLAN sectors 11-14, 65-66, and Processing: refers to the transformation of raw commodities into other, more useable goods; from Appendix A, this includes IMPLAN sectors , , 373 and 374. Production: refers to the creation of raw, agricultural commodities; from Appendix A, IM- PLAN sectors 1-16 are producing sectors. Analysis Terminology: Direct contribution: those jobs, output and value-added items provided to the economy by agriculture sectors only. Indirect contribution: those jobs, output and value-added items provided to the economy due to input purchases by agriculture sectors. Induced contribution: those jobs, output and value-added items provided to the economy from household consumption due to income generated by jobs in the direct and indirect contributions. Measures: Chained or Constant Dollar: values have been adjusted to account for changes in price levels so that they more accurately reflect changes in production; the Bureau of Economic Analysis uses a technique called chaining to adjust values to a common level of prices, and their values are used in this report. Chained 2009 dollars are used as the base year of prices in the BEA data series. Current Dollar: values are stated in the value of the year reported (i.e., they are not adjusted for price level changes). Economic Activity: conceptually similar to value-added, but it is measured as the difference between market value of output and the sum of non-labor input costs; also known as gross state product, or gross domestic product by state (as used by the Bureau of Economic Analysis). Employment: total number of jobs, regardless of full- or part-time status; this includes wage and salary employment as well as self-employment. Output: the total market value for goods or services in a given industry; this is computed by multiplying the retail or market price by the level of output in the industry. Value-added: a measurement of the enhancement that a producer or processor makes to a commodity; it is calculated as the sum of wages and salaries, proprietor income, payments to capital (such as dividends, retained earnings) and business taxes. iii

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7 Section 1: Introduction Oklahoma has a long heritage in agricultural production and processing. While widely known for cattle and wheat, agricultural commodities produced in Oklahoma are as diverse as its landscape. Other production crops include cotton, hay, soybeans, peanuts, watermelons, peaches, berries, pecans and nursery products. Additional livestock produced in Oklahoma include hogs, sheep, goats, chickens and fish. This report aims to document the contribution agriculture makes to the Oklahoma economy. It will summarize the size of agriculture relative to other industries within the state and it will compare the agriculture sector to neighboring states and the U.S. as a whole. The report will also show how agriculture is connected to other industries within Oklahoma through its purchase of inputs and the household consumption of those who work in agriculture. There are, however, additional contributions made by the agricultural sector that are more difficult to quantify, but are nevertheless important. Oklahoma farmers and ranchers are stewards of our land and natural resources. Often, farmers, ranchers and other landowners are the first to implement conservation practices that preserve and protect our abundant natural resources. Rural Oklahoma is home to the outdoor playground for all Oklahomans. Agriculture and forestry industries provide food, fiber and housing resources for Oklahomans, the nation and the world. Agricultural products are used in emerging industries to produce alternative fuels and medical inputs. Agriculture performs a service role that ties rural and urban populations leading to a higher quality of life. Farmers markets and local producers provide fresh food for urban residents. Landscape designs and nursery services enhance visual appeal and quality of life. While these are important and meaningful contributions of agriculture, they are not easily measured in economic terms, so they are considered to be beyond the scope of this report. For purposes of this report, agriculture will be defined as those sectors that directly produce a commodity (either crop, forestry product or livestock), process commodities (value-added processing) or provide services nearly exclusively to farm owners and/or operators (e.g., soil testing or animal breeding services). In Appendix A, industrial sectors classified as agriculture for this study are labeled. In 2015, Oklahoma was home to 78,000 farms, which occupied 34.2 million acres (76 percent of the state s land area; USDA NASS, 2012) across the state; see Table 1. Figure 1 shows the distribution of farms by county in the state. Figure 2 shows the percentage of employment from farming in each county; it is worth noting that farming accounts for at least 1 in 8 jobs in 31 counties. The total agricultural production (i.e., crops, forestry and livestock) output was $7.03 billion, employed 140,721 people and generated over $3.764 billion in economic activity. Agricultural processing activities contribute an additional $ billion in output, 30,310 jobs, and $2.766 billion in economic activity. Agriculture-related services add $265 million in output, 4,627 jobs and $205 million in economic activity. Combined, agriculture generates $ billion in output, employs 175,658 people and generates $6.735 billion in economic activity. These values represent the direct contribution of agriculture to Oklahoma s economy. They do not, however, include the purchases of suppliers necessary to generate this level of output, nor does it reflect household consumption of those employed by agriculture. These represent additional economic activity that would not occur if agriculture did not exist in Oklahoma. These additional impacts are reported in Section 3. The analysis presented in this report focuses on agricultural production and processing activities in 2015 only. The levels of these activities are subject to a number of factors such as climate or world market equilibria. These data also should be compared with a time-series of data to present the fullest picture of agriculture s performance. Time-series analysis, however, is beyond the scope of this report. The remainder of this report is organized as follows. The next section provides a more detailed look at agriculture in OK, including rankings, trends and comparisons to neighboring states and the U.S. as a whole. Section 3 describes the methodology used to compute the direct, indirect, induced and total contribution of agriculture and Section 4 presents the results of that analysis. Section 5 concludes the report by summarizing the results and explaining their relevance for policy. 1

8 Table 1. Oklahoma ranking in selected farm characteristics. Item Rank Unit Total Percent of U.S. Total General Farm Numbers 4 Number 78, Land in Farms 8 Number 34,200, Crops All Hay 6 Tons 5,914, Alfalfa Hay 27 Tons 594, All Other Hay 3 Tons 5,320, All Wheat 7 Bushels 98,800, Winter Wheat 3 Bushels 98,800, Canola 2 Bushels 131,100, Corn, Grain 26 Bushels 36,120, Corn, Silage 37 Tons 255, Cotton 9 Bales 374, Cottonseed 9 Tons 121, Oats 29 Bushels 273, Peanuts 9 Pounds 31,500, Pecans 5 Pounds 13,000, Rye 1 Bushels 1,920, Sorghum, Grain 6 Bushels 21,320, Sorghum, Silage 7 Tons 180, Soybeans 25 Bushels 11,625, Sunflower 9 Pounds 6,600, Watermelons 12 Hundredweight 540, Livestock All Cattle and Calves 1 5 Head 4,850, All Cows 1 4 Head 1,990, Beef Cows 1 2 Head 1,953, Milk Cows 1 31 Head 37, Cattle on Feed 1 9 Head 280, Calf Crop 3 Head 1,770, Hogs 2 9 Head 2,110, Red Meat Production 13 Pounds 1,198,700, All Chickens Head 4,139, Broiler Production 13 Pounds 217,000, Eggs 29 Number 702,000, Sheep and Lambs 1 30 Head 46, Wool Production 30 Pounds 95, Cattle Operations 4 3 Number 51, Beef Cow Operations 4 3 Number 44, Milk Cow Operations 4 20 Number Hog Operations 4 12 Number 1, Sheep Operations 4 18 Number 1, Inventory on hand January 1, Inventory on hand December 1, Excludes commercial broilers data. Beginning in 2008, data is no longer published on a yearly basis, but will be published every five years in conjunction with the Census of Agriculture. Source: U.S. Department of Agriculture, NASS, Oklahoma Agricultural Statistics,

9 Figure 1. Number of farms by county, Source: USDA National Agricultural Statistics Service, Census of Agriculture, Figure 2. Farm employment as a percentage of total employment by county, Source: U.S. Dept. of Commerce, Bureau of Economic Analysis, Regional Economic Information System. 3

10 Section 2: Oklahoma Agriculture Oklahoma agriculture, combining agricultural production, processing and related services, represents a significant component of the state s diverse economy. Oklahoma agriculture directly contributed about 6 percent of Oklahoma s employment in As shown in Figure 3, agriculture contributed a larger share of employment than Transportation and Utilities and Non-agricultural Manufacturing; it is similar in size to Construction, Mining and Other Services. These values are based on 2015 data from the U.S. Department of Commerce, Bureau of Economic Analysis (BEA) Regional Economic Accounts. Figure 4 compares the economic activity for the three components of agriculture between Oklahoma, its neighboring states and the U.S. in Agricultural processing represents the majority of agricultural activity in Oklahoma, almost 1.5 percent, while agricultural production comprises 1.3 percent and agriculture-related services (which includes forestry, fishing and hunting and agricultural support services) adds another 0.1 percent of economic activity. Oklahoma s agricultural production sector represents a larger percentage of economic activity than in each of the following regions: Texas, Missouri, Colorado or the U.S. Comparing agriculture related services, Oklahoma s share of economic activity is roughly similar to Texas, Missouri and Colorado. As a share of economic activity, Oklahoma s agricultural processing sector is larger than in Texas. Figure 4. Agricultural components as a percentage of a state s economy for selected states, Source: U.S. Department of Commerce, Bureau of Economic Analysis, Regional Economic Accounts. Oklahoma has seen an increase in the agriculture sector over the last decade. As seen in Figure 5, total agricultural production rose from $3.8 billion in 2000 to just over $6 billion in The variation between 2005 and 2010 largely reflects weather and world price influences on agriculture. While agriculture has grown, it has not grown as fast as the Oklahoma economy as a whole. Figure 6 presents agriculture s share of economic activity between 2000 and 2015 and one can see that its share has fallen from a high of 3.9 percent in 2003 and 2005 to 2.9 percent in (It should be noted that the lowest share of the economy was realized in 2014 at 2.7 percent.) Taking a more detailed look at commodity production, Table 1 contains those agricultural commodities for which Oklahoma ranks in the highest 25 states by production in Of particular interest is that Oklahoma ranked first in rye production, second nationally for canola and beef cows, third in all other hay and winter wheat production and Figure 3. Oklahoma industries as a percentage of total state employment, Source: U.S. Dept. of Commerce, Bureau of Economic Analysis, Regional Economic Accounts. 4 Figure 5. Agriculture s level of contribution to economic activity, (in millions). Source: U.S. Dept. of Commerce, Bureau of Economic Analysis, Regional Economic Accounts. Constant dollars computed as chained 2009 dollars.

11 Figure 6. Agriculture as a percentage of Oklahoma s economy, Source: Computed from U.S. Dept. of Commerce, Bureau of Economic Analysis, Regional Economic Accounts. Constant dollars computed as chained 2009 dollars. calf crop size and fourth for all cows production. Oklahoma was the fifth largest producer of pecans and all cattle and calves. It ranked sixth in all hay and grain sorghum production; seventh in all wheat and silage sorghum production and ninth in hogs, cattle on feed, cotton, cottonseed, peanuts and sunflower production. Table 2 presents the peak production levels for select crops and livestock in Oklahoma. Processing activity in Oklahoma has been declining since 2006, but production has grown, particularly since Figure 7 shows the values of production for agricultural production and processing since Note that the volatility mentioned earlier is associated with the agricultural production component of the sector, as reflected in the steeper rises and falls in this curve. Again, this volatility stems largely from fluctuations in the price of commodities on the world market. Overall, agriculture-related services has grown since Figure 7. Agriculture components level of contribution to Oklahoma s economy, (in millions). Source: U.S. Dept. of Commerce, Bureau of Economic Analysis, Regional Economic Accounts. Constant dollars computed as chained 2009 dollars. Agriculture is also a significant source of exports for Oklahoma, accounting for nearly $1 of every $10 of the value of exports. Figure 8 illustrates that agricultural processing represents 7 percent of the value of exports, while agricultural production accounts for 2.4 percent of the value of exports. Table 3 lists the five countries that purchase the largest amount of Oklahoma s agricultural exports. Figures 9 through 12 disaggregate agricultural production into crop and livestock components. Figure 9 shows that crop production has increased by 10.6 percent since 2000 in constant dollars, suggesting an increase in quantity produced. Figure 10 illustrates the relative significance of the various crops grown in Oklahoma, as a percentage of total crop production. Food grains (including wheat) dominates the crop production sector, accounting for 35 percent of total crop production in Figure 11 shows the change in livestock production since The value of livestock production Table 2. Peak production years and amounts for selected commodities. Year Production Units All Cattle and Calves ,500,000 head All Hogs and Pigs ,480,000 head All Sheep and Lambs ,000 head Chicken (excluding broilers) ,740,000 head Corn ,010,000 bushels Cotton ,773,000 bales Hay ,858,000 tons Milk Cows ,000 head Peanuts ,600,000 pounds Sorghum ,910,000 bushels Soybeans ,090,000 bushels Watermelon ,000 hundredweight Wheat ,700,000 bushels Source: U.S. Department of Agriculture, NASS, Oklahoma Agricultural Statistics,

12 Table 3. Top five export countries for Oklahoma agriculture and the amount exported, Country Value of Ag Exports Japan $125,021,027 Mexico $99,068,473 Canada $77,002,564 South Korea $18,708,411 China $16,191,474 Source: Compiled from U.S. Department of Commerce, International Trade Administration, TradeStats Express: Global Patterns of a State s Exports. Figure 9. Crop production measured as cash receipts, Source: U.S. Department of Agriculture, Economic Research Service, Cash Receipts Constant dollars computed as chained 2009 dollars. Figure 10. Distribution of crop production, Source: U.S. Department of Agriculture, Economic Research Service, Cash Receipts Figure 8. Value of exports as a percentage of total exports, Source: Compiled from U.S. Department of Commerce, International Trade Administration, TradeStats Express: Export Product Profile to a Selected Market. Figure 11. Livestock production measured as cash receipts Source: U.S. Department of Agriculture, Economic Research Service, Cash Receipts Constant dollars computed as chained 2009 dollars. 6

13 in constant dollars has fluctuated the last several years, but grew by 26.7 percent since One can see the relative significance of the major types of livestock produced in Oklahoma in Figure 12; not surprisingly, cattle and calves represents two-thirds of total livestock production, followed by poultry and eggs (16 percent) and hog (15 percent) production. The following set of graphs provides detail regarding the agricultural processing sector. Figure 13 illustrates the distribution of processing sectors by contribution to Oklahoma s economy in One can see that food, beverage and tobacco product manufacturing is responsible for almost 60 percent of economic activity for agricultural processing. Paper, apparel and wood product manufacturing represent other significant components of agricultural processing. All components of agricultural processing, except for food, beverage and tobacco products; apparel, leather and allied products; and furniture and related products, have experienced growth since 2000 in constant dollars. By controlling for fluctuating prices, constant dollars allow one to see trends in the change in the volume of production. These trends are illustrated in Figures 14 through 19 for food, beverage and Figure 12. Distribution of livestock production, Source: U.S. Department of Agriculture, Economic Research Service, Cash Receipts Figure 13. Distribution of agricultural processing, Source: U.S. Dept. of Commerce, Bureau of Economic Analysis, Regional Economic Accounts. tobacco product manufacturing; paper products manufacturing; wood products manufacturing; apparel, leather and allied products manufacturing; furniture and related products manufacturing; and textile mills and textile products manufacturing, respectively. In real terms (i.e., constant dollars), paper products manufacturing has been the fastest-growing segment of agricultural processing, growing at a rate of 23.2 percent between 2000 and Textile mills and textile products had the second-fastest growth at 18.9 percent, followed by wood product manufacturing, which grew at 5.2 percent during this same period. The remaining processing sectors declined as follows: food, beverage and tobacco products declined by 11.9 percent; apparel, leather and allied products declined by 67.6 percent; and furniture and related products declined by 15.7 percent. From this overview of agriculture in Oklahoma, one recognizes that this sector is a significant component to the state s economy. Growth in this sector has predominantly come from agricultural production, though some growth has occurred in processing. In the following sections, more details regarding the employment and output associated with various components of agriculture are explored. 7

14 Figure 14. Food, beverage and tobacco product manufacturing contribution to the economy, (in millions). Source: U.S. Dept. of Commerce, Bureau of Economic Analysis, Regional Economic Accounts. Constant dollars computed as chained 2009 dollars. Figure 17. Apparel, leather and allied products manufacturing contribution to the economy, (in millions). Source: U.S. Dept. of Commerce, Bureau of Economic Analysis, Regional Economic Accounts. Constant dollars computed as chained 2009 dollars. Figure 15. Paper products manufacturing contribution to the economy, (in millions). Source: U.S. Dept. of Commerce, Bureau of Economic Analysis, Regional Economic Accounts. Constant dollars computed as chained 2009 dollars. Figure 18. Furniture and related product manufacturing contribution to the economy, (in millions). Source: U.S. Dept. of Commerce, Bureau of Economic Analysis, Regional Economic Accounts. Constant dollars computed as chained 2009 dollars. Figure 16. Wood products manufacturing contribution to the economy, (in millions). Source: U.S. Dept. of Commerce, Bureau of Economic Analysis, Regional Economic Accounts. Constant dollars computed as chained 2009 dollars. Figure 19. Textile and textile products manufacturing contribution to the economy, (in millions). Source: U.S. Dept. of Commerce, Bureau of Economic Analysis, Regional Economic Accounts. Constant dollars computed as chained 2009 dollars. 8

15 Section 3: Contribution Analysis Methodology The previous section described in detail Oklahoma s agriculture sector. This section describes how contribution analysis is performed and what information the analysis provides. Section 4 contains the results of the analysis. Contribution analysis identifies the employment, output and economic activity associated with a specific industry. Value-added is the measure of the change in a product s value as it is transformed from its raw state to a final, consumable product. At the state and national level, value-added is measured as gross state or domestic product, respectively. These standard measures of economic activity represent the value of actual production in a location. Alternatively, value-added can be computed by adding the wages, proprietor income, property income (i.e., payments to capital such as profits) and business taxes. By definition, value-added will be less than output. This report uses the concepts of output as a measure of gross production occurring in Oklahoma, and the phrase economic activity is used to refer to value-added. Contribution analysis recognizes supply linkages exist between a specific industry (for this report, agriculture) and other industries. Tables that trace the purchases of one industry from all others, known as input-output matrices, are used to account for all the supply purchases that occur in a geographic region. Data and software from the IMPLAN Group, LLC are used to assist with tracing these inter-industry linkages across 536 industrial sectors. The direct contribution is the level of activity generated directly by agriculture. For example, the direct contribution of agriculture is the market value of commodity production, or output from commodity sectors; this captures both the value-added and input purchases used in commodity production. The production caused by the supply linkages of agriculture is called the indirect contribution. An indirect contribution from agriculture would be the output of steel needed to meet agriculture s demand for tractors and implements. The IMPLAN software also allows for the estimation of household consumption generated from employment and proprietor income associated with the industry under analysis. This is called the induced contribution. Induced jobs and outcome are primarily in retail trade and health care services. The sum of direct, indirect and induced contributions of agriculture is the total contribution, and it captures all economic activity that would not occur in Oklahoma if the industry did not exist. Contribution analysis begins with establishing a baseline of actual production within the industry and region under analysis. This baseline serves two purposes. First, it is used to calibrate the IMPLAN data to reflect actual production in Oklahoma 9 in 2015 (the most recent year of available data). Second, the baseline data also determines the amount of the direct contribution of agriculture to the Oklahoma economy. To construct the baseline data, value of production data from U.S. Department of Agriculture, National Agricultural Statistics Service, or NASS, is used. Data for most of the crops grown in Oklahoma are reported in NASS publications. Data for those crops not reported on by NASS come from U.S. Department of Agriculture, Economic Research Service s, or ERS, Cash Receipts data. Because similar data are not available for the manufacturing, forestry and agriculture-related services sectors that process agricultural products, the baseline values for agricultural processing sectors use the default IMPLAN values. Once the baseline values are determined, the IMPLAN data is calibrated. The regional data were edited to match total output for each agricultural sector with the output reported by NASS or ERS. Value-added components also is edited to reflect the edited output levels. Since NASS and ERS do not report employment by agricultural product, the researchers used the IMPLAN employment levels as their baseline employment data. With the baseline data set and the direct contribution of agriculture determined, the IM- PLAN model is further modified to ensure that any demand for agriculture products are received from outside of Oklahoma. This modification ensures the analysis does not satisfy demand for agricultural products by other industries, therefore increasing the potential multiplier effect of an impact. Another modification requires the elimination of by-products from all sectors under scrutiny. By-products are secondary goods produced during the production of other goods. In agriculture, an example is poultry litter used as fertilizer. Poultry litter redistribution is not included in this analysis because it is a by-product. If no poultry existed in Oklahoma, then the users of poultry litter as fertilizer would have to import poultry litter or use another form of fertilizer. Excluding by-products from agricultural production and processing sectors forces the model to count any demand for these goods and services as imported into Oklahoma. Again, this is a method to control demand for agricultural products that are not directly counted as commodities, which in turn, could stimulate additional output by supplier industries and inflate the indirect impact of the model. A second important modification made to the IMPLAN model is worth documenting here. The local purchasing coefficient, or LPC, for each IMPLAN sector categorized as agriculture is forced to equal zero. Remember, the goal of a contribution analysis is to estimate how much of the local econ-

16 omy would be lost if a given industry did not exist. Setting the LPC equal to zero is how the software prevents local purchases of that industry s products. Therefore, no agriculture jobs can be created (or output generated) due to indirect or induced demand by non-agriculture sectors. Because of the complexity of tracing the inter-industry linkages, IMPLAN is not able to report the indirect and induced contributions that accrue to each sector included in our definition of agriculture. As a result, indirect and induced contributions will only be reported for the aggregated sector; however, direct contributions of employment, output and economic activity will be disaggregated in the following ways: crops, livestock, forestry, agriculture related services, production and processing. Appendix B contains the sector specific results of the contribution analysis for all sectors affected. Contribution analysis has its limitations and imperfections. First, the IMPLAN model is not constrained by land, water or other natural resources and labor, so the model assumes resources are available to produce whatever the model estimates regarding production increases. Thus, IMPLAN assumes there is available land and water to support expanded agricultural commodity production, if the model estimates such an increase. Secondly, IMPLAN estimates reflect a snapshot in time, so changes to production practices, federal policies, climate or other factors affecting industry production would invalidate the model and require a new model to be constructed to reflect the new situation. Such changes, often occurring over time, add complexity when comparing contribution analyses of two different points in time. Third, while IMPLAN does attempt to customize the underlying data for each county and state, the estimation process begins with the national input-output framework constructed by the Bureau of Economic Analysis; the researcher implementing IMPLAN must be aware of sectors that may deviate significantly from the national production patterns across industries. For example, oil production varies significantly across regions of the U.S. due to the nature of the geology found in each region. Ideally, a researcher would want to modify the default industry structure to reflect local geology, though this data can be difficult to collect and utilize. For the purposes of this report, agricultural commodity production sectors were modified to reflect data from NASS and ERS; however, similar data was not available to modify forestry production or any of the processing sectors. The model used in this analysis assumes that the processes used in Oklahoma are similar to those used elsewhere in the U.S., which is not unreasonable for these particular sectors. While this report documents some of the economic contributions of agriculture, additional research is needed to show the complete value of agriculture to Oklahoma. Because agricultural production uses 76 percent of Oklahoma s land area, farmers and ranchers are the de facto stewards of the state s natural resources. Their use of conservation practices and involvement in clean energy production directly contributes to the quality of life of Oklahoma residents. For example, conservation practices provide wildlife habitat and protect our state s lakes and streams for recreational use, clean water supplies and scenic landscapes. The value to Oklahomans of these services exceed the cost of implementing the conservation practices and/ or the cost of mitigation if the conservation practices had not been utilized. Because these services are not provided through private markets, tools like willingness-to-pay or choice experiments are needed to identify the value of clean lakes for recreation, wildlife habitat for hunting, etc. In summary, contribution analysis estimates the jobs, output and economic activity created by a particular industry in a particular region. This report analyzes the contribution of agriculture, defined to include production, processing and agriculture-related services, to Oklahoma s economy. Using data from NASS, ERS and IMPLAN, the analysis is able to determine the direct contributions from agriculture, indirect contributions that result from supplier linkages and the induced contribution from household consumption resulting from wages and income paid to agriculture workers. The next section presents the results of this analysis. 10

17 Section 4: Contribution Analysis Results Table 4 presents the aggregated results of the contribution analysis. The agriculture industry has been broken into three components: production, processing and agriculture-related services. The definitions of these components are defined in Appendix A. The total contribution of agriculture on Oklahoma s economy was 321,454 jobs, $42.5 billion of output and $18.24 billion in economic activity. Of this amount, 175,658 jobs, $22.13 billion in output and $6.74 billion in economic activity directly resulted from agriculture. Looking at the indirect output stimulated by agriculture, farmers, ranchers and processors bought $27.4 billion worth of output from other Oklahoma businesses, which supported an estimated 202,659 jobs. Agriculture households consumed an additional $15.14 billion of output across all sectors, which provided almost 118,795 jobs for Oklahoma. To put these values in perspective, 13.8 percent of total state employment, 11.4 percent of total state output and 9.8 percent of gross domestic product by state is attributable to Oklahoma s agriculture industry. It is interesting to note that production represents 44 percent of the total employment contribution, but only 16.5 of the total output contribution. Similarly, processing represents less than 10 percent of the total employment contribution but 35 percent of the total output contribution. This reflects the relatively higher labor intensity associated with production over processing. Interestingly, however, these sub-sectors contribute more equal amounts of economic activity; production provides 21 percent of the total contributions to economic activity, while processing contributes 15 percent. From Table 4, the indirect contributions, which stem from supply linkages, represent 8.4 percent of the total employment contribution, 12.3 percent of the total output contribution and 14.8 percent of the economic activity contribution. Induced contributions, the household consumption effects from income earned in agriculture, contribute 37 percent of total employment, 35.6 percent of total output and 48.3 percent of total economic activity. The direct contribution represents roughly half of the employment and output contributions, while it only represents one-third of the economic activity contribution. This suggests that direct contributions of agriculture are more labor-intensive than the indirect and induced contributions. Tables 5 and 6 disaggregate the direct production and processing components across crops, livestock and forestry. Crop production comprises roughly 39 percent of total production direct employment, while livestock production captures almost 59 of this employment. Forestry represents only 2 percent of direct production employment. Considering output, crop production represents 11 about 36 percent of the direct output, whereas livestock production accounts for 62 percent of direct output and forestry accounts for 2.3 percent of direct output. Unlike the trends in total values in Table 4, the relative contribution of crop production is only 36 percent of direct production economic activity and livestock production is only 62 percent of direct economic activity production. Forestry represents 2.5 percent of direct production economic activity. Animal production is clearly the larger component of production in Oklahoma, given it has roughly 50 percent more employment, 70 percent more output over crops and 75 percent more value added than crops. The distribution of direct processing contributions by crops, livestock and forestry are different from the direct production contributions of Table 5, as presented in Table 6. Overall, processing employs about one-half of the people employed in production, but it generates almost three times the value of output and as much economic activity as crop production. These figures reinforce the fact that processing is less labor-intensive and more capital-intensive than production. Processing of crops accounts for roughly one-third of processing s employment, output and economic activity contributions. Livestock represents 37 percent of employment, 42 percent of output, but only 32 percent of economic activity contributions by processing. Forestry comprises 24 percent of the employment, 21 percent of the output and 32 percent of economic activity contributions by processing, a much larger share of the contributions than was realized for forestry production. Table 7 presents the five industries in which agriculture generated the most employment. Industries in Table 7 are defined by the North American Industrial Classification System, or NAICS. Agriculture defined in this report includes processing, which according to NAICS is comprised of manufacturing sectors. Thus, in Table 7, agriculture, forestry, fish & hunting jobs represents the agricultural production and agriculture-related services (those sectors classified as NAICS 11) employment. The remaining 30,311 jobs are in the manufacturing category, and they represent 96 percent of the jobs classified there. Agriculture, defined as production, processing and agriculture-related services, comprises 74 percent of the employment created and classified in these five industries. Tables 8 and 9 present the top five sectors in which agriculture generates output and economic activity, respectively. The clarification given for reviewing the numbers in Table 7 applies to these tables as well. Manufacturing has the largest output and economic activity due to agriculture s contribution, and Agriculture, Forestry, Fish and

18 Table 4. Agriculture s contribution to Oklahoma s economy, Employment a Output b Economic Activity c % Total % Total % Total Oklahoma Number % Total Oklahoma % Total Oklahoma % Total Economic of Jobs Contrib. Jobs Million $ d Contrib. Output Million $ d Contrib. activity Production e 140, , , Processing f 30, , , Ag Related Services g 4, Direct Contribution h 175, , , Indirect Effects 27, , , Direct + Indirect Contribution h 202, , , Induced Effects 118, , , Total Contribution h 321, , , Source: Computed using the 2014 Oklahoma database from IMPLAN LLC (2014). a Equivalent to full- and part-time jobs (MIG, 2000). b Output represents the market value of products. c Economic activity, measured as value-added by IMPLAN, is the sum of employee compensation, proprietary income, other property income and indirect business taxes; omits purchased, non-labor input costs. d Current dollars. e Appendix A lists sectors of direct agricultural production in terms of IMPLAN sectors. f Appendix A lists sectors of direct agricultural processing in terms of IMPLAN sectors. g Ag-related sectors include agricultural sectors not categorized as agricultural production or processing. These sectors are: fishing, hunting and trapping; agriculture and forestry support activities and new farm housing units; and additions and alterations. h Percentages may not add up due to rounding.

19 Table 5. Contribution of agricultural sectors to agricultural production, Employment a Output b Economic activity c Number of % Ag. % Ag. % Ag. Jobs Prod. Million $ d Prod. Million $ d Prod. Crops 22, , Animal Agriculture 116, , , Forestry 1, Ag-Related Services 4, Total 145, , , Source: Computed using the 2014 Oklahoma database from IMPLAN, LLC (2014). a Equivalent to full- and part-time jobs (MIG, 2000). b Output represents the market value of products. c Economic activity, measured as value-added by IMPLAN, is the sum of employee compensation, proprietary income, other property income and indirect business taxes; omits purchased, non-labor input costs. d Current dollars. Table 6. Contribution of agricultural sectors to agricultural processing, Employment a Output b Economic activity c Number of % Ag. % Ag. % Ag. Jobs Prod. Million $ d Prod. Million $ d Prod. Crops 11, , Animal Agriculture 11, , Forestry 7, , Total 30, , , Source: Computed using the 2014 Oklahoma database from IMPLAN, LLC (2014). a Equivalent to full- and part-time jobs (MIG, 2000). b Output represents the market value of products. c Economic activity, measured as value-added by IMPLAN, is the sum of employee compensation, proprietary income, other property income and indirect business taxes; omits purchased, non-labor input costs. d Current dollars. Table 7. Employment generated by agriculture by NAICS 1, Table 8. Output generated by agriculture, for the top five NAICS industries. * Ag, Forestry, Fish & Hunting (97% of these jobs are in agricultural production) Manufacturing (96% of these jobs are in agricultural processing) Government & Non NAICs Health & Social Services Retail Trade Top Five Total (74% of these jobs are in Agriculture 2 ) 145,347 jobs 31,541 jobs 27,595 jobs 16,328 jobs 15,195 jobs 236,006 jobs Manufacturing (94% of this output is in agricultural processing) Ag, Forestry, Fish & Hunting (96% of this output is in agricultural production) Real Estate & Rental Government & Non NAICs Wholesale Trade Top Five Total (75% of this output generated by Agriculture 2 ) $15.81 billion $7.29 billion $2.38 billion $2.36 billion $1.82 billion $29.66 billion 1 Based on 2-Digit NAICS aggregation (USCB, 2006). 2 Agriculture as defined in this report, including ag production, processing and related services. 1 Current dollars * Based on 2-Digit NAICS aggregation (USCB, 2006). 2 Agriculture as defined in this report, including ag production, processing and related services. 13

20 Hunting moves to second place; Real Estate and Rental and Wholesale Trade replace Health and Social Services and Retail Trade as top five industries, when compared with the employment numbers of Table 7. Tables 10 through 14 present the direct impact data with respect to commodity. Tables 10 and 11 present the direct production and processing impacts from crops, Tables 12 and 13 present the direct production and processing impacts from livestock and Table 14 presents the direct production Table 9. Economic activity generated by agriculture, for the top five NAICS industries. 2 Ag, Forestry, Fish & Hunting (94% of this economic activity is in agricultural processing) Manufacturing (95% of this economic activity is in agricultural production) Government & Non NAICs Real Estate & Rental Wholesale Trade Top Five Total (49% of this economic activity generated by agriculture 3 ) $3.97 billion $2.95 billion $2.00 billion $1.61 billion $1.14 billion $11.67 billion and processing impacts from forestry. Table 11 lists All Other Farming (which includes hay, peanuts and all other crops not elsewhere classified), Grain Farming, and Greenhouse, Nursery and Floriculture Production as the three largest components of crop production in Oklahoma. Table 13 lists Beef Cattle Ranching and Farming (including feedlots and dual-purpose ranching and farming), Animal Production, except Cattle and Poultry (primarily hogs) and Poultry and Eggs Production as the three largest components of livestock production. Table 11. Top crop production sectors (by output). Top crop-production sectors: All other crop farming Grain farming Greenhouse, nursery and floriculture production These sectors comprise: 60% of the jobs in the crops sector 20% of the output in the crops sector 34% of the economic activity in the crops sector 1 Current dollars. 2 Based on 2-Digit NAICS aggregation (USCB, 2017). 3 Agriculture as defined in this report, including ag production, processing and related services. Table 10. Crop sector s direct contribution to Oklahoma s economy, Employment a Output b Economic activity c % Total % Total % Total Oklahoma Number % Total Oklahoma % Total Oklahoma % Total Economic of Jobs Contrib. Jobs Million $ d Contrib. Output Million $ d Contrib. Activity Production e 22, , Processing f 11, , Direct Impact 34, , , Source: Computed using the 2014 Oklahoma database from IMPLAN, LLC (2014). a Equivalent to full- and part-time jobs (MIG, 2000). b Output represents the market value of products. c Economic activity, measured as value-added by IMPLAN, is the sum of employee compensation, proprietary income, other property income and indirect business taxes; omits purchased, non-labor input costs. d Current dollars. e Appendix A, Table 3 lists sectors of direct agricultural production in terms of IMPLAN sectors. f Appendix A, Table 3 lists sectors of direct agricultural processing in terms of IMPLAN sectors. 14