By DOUG SCHMITZ
WASHINGTON, D.C. — American agriculture and ag-related industries contributed $992 billion to the U.S. gross domestic product (GDP) in 2015, a 5.5-percent share, with the output of America’s farms contributing $136.7 billion of this sum – or about 1 percent of the GDP – according to the USDA’s Economic Research Service (ERS).
“The overall contribution of the agriculture sector to the GDP is larger than this because related sectors rely on agricultural inputs like food and materials used in textile production in order to contribute added value to the economy,” the April 10 report stated.
In 2015, the report said farming’s contribution to the GDP fell for the second consecutive year after reaching a high point of $189.9 billion in 2013. A major reason for this downward trend has been falling commodity prices such as for corn and soy, which peaked around 2013 and have since fallen by at least 30 percent. The category of foodservice, eating and drinking places has expanded over a similar timeframe and may be a benficiary of the lower commodity prices at the farm level, the report concluded. Spencer Parkinson, executive director of Decision Innovation Solutions (DIS), explained the Urbandale, Iowa-based company has conducted several economic contribution studies that aim to quantify the contribution of production agriculture and its related industries to local economies.
Since 2014, DIS has completed studies on five states – Alabama, Iowa, Illinois, Missouri and South Dakota – focusing on the degree to which ag and related industries provide jobs, sales, value-added (similar to GDP at the federal level) and labor income (combination of earnings by wage earners and proprietors’ income) at the state level.
“Four of the five states for which we’ve completed studies are in the Midwest,” he pointed out.
For example, Alabama had $54.9 billion in sales and 233,793 jobs; the state had $17.9 billion in value-added, but labor income did not contribute to the state’s economy.
In Iowa, $112.2 billion was in sales and the state had 418,771 jobs and $39.8 billion in value-added, as well as $7.7 billion in labor income. In Illinois, $120.9 billion were in sales and the state had 432, 831 jobs; $48.4 billion in value-added; and $28.8 billion in labor income.
Missouri had $88.4 billion accounted for sales; 378,232 jobs; $33 billion in value-added; and $17.5 billion in labor income. In South Dakota, $25.6 billion were in sales; 115, 651 jobs; $8.9 billion in value-added; and $7.7 billion in labor income.
Parkinson said the nominal values for each of the states vary quite widely, from $8.9 billion in value-added in South Dakota, to a high of $48.4 billion in Illinois. “However, when one considers the overall economy (i.e., diversification) and population of a given study area, the reliance upon agriculture and related industries shifts in favor of those states which are very rural (South Dakota) and/or rural, but have very strong, diverse agricultural industries (Iowa),” he noted. “Stated differently, Illinois has the largest numbers, but South Dakota and Iowa are more reliant (percent of economic activity derived from agriculture) upon agriculture and related industries.”
Parkinson said another aspect of local economies that has implications for the size and importance of agriculture is how many of the required industries for sourcing inputs are local.
“If an industry must import inputs to the local area to satisfy its local production, the impact will be lower than if the inputs were instead sourced locally,” he explained. “In general, the larger the study area is, the more likely the impacts are to be experienced and felt locally.” Chris Hurt, Purdue University professor of agricultural economics, said how big agriculture is depends on what is included under the category of “agriculture.”
“Some think of only farming as agriculture,” he said. “That is the most narrow definition. This USDA data suggest that $136.7 billion was added to the U.S. economy in 2015 by farmers. The U.S. economy in 2015 was $18 trillion. So, the farming sector actually contributed 1.8 percent to the national economy.” Hurt said most broaden the definition of agriculture to include the input sectors (i.e., seed, feed, fertilizer, chemicals, animal drugs, vet services, machinery, buildings) as well as the sector that takes farm products and converts them to consumer and industrial goods.
“Ag schools like Iowa State (University) and Purdue are training many more students for agribusiness jobs than they are training farm managers,” he said. “The broader definition the USDA ERS appears to include the farm and some of the major sectors post-farm and extending to the consumers.
“However, it does not appear that they have included the farm input sectors (i.e., seed and chemicals, equipment) and they do not appear to have the agricultural contributions made to the energy sector (biofuel), and do not seem toinclude the agricultural products that go into industrial production,” he added.
“This not a criticism, but I would think the farm inputs and the energy sector are sizable and that these numbers are somewhat understating the contribution of agriculture in the broader definition.”
Hurt noted agriculture is defined as a huge, important and honorable industry.
“Size is just one measure of an industry, and we economists like to also measure performance. How has agriculture done at delivering wholesome, nutritious and safe food to consumers at an affordable price?
“Here we often quote the measure of food expenditures as a percentage of disposable income,” he said. “U.S. consumers are now spending less than 10 percent of their disposable income on food.
“Food is a necessity. If consumers only have to spend 10 percent of their paycheck on food, then this releases 90 percent for other things. This impact has been a primary stimulant to the growth of our economy over time.”