The University of Georgia
College of Agricultural and Environmental Sciences
Research Report 665
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The Relative Importance of the Food and Fiber Sectors in the Georgia State Economy

Warren Kriesel, Associate Professor, Agricultural and Applied Economics
Brigid Doherty, Research Coordinator, Center for Agribusiness and Economic Development

Table of Contents

Executive Summary
Introduction
A Description of the Food and Fiber System
The Relative Importance of Economic Sectors
The Transactions Matrix
Economic Impact Multipliers
Pitfalls in Using Multipliers
Conclusions
References

Executive Summary

What is the impact of food, fiber and related industries on the economy of Georgia? In this study, it was found that roughly one in seven Georgians works in agriculture, forestry or a related sector. Georgia's food and fiber sectors contribute about $56.7 billion to the state's $352.8 billion economic output. In percentage terms, food and fiber's share of the economy works out to 16 percent of Georgia's output, 15 percent of the employment and 12 percent of the value added.

These figures are based on the Forest Service's latest input-output model, for 1995, and these figures are an update of an earlier study which used figures for 1990.

While these numbers may appear impressive, a comparison with other major industries is needed to judge the food and fiber sectors' relative importance. In terms of economic output (listed in order of importance) the financial/real estate sector contributes $47.7 billion, miscellaneous services contribute $36.9 billion, non-food related wholesale and retail sectors contribute $40.1 billion, followed by the construction sector at $22 billion. Of the major manufacturing sectors, transportation equipment is the largest with $9.6 billion in output. Thus, when totaled together the food, fiber and related sectors are the most important economic sectors in Georgia.

The food and fiber sectors are viewed within an integrated system. Therefore, the definition of the system includes farm and forestry production plus the sectors that supply farms and the sectors that process its production. The total industry is divided into five main components.

• Farm inputs and machinery sectors contribute $2.1 billion to output and employ about 17,816 people, or about 3 percent of the state's workforce. Farm inputs include seeds, feeds, fertilizers and machinery, plus the specialized firms that provide services to farmers and foresters.
• Farm and forest production is responsible for $6.5 billion in output and 87,269 jobs. These sectors include large poultry producers as well as any farm that markets at least $1,000 of produce per year.
• Food and fiber processing sectors include the firms that turn agricultural produce into the goods we buy at grocery stores. Firms that process forest products are included, but the firms that use this output (construction and furniture) are not included. Georgia's cotton production is also very important, so milling firms are included. All of these firms contribute about 179,840 jobs and $36.7 billion in output.
• Food wholesale/retail sectors contribute $3.0 billion and about 109,672 jobs to Georgia's economy. This includes the large grocery store chains and their suppliers.
• Food service sector includes restaurants and institutions, and it is responsible for 240,344 jobs and $8.3 billion of output.

Again, these figures are for 1995. When more recent data is released the total employment and output figures will increase for the state. If past trends continue, food and fiber production's importance will remain steady while the agricultural processing sectors will increase their share of output and employment slightly.

Introduction

This report analyzes the impact of agriculture, forestry and related industries on the Georgia economy. Agriculture's impact is examined by two approaches: (a) an examination of the relative sizes of the major industrial sectors, and (b) seeing how farm, forest, horticulture and fishery production is linked to supporting industries through the volume of transactions and the economic impact multipliers.

This study, patterned after one by Sporleder, Hushak and Pai (1990), is based on IMPLAN, an input-output model developed by the U.S. Forest Service (Alward, et al., 1993). IMPLAN uses the standard input-output technique of accounting for the flow of transactions between the various economic sectors both within and outside the impact area. Thus, IMPLAN gives a snapshot of Georgia's economic structure. Furthermore, the transactions matrix quantifies the interdependence between economic sectors because each sector uses the products of other sectors as raw materials.

This study is organized as follows. First, the various components of Georgia's food and fiber system are discussed. Second, a preliminary evaluation of food and fiber's impact on the economy is made by examining the contribution of each sector to Georgia's economic performance in terms of employment, output and value added. The transactions matrix for the state economy is then presented. Finally, tables of the economic impact multipliers are presented and their construction and potential uses are discussed.

A Description of the Food and Fiber System

IMPLAN has the capability to analyze 528 industrial sectors, and IMPLAN contains data for all states and all counties in the United States. To provide a compact presentation of this complex system for this publication, the IMPLAN sectors have been combined, or aggregated, into 43 main sectors. The food and fiber components are in 25 sectors while the rest of the economy is aggregated into 18 sectors. The latest IMPLAN data, for the year 1995, for the state of Georgia is used. Table 1 lists the 43 aggregated sectors with the 528 IMPLAN sectors that they represent. Some sectors, such as tobacco production, are not aggregated at all because it is the intent of this report to show how the important food and fiber sectors are related to the economy. On the other hand, the aggregated miscellaneous manufacturing sector is composed of 67 IMPLAN sectors.

The food and fiber production and marketing system, outlined in Table 2, contains the five basic components used by USDA's Economic Research Service (Hines, Petrulis and Daberkow, 1986). These are: (1) farm inputs and machinery, (2) farm production, (3) food processing, (4) wholesale and retail, and (5) food service, including restaurants. The farm inputs and machinery component is made up of two sectors: (a) purchased farm inputs including implements, seed, fertilizer, pesticides, etc., and (b) a sector for all production services. In the farm production component there are twelve sectors that describe the primary food, fiber, forestry and fishery production enterprises.

In Georgia, the cotton and forestry sectors are relatively more important than in other states. Therefore, these sectors' forward linkages through the marketing system have been incorporated into the definition of the food and fiber system. These forward linkages include fabric mills and leather processing, plus wood and paper processing.

Figure 1. Linkages among food and fiber sectors.

A simplified diagram of the linkages is presented in Figure 1. There, the five food and fiber components, represented by the box shapes, generate products for the four final demand components represented by the elliptical shapes. The farm input and machinery component supplies inputs for farm production, and farm production may send its output to the processing component or to two final demand components, at home consumption and foreign exports. From the processing sectors, food and fiber products may be sent through the wholesale and retail system or directly to the food services sector. Processed food and fiber may also be sent for foreign or domestic export, or be reused in farm production. Either way, a final demand component is the ultimate destination of all food and fiber production.

The Relative Importance of Economic Sectors

Table 2 presents three measures of the economic importance of Georgia economic sectors. The three measures are employment, output and the value added by each sector. In 1995, the total employment in Georgia was 4,204,763 (in person year equivalents), with 634,941 jobs (or 15 percent of the total) related to the food and fiber system. The food service sector, which includes restaurants, was the largest employer of the food and fiber sectors while retail and wholesale trade was the most important employer of the non-food sectors. Figure 2 provides another way of looking at employment in the food and fiber sectors. Of the 634,941 jobs in these sectors, 38 percent are in food service, food and fiber processing sectors are responsible for 28 percent, and 17 percent are in the wholesale and retail sector.

Figure 2. 1995 Georgia Total Employment: 4,204,763

The next measure of economic importance is output, defined as the total value of all production for a sector during the year. In terms of farm production, output may be thought of as the value of production leaving the farm gate. According to Table 2, total output for Georgia was $352.8 billion, of which $56.7 billion (or 16 percent) came from food and fiber related sectors. Figure 3 gives a picture of which sectors are responsible for output. Sixty-four percent is from food and fiber processors, followed by 15 percent in food service and 12 percent in farm production.

Figure 3. 1995 Georgia Total Output: $352.8 Billion

The final measure of economic importance is value added. In an input-output accounting sense, value added is equal to a sector's value of output minus the value of inputs it has purchased from other industrial sectors. In other words, value added is a residual composed of employee compensation (i.e. wages paid), property income, indirect business taxes and other income that is generated by a sector. Again using farm production as an illustration, value added is wages paid, operating profits, land rent and taxes paid. Thus, value added is an economic performance measure of what impact a sector has on Georgia's economy, net of the buying and reselling that firms do among themselves.

From Table 2, the food and fiber sectors contribute $23.2 billion to Georgia's total $199.4 billion value added, or 12 percent. In Figure 4, the food and fiber processing sectors are the largest contributor with 56 percent of the total. Farm production has a 12 percent share of the food and fiber system's value added.

Figure 4. 1995 Georgia Total Value-Added: $199.4 Billion

All of these statistics were derived from IMPLAN model, which in turn uses data derived from such sources as County Business Patterns (1995). The figures in Table 1 have been validated with information from other sources. For example, the output figure of $2.103 billion for the poultry production sector is slightly higher than the $2.09 billion reported by Georgia Agricultural Facts (1996). Slight discrepancies between different data sources are common because of accounting and definitional differences, and in these cases the IMPLAN figure was used.

In other instances the IMPLAN figures were not acceptable and other information was substituted. For example, the IMPLAN data indicated that 3,188 people were employed in tobacco production in the entire state. Using information from Georgia Enterprise Budgets (1995) and the Census of Agriculture (1992), it was determined that about 2,900 employees are in tobacco production. Making this change has two effects. First, it makes the food and fiber sectors appear slightly more important in terms of jobs generated. Second, it reduces the employment multiplier for the tobacco production sector, for reasons that are explained in a later section.

The Transactions Matrix

The transactions matrix is the basic building block of input-output analysis from which economic multipliers are eventually derived. The transactions matrix for this 43-sector input-output model is presented in Table 3. Looking down each column, the table reports the purchases that each sector listed at the top of the table made during the year from the other sectors that are listed down the left hand side. For example, the first column says that the dairy production sector purchased $622 from itself, it purchased $6,500 from the poultry and egg sector (probably in the form of poultry by-products used as dairy feed additives), and so on down the column.

Looking across the rows, each element is interpreted as the annual sales from the sector at the right to sectors listed at the top. For example, the dairy production sector sold $622 to itself, it sold $35,133 to poultry and egg production, etc. Thus the transactions table is an accounting system for the flow of money through an economy.

The rows running up to the last four (at the bottom of the page) and the columns up to the last four are the "interindustry transactions." That is, they are the sales and purchases of intermediate inputs and outputs among industrial sectors. The last four rows of Table 3 do not represent industrial sectors but rather value added (which is mostly the inputs purchased from households, or wages paid out), domestic imports (i.e., the value of inputs from other states) and foreign imports. The final row is the total sum of purchases made by each sector. Going back to the dairy example, the table says that dairy farms in Georgia purchased $42 million worth of inputs.

The last four columns (at the end of Table 3) represent the final purchases by the end users of sectoral output, of which there is consumption (primarily by households and government) and exports to domestic and foreign users. Together, these last three sectors represent the "final demand" for a sector's output. This usage of final demand is the same as in Figure 1: it is the end destination of goods and services. Final demand is a central concept in economic impact analysis that is mentioned later. The final column of Table 3 shows the total sales by each sector.

Note that each element in the "total outlay" row matches its corresponding element in the "total output" column. In the accounting system of input-output analysis there is always an equality of a sector's sales and purchases. Any profits in the sector are included as a payment to ownership under the value added sum.

An accounting convention of the table is that transactions are described in producer, not consumer, prices (Hastings and Brucker, 1989). The price to final users is accounted for after the expenditures for transportation and trade are included in the transactions table along with the expenditure for the sector that actually produced the good. As an illustration of how producer prices work, consider the purchase of a $20,000 automobile by an individual at a dealership. Within the transactions table, this $20,000 would not appear as a sale by the retail sector solely, but rather the $20,000 is "margined" to transportation services, wholesale/retail trade, and either transportation equipment manufacturing or imports, depending on whether the car was made in Georgia. Thus, the $20,000 would appear (using approximate figures) as a $16,000 sale by transportation equipment, a $3,000 sale by the retail sector, and a $1,000 sale by transportation services.