Economic Impact of the Erath County Dairy Industry

Economic Impact of the Erath County Dairy Industry By David Buland Economist Temple, Texas S. Hussain Ali Jafri Professor of Economics Tarleton State University Stacie A. Randals Tarleton State University

Texas and Erath Milk Production

Erath Co. Milk Production

Changes in regional Milk Production

Wholesale Milk Price

Conceptual Model Dairy Industry as an Purchasing Institution Milk Sales of calves, bulls and heifers Avg. Capital Expenses Local Economy Other farm income

Input-Output Analysis l Definition - The assessment of change in overall economic activity as the result of some corresponding change in one or several activities. l Input-Output Assumptions - Constant returns to scale production function -i. e. , linear - Homogeneous sector output - No input substitution - No supply constraints 7

IMPLAN Model Datasets Features: - 528 Industrial Sectors - Most 3 or 4 Digit SIC - All States and Counties in the U. S - All elements balanced to National Income and Product Account totals. 8

Multiplier Terms Defined Direct Effects – The initial immediate effects caused by a specific activity; for example, the initial investment in the construction of a new lagoon or the effects of the purchase of feed or medicines and the hiring of local labor, etc. The direct effect, or impact, will subsequently initiate a series of iterative rounds of income creation, spending, and re-spending that will result in Indirect Effects and Induced Effects. These three component effects—direct, indirect, and induced effects— constitute the Total Effects resulting from the initial, direct effect.

Definitions (cont. ) Indirect Effects – The effects that result from the actions of the processing sectors to produce the Direct Effects. Therefore, the indirect effects are those changes to production, employment, incomes, etc. , which take place as a result of the direct effects and include the effects on industry sectors that may be directly or indirectly related to the initially impacted sector.

Definitions (cont. ) Induced Effects – The effects of spending by the households in the regional economy as the result of Direct and Indirect Effects from some economic activity. The induced effects arise from a general change in the earnings and spending patterns of the household sector of an economy due to the direct and indirect effects.

Definitions (cont. ) Multiplier – A numeric measurement, expressed as a mathematical ratio, of the Total Effects, including the Direct, Indirect, and Induced Effects, to the direct effects of a specific activity, or a change in some activity.

Erath County’s Dairy Production Function

Leakages • Leakages are items purchased or produced outside of the Impact Area. • Leakages are less for the large state of Texas than for Erath County alone. – Erath 125 industrial sectors – Texas 497 industrial sectors

Regional Purchase Coefficients (RPC’s) % From ERATH % From TEXAS 1. Feed 2. Labor - Wages Paid - Health Benefits - Owner’s Draw 3. Supplies 4. Insurance 5. Vet, Medicines 6. Breeding 7. Testing & Trimming 8. Repairs/Maintenance 9. Interest 10. Utilities 11. Milk Hauling 12. Promotion 13. Crop Expenses 14. Fuel, Oil, Gas 15. Taxes - Farm & Property 51. 0% 100% 73. 5% 90. 1% 96. 2% 76. 3% 99. 8% 62. 6% 99. 5% 96. 7% 45. 1% 99. 9% 98. 5% 67. 4% 97. 7% 99. 2% 99. 9% 74. 1% 100% 89. 4% 90. 1% 96. 8% 77. 4% 100% 62. 7% 100% 97. 5% 51. 9% 99. 9% 100% 70. 7% 100% - School 16. Mortgage/Rent Payments 17. Legal & Accounting 18. Cost of raising heifers 19. Repl. Heifers Purchased 20. Miscellaneous 99. 2% 83. 2% 65. 8% 91. 5% 57. 9% 94. 5% 100% 83. 2% 66. 1% 100% 63. 7% 95. 9%

Major Adjustments at the local level. • Feed purchased from the local store or imported. • Replacement heifers from local and imported sources. • Interest paid to local creditors.

Erath County Impacts Event Direct Induced Total Operating Expenses $190, 876, 693 $31, 252, 920 $27, 411, 505 $249, 540, 118 Wages $15, 500, 169 $1, 173, 455 $2, 167, 213 $18, 840, 837 Owners’ Draw $3, 150, 845 $235, 006 $421, 411 $3807, 261 Capital Expenses $19, 071, 044 $3, 514, 195 $4, 039, 288 $26, 624, 526 Total $228, 598, 751 $32, 661, 381 $34, 039, 417 $299, 403, 936

Total Impact Erath County Direct Indirect/Induced Total Operating Expenses $209, 527, 707 $63, 251, 703 $272, 779, 410 Capital Expenses $19, 071, 044 $7, 553, 482 $26, 624, 526 Total $228, 598, 751 $70, 805, 185 $299, 403, 936 Grand Total $320, 827, 476 Texas Direct Indirect Total Operating Expenses $223, 042, 779 $262, 889, 929 $485, 932, 708 Capital Expenses $19, 071, 040 $22, 941, 035 $42, 012, 075 Total $230, 518, 945 $196, 625, 337 $527, 944, 783 Grand Total $549, 368, 323

Jobs Created by Erath County’s Dairy Industry 1, 980 Added Employment (Erath County) 3, 615 Total Employment provided (Erath County) 5, 595 Added Employment (State of Texas) Total Employment provided (State of Texas) 8, 501 10, 481

Summary of Dairy Impacts

Value Added Categories

Loss of a 1, 000 cow Dairy

Impact of $1 change in Milk Price

Conclusions • The IMPLAN model provides a valuable tool for Economic Impact Studies • But if you are concentrating on one particular industry, the core production functions and RPCs must be closely adjusted to match real local data. • Secondary industries are not sensitive to these adjustments.