Gary Taylor

English

Research Papers in Economics

            E C O N O M I C S 
   C O M M E N T A T O R 
South Dakota State University      No. 523                     October 29, 2010
 
 
ECONOMIC IMPACT OF 
AGRICULTURE ON 
SOUTH DAKOTA 
 
by 
 
Dr. Gary Taylor* 
Associate Professor 
 
 
Agricultural production in South Dakota has 
traditionally played a major role in the prosperity of 
the state.  In 2008, the sum of crop and livestock 
production in the state exceeded $8.5 billion 
(IMPLAN database).  This is a significant increase 
from the $5.3 billion produced in 2006.  In addition 
to the impacts in the agricultural industry this 
production has effects that ripple through the South 
Dakota economy.  There are three basic effects that 
can be identified: the direct, indirect, and induced.  
The direct effect is the actual value of the products 
produced and sold from the agricultural sector of the 
economy.  The indirect effect is the business to 
business activity that is created through the 
production process and the induced effect is the 
additional consumer spending resulting from the 
increased economic activity in the state.  Combined, 
these three effects provide an accurate estimate of 
the total economic impact of agriculture on the state 
of South Dakota. 
 
There are two parts to this analysis.  Initially only the 
impact of production agriculture will be considered.  
Then, the effects of the agricultural processing and 
manufacturing sector will be included to more 
accurately represent the true impact of agriculture on 
the state. 
 
__________ 
Contact the author at Gary.Taylor@sdstate.edu or 605-688-4141. 
 
 
Methodology 
The software package IMPLAN Pro3 was used to 
analyze the impact of agriculture on the state.  This 
software is input-output modeling software that was 
initially developed for use by the National Forest 
Service and has been modified for commercial use.  
The relationships among the industries in South 
Dakota are the internal production functions 
imbedded within the program.  After constructing a 
baseline model of the state, the impact of agriculture 
is determined and then the impacts of the other 
industries that can be directly linked to agriculture 
are added.   
 
In this analysis the 2008 data for South Dakota was 
employed.  The industry outputs employed are those 
contained in the IMPLAN Pro3 database.  These 
outputs are gross sales, not Gross Domestic Product 
(GDP) figures.  Therefore, the cost of inputs is 
included, not excluded as they would be in a 
measure of GDP.  The value of all industry output 
for IMPLAN Pro3 in 2008 was $72,042,343,232.  
This figure provides an estimate of the dollars 
flowing through the South Dakota economy. 
 
Industry Breakdown 
Using the IMPLAN Pro3 division of industries by 
the North American Industry Classification System 
(NAICS) code, 509 different industry classifications 
in the model are aggregated into 20 different 
categories.  Agriculture, forestry, fishing, and 
hunting are combined into one category.   The 
remaining nineteen are shown in Table 1. Table 1.  Output for South Dakota Industries, 2008. 
 
Industry 
    Output 
(in million 
$) 
 
Multiplier 
      2006 
Multipliers+ 
Agriculture,  
   Forestry, Fishing  
  and Hunting 
      8,852  1.47  2.37 
Mining         457  1.50  1.77 
Utilities      1,338  1.22  1.46 
Construction      4,235  1.55  2.15 
Manufacturing  16,563  1.41  2.12 
Wholesale Trade      3,021  1.55  1.79 
Transportation 
   and Warehousing 
    1,880  1.52  2.07 
Retail Trade      3,847  1.56  1.81 
Information      2,173  1.65  1.83 
Finance and 
  Insurance 
    5,663  1.72  1.76 
Real Estate and 
    Rentals 
    5,186  1.36  1.57 
Professional- 
  Scientific and 
  Technical Services 
    1,808  1.72  2.06 
Management of  
  Companies 
       669  1.64  1.96 
Administrative and  
  Waste Services 
    1,043  1.60  2.00 
Educational  
  Services 
      444  1.74  2.09 
Health and Social 
   Services 
   5,035  1.66  2.05 
Arts-Entertainment 
  and Recreation 
   1,030  1.65  1.94 
Accommodation 
  and Food Services 
   1,981  1.57  2.01 
Other Services     1,616  1.67  2.09 
Government and  
  non-NAICS 
   5,197  1.56  1.81 
TOTAL   72,038*     
Source: IMPLAN Pro3 2008 database 
*Difference results from rounding errors 
+Source: IMPLAN Pro version 2 database 
 
 
 
 
 
 
 
 
 
As we can observe from the table the 
agricultural sector has a multiplier of 1.47, 
placing it 17
th out of the twenty categories.  
Education has the highest multiplier at 1.74, 
followed closely by Finance and Insurance 
and Professional-Scientific and Technical 
Services both at 1.72.  Utilities have the 
lowest multiplier at 1.22.  This would imply 
that investments in the industries with higher 
multipliers would have larger positive 
economic impacts, indirect and induced, than 
investments in industries with lower 
multipliers.  It should be noted here that the 
multipliers calculated for the 2008 data are, 
in many cases, significantly lower than those 
calculated in 2006.  There are two reasons for 
the differences.  First, in 2006 with version 2 
of the IMPLAN Pro software there was some 
degree of upward bias in the aggregation 
process, going from 509 sectors to 20.  The 
second reason for the difference would be 
actual changes in the South Dakota economy.  
Due to the economic environment that we 
have faced in the last two years there has 
been some structural change in the economy. 
 
Production Agriculture Analysis 
The direct effect of $8.85 billion represents 
the value of the products produced in the 
agricultural production sector of the South 
Dakota economy (Table 2).  The indirect 
effect is the economic activity that results 
from industries supplying inputs into the 
production agriculture sector (business to 
business activity).  The induced effect is the 
increase in household spending resulting 
from the increased economic activity in the 
state.  The $8.85 billion of direct economic 
impact of production agriculture comprises 
12.2% of the total economic activity 
generated in the state.  The total economic 
impact of production agriculture in South 
Dakota is $13.01 billion as we include the 
$2.98 billion in indirect and $1.18 billion in 
induced effects. Table 2.  Production Agriculture Impact 
  Million $ 
Direct  8,850 
Indirect  2,980 
Induced  1,180 
TOTAL  13,010 
In nominal dollars 
 
 
As noted previously, with a significantly smaller 
multiplier for 2008 the indirect and induced effects 
will be much smaller than those estimated in 2006.  
The $4.454 billion in indirect and $2.833 billion in 
induced effects for 2006 are significantly larger 
than the 2008 numbers reported in Table 2.  The 
2006 numbers approximately 1.49 and 2.4 times 
larger than the 2008 numbers respectively. 
 
The employment effects are similar to the output 
effects (Table 3).  In employment terms the direct 
effect represents the number of people employed in 
the agricultural industries.  The total employment 
in production agriculture is 98,369.   
 
 
Table 3.  Other Production Agriculture Effects 
   
 
Employment 
   Indirect  
   Business  
   Taxes* 
Direct  57,725   $163,254,976 
Indirect  23,518   $138,621,898 
Induced  17,126     $73,387,543 
TOTAL  98,369  $375,264,417 
*In nominal dollars 
 
 
Indirect business taxes are all of the taxes collected 
(sales, property, excise, etc.).  The direct effect is 
the tax revenue generated by the production 
agriculture industries (Table 3).  The indirect effect 
results from the increased business to business 
activity and the induced effect from the increased 
consumer activity associated with agricultural 
production in the state.  The employment and 
indirect business tax numbers are also significantly 
below the 2006 numbers for the same reasons as 
stated above.  The total employment number from
 2006 was 102,319 and the indirect business tax 
amount was $381 million.  It should be noted that 
the majority of the indirect business tax revenue 
generated in production are property taxes. 
 
Value Added Agriculture 
To obtain a more accurate estimate of the full 
impact of agriculture on the state of South Dakota, 
it is necessary to include industries from the 
manufacturing/processing sector that can be clearly 
identified as being related to agriculture.  For this 
analysis these industries will include flour milling, 
soybean processing, fluid milk, dry milk, cheese, 
animal slaughter, meat processing, poultry 
processing, dry pasta, wineries, leather, sawmills,  
and ethanol.  (Table 4) 
 
The $5.45 billion of direct economic activity in 
these thirteen industries generates an additional 
$2.27 billion in indirect and induced effects in the 
economy which totals to $7.72 billion in total 
economic activity generated by the agribusiness 
sector. Over 60% of this direct impact, $3.33 
billion, is from the ethanol and animal slaughter 
industries.  In addition, another 45,504 people are 
employed in these industries and $13,788,277 in 
indirect business taxes is generated. 
 
 
Table 4.  Output of Agribusiness Sectors 
Industry     Output in $ 
Flour Milling  19,104,228 
Soybean Processing  334,240,288 
Fluid Milk  76,653,912 
Cheese  579,557,120 
Dry Milk  101,423,760 
Animal Slaughter  1,667,222,400 
Animal Feed Manufacturing  393,543,760 
Poultry Processing  263,348,320 
Bread, cookies, crackers, 
pasta manufacturing 
199,916,408 
Wineries  7,430,549 
Leather  5,725,203 
Sawmills  139,460,304 
Ethanol  1,663,968,256 
TOTAL  5,451,594,508 
Source:  IMPLAN Pro3 database 
 
 
 
  
 
 
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Total Impact of Agriculture   
The addition of the agribusiness sector impacts 
would raise the total economic impact of the 
agricultural sector of the economy to $20.73 billion 
in 2008.   The direct effect of the agricultural 
sector would be $14.302 billion, making it larger 
than the manufacturing sector after subtracting the 
agricultural processing from its total 
(approximately $11.112 billion). The agricultural 
sector would then account for 19.8% of the total 
direct economic output in South Dakota. The total 
employment number would increase to 143,873, 
and the indirect business tax total would increase 
to $389,052,694. 
 
Concluding Remarks 
Agriculture remains a significant contributor to the 
total economic activity generated in the state of 
South Dakota.  The total direct impact of the 
agricultural sector of the economy in South Dakota 
is $14.3 billion.  This would still make the 
agricultural sector the largest single sector of the 
South Dakota economy, at approximately 19.8% of 
the total output.  In addition it generates 
approximately $389,052,694 in indirect business 
taxes and accounts for 143,873 jobs in the state.  
Each dollar of direct output in agriculture also 
generates an additional $0.47 of economic activity 
in the state.  Even after the structural adjustments 
in the economy and the production function 
adjustments in the model agriculture is still a 
significant source of growth for South Dakota. 
 
****************************************************** 
ECONOMICS COMMENTATOR 
****************************************************** 
Department of Economics       
South Dakota State University       Phone: 605-688-4141 
Box 504   Scobey Hall              Fax:     605-688-6386 
Brookings, SD 57007-0895           E-Mail:Penny_Stover@ sdstate.edu 
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Economic Impact of Agricutlure on South Dakota

http://repec-sda.sdstate.edu/repec/sda/pdf/Commentator/No523.pdf

Economic Impact of Agricutlure on South Dakota

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Research Papers in Economics