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. 493                         February 5, 2008 
 
 
The Impact of Agriculture 
on the Economy of  
South Dakota  
 
Gary Taylor 
Associate Professor  
  
Agricultural production, whether it is crops or 
livestock, has traditionally played a large role in the 
economic prosperity of South Dakota.  In the last few 
years the value of agricultural commodities produced 
in the state has averaged about $6 billion annually.  
The impacts of this productivity go beyond the 
agricultural sector.  The effects of this production are 
threefold, the direct, indirect, and induced.  The direct 
effect is the actual value of the commodities produced 
in the state.  The indirect effect is the business to 
business activity that is created through the 
processing of these commodities.  The induced effect 
is the additional consumer spending resulting from 
the increased economic activity in the state.  These 
three effects then accurately describe the total 
economic effect that agriculture has on the South 
Dakota economy. 
 
There will be two separate parts to this analysis.  
Initially only the impact of production agriculture will 
be considered.  Then, the effects of agricultural 
processing and manufacturing will be included.   
 
Methodology 
 
To analyze the impact of agriculture on the state of 
South Dakota the input-output modeling software 
IMPLAN Pro was employed.  This software was 
originally developed for the National Forest Service 
and has been adapted for commercial use.  The 
economic relationships among industries in South 
Dakota are modeled by the internal production 
functions imbedded within the program.   
 
 
Underlying Assumptions 
 
In this analysis we are looking at the 2004 data for 
South Dakota.  The industry outputs employed are 
those that are already included in the IMPLAN 
Pro database.  These outputs are actual gross 
sales, not Gross Domestic Product (GDP).  
Therefore, the cost of the inputs included in the 
production process are included, not excluded as 
they would be in a measure of GDP.  The value of 
the industry output for IMPLAN Pro is $52.018 
billion as compared to a GDP of $29.519 billion 
for South Dakota in 2004 (Bureau of Economic 
Analysis).  $52 billion would therefore accurately 
reflect the dollars flowing through the South 
Dakota economy during 2004. 
 
Production Agriculture Analysis 
 
In the initial analysis only the impact of 
production agriculture is examined.  Using the 
IMPLAN Pro division of industries by North 
American Industry Classification System 
(NAICS) code the 509 different industry 
classifications in the model are divided into 
twenty different categories.  Agriculture, forestry, 
fishing, and hunting are combined into one 
category.  The remaining 19 are mining, utilities, 
construction, manufacturing, wholesale trade, 
transportation and warehousing, retail trade, 
information, finance and insurance, real estate and 
rental, scientific and technical services, 
management of companies, administrative and 
waste services, educational services, health and 
social services, entertainment and recreation, 
accommodation and food services, other services, 
and government and non NAICS.   
 
 
 
  
 
The direct effect represents the value of the products 
produced in the agricultural sector (Table 1).  The 
indirect effect is the increased economic activity that 
would result in the industries supplying inputs into 
the ag sector (business to business activity).  The 
induced effect is the increase in household spending 
resulting from the increased economic activity in the 
state.  The $5.954 billion is 11.45% of the $52.018 
billion total activity for the state. 
 
Table 1.  Value of Ag Category Output 
(nominal 2004 dollars) 
 
Direct  $5,954,319,982 
Indirect  $4,144,826,634 
Induced  $2,399,431,975 
 Total  $12,498,578,690 
 
 
The employment effects are similar to the output 
effects (Table 2).  The direct effect is the number of 
people employed in the agricultural industries.  The 
indirect effect is the employment in the industries 
supplying inputs to the ag industries and the induced 
effect is the additional employment resulting from the 
increased economic activity in the state. 
 
Table 2.  Ag Category Employment (number of 
employees)  and Indirect Business Taxes (in 
nominal 2004 dollars) 
  
Employment 
 
Indirect Business Taxes 
Direct 42,045.2  $135,978,928 
Indirect 11,094.2  $135,733,592 
Induced       262.2  $113,283,449 
Total 53,401.6  $384,995,966 
 
The indirect business taxes are all of the taxes 
collected (sales, property, etc.), excluding income 
taxes, which does not affect South Dakota (Table 2).  
The direct effect is the tax revenue generated by the 
agricultural industries.  The indirect effect results 
from the increased business to business activity and 
the induced effect is from the increased consumer 
activity associated with the agricultural production in 
the state. 
 
The output multiplier for agricultural industries in 
South Dakota is 2.099.  This means that each dollar of 
revenue generated in agricultural industries in the 
state generates an additional $1.099 worth of 
economic activity in the state.  This multiplier 
does not represent the number of times a dollar is 
“turned over” in the economy.  It is a real increase 
in business activity.  The ag sector multiplier 
compares favorably with other industries.  The 
construction and manufacturing sectors have the 
highest multipliers at 2.161 and 2.150, 
respectively.  The utilities sector has the lowest 
multiplier at 1.546. 
 
Ag Production and Processing/Manufacturing 
 
In order to get a more accurate estimate of the real 
impact of agriculture on the state of South Dakota, 
it is necessary to include the industries from the 
manufacturing sector that can clearly be identified 
as ag related.  For this analysis these industries 
include flour milling, soybean processing, fluid 
milk, cheese, dry milk, animal slaughter, meat 
processing, poultry processing, dry pasta, 
wineries, leather, sawmills, and ethanol.  The sum 
of the output for these industries is 
$3,222,126,000 (Table 3).  This amount is 6.19% 
of the total output for the state.  Substantial 
employment and taxes also derive from the ag 
industry (Table 4).  Since the explanation of the 
three effects was included in the previous section 
they will not be repeated here. 
 
Table 3.   Value of Ag Industry Output  
(nominal 2004 dollars) 
  
Direct $3,222,126,000 
Indirect $2,455,633,364 
Induced $1,252,477,308 
Total $6,930,236,902 
 
 
Table 4.  Ag industry Employment (number of 
employees)  and Indirect Business Taxes (in 
nominal 2004 dollars) 
  
Employment 
 
Indirect Business Taxes 
Direct 11,658.5  $17,605,620 
Indirect 16,246.8  $83,121,230 
Induced 14,403.5  $59,132,321 
Total  42,308.8          $159,859,174 
 
 
  
 
Total Impact of Agriculture 
 
In order to get a complete picture of the total impact 
the agricultural sector has on the South Dakota 
economy the production agriculture and ag business 
sector outputs were combined and their total impact 
estimated.  These two sectors have a combined output 
of $9,176,445,952.  This amount is 17.65% of the 
state output.  As before, since the explanation of the 
effects is included earlier in the analysis, it is not 
repeated here. 
 
Table 5.  Total Impact of Agriculture 
(nominal 2004 dollars) 
   
Direct  $9,176,445,952 
Indirect  $6,387,761,692 
Induced  $3,697,862,738 
Total      $19,262,070,228 
 
 
Table 6.  Total Ag Employment (number of 
employees)  and Indirect Business Taxes (in 
nominal 2004 dollars) 
  
Employment 
 
Indirect Business Taxes 
Direct     64,797.6  $209,562,704 
Indirect     43,135.6  $209,184,589 
Induced     42,526.1  $174,585,754 
Total  150,459.3           $593,333,046 
 
Concluding Remarks 
 
As may be seen through the results of this 
analysis, agriculture remains a major contributor 
to the economic health of the state of South 
Dakota.  The agricultural sector in the state has a 
total impact of $19,262,070,228 in economic 
activity, employs 150,459 people, and contributes 
$593,333,046 in tax revenues to the state.  
Furthermore, each dollar of ag revenue generated 
in the state creates another $1.099 in additional 
economic activity.  This makes agriculture a 
potent engine for economic development within 
the state.  The expansion of the ethanol industry 
and the increase in commodity prices since 2004 
would serve to further increase the importance of 
agriculture in the state.   
 
 
ECONOMICS COMMENTATOR 
****************************************************************************** 
Economics  Department     
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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The Impact of Agriculture on the Economy of South Dakota

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The Impact of Agriculture on the Economy of South Dakota

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