Jones, L. L.

Prewett, R. L.

Sprott, J. M.

English

Texas A&M University

3 0 ()I
L-l057
THE ECONOMIC IMPACT OF AGRICULTURE AND
OTHER INDUSTRIES IN TEXAS
L. L. Jones, R. L. Prewett and J. M. Sprott*
What is the economic impact of different types
of businesses and industries on the economy of
Texas? What type of new plant or enterprise will
create the greatest amount of new output and
income within the state? How does the economic
effect of a change in demand for agricultural
products and processing compare with manufac-
turing, mining and services?
Decision-makers concerned with the develop-
ment of agriculture and other sectors of Texas
economy frequently ask these questions. To answer
them, one must measure not only the direct or
initial effect of a change in the economy but also
all secondary effects and repercussions resulting
from the initial change. In economic terms, this
kind of measure is called the "multiplier effect."
The Multiplier Concept
Industrial activity can be classified into three
broad categories: primary, processing and service
industries.
Farming, mining and forestry are classified as
primary industries because they are tied directly
to natural resources. Secondary or processing in-
dustries use raw materials from primary industries
in their manufacturing operations. These second-
ary industries include petroleum refining, plastic
molding, meat packing, dairy processing and others.
A third category-service industries-produce to
meet the needs of primary and processing indus-
tries and their employees. These industries include
wholesale and retail stores, transportation, insur-
ance, finance and communications.
An understanding of the three kinds of in-
dustries assists in understanding the economic·
*Respectively, agricultural economist, The Texas Agricultural
Experiment Station; Extension resource development economist
and economist-management, Texas A&M University.
39.9
multiplier concept. Economic activity in the pri-
mary and processing industries tends to have reper-
cussions in other primary and processing industries
as well as in service industries. Therefore, a unit
of primary and secondary economic activity usually
tends to have a greater impact on total output in
the economy than a unit of service industry activity.
Three types of mUltipliers are often considered
in comparing industries. They are output, employ-
ment and income multipliers. Each is related to
changes in final consumer demand, such as' an
increase in household consumption; exports from
the state or government purchases.
An output multiplier indicates the total dollar
change in output generated in the economy from
a $1 change in the final demand for the product
of a particular industry. To illustrate this con-
cept, suppose there is an increase in the out-of-state
(export) demand for Texas-processed meat prod-
ucts. To meet this demand, Texas meat processors
increase their output of processed meat. This is
the direct effect. But to produce more meat re-
quires increased production of Texas livestock,
plus more feed, fertilizer, agricultural chemicals,
services and other inputs. These comprise the
secondary output effects of the initial change and
continue in chain reaction until virtually all seg-
ments of the Texas economy are affected. The
total change in output in the entire economy
resulting from a $1 increase in final demand in a
particular industry is summarized in the output
multiplier.
As output increases, additional employees are
required in the production, processing and services
industries. An employment multiplier may then
be estimated to express the total ch~nge in em-
ployment resulting from this one-unit change in
employment in a particular industry.
Similarly, an increase in output and employ-
ment causes an increase in income. The total
change in income resulting from a $1 change in
income of a particular industry is measured by the
income multiplier.
In the highly complex and interrelated Texas
economy, these multipliers provide tools to measure
the impact of a change in the demand for products
in one industry on the entire economy. A recent re-
search study provides estimates of output, employ-
ment and income multipliers that may be used by
private and public decision-makers in fostering the
future growth and development of the Texas econ-
omy.! This fact sheet summarizes major findings
of the study.
lJones, Lonnie L. and Gholam Mustafa, Th.. Structur.. of th..
Tnas Economy, Emphasis on Agrlcultur.., Bulletin 1121, The
Texas Agricultural Experiment Station, Texas A&M University,
College Station, Texas.
Multipliers by Economy Sectors
The state's economy can he classified or divided
in many ways. For purposes of the study, it was
divided into 31 major industries, which are shown
with each industry's economic multiplier in TahIr
1.
Agriculture and its processing sectors, which
significantly influence the economy, are closely
interrelated with other sectors of the general econ-
omy. Their output, income and employment
multipliers were among the largest of the 31 sector
multipliers computed in the study. The meat
products output multiplier of 2.82 was the largest,
followed hy the poultry and eggs sector and meat
animals sector with multipliers of 2.46 and 2.36,
respectively. These output multipliers indicate
the total change in output in the economy that is
required to meet a $1 increase in final demand
for each of the given sectors.
Table 1. Output, Employment and Income Multipliers by Sectors, Texas Economy
Employ-
Output ment Income
Multi- Multi- Multi-
Type and Name of Sector plier Rank plier Rank prier Rank
Agricultural Product Producing S..ctors
1. Dairy farm products 2.04 7 1.80 14 2.56 8
2. Poultry and eggs 2.46 2 2.57 9 4.36 2
3. Meat animals and other
Iivestock products 2.36 3 2.37 10 3.25 6
4. Cotton 1.83 10 1.54 18 1.83 12
5. Food, feed grains and grass seeds 1.77 12 1.27 23 1.73 13
6. Fruit and tree nuts 1.45 24 1.11 26 1.30 28
7. Vegetables and other crops 1.53 18 1.16 25 1.39 26
8. Oil bearing crops 1.75 13 1.27 23 1.67 14
9. Farm forest, greenhouse and nursery 1.32 28 1.08 28 1.22 30
10. Forestry and fishery products 1.50 20 3.95 6 1.39 26
Agricultural Product Processing Sectors
11. Meat products 2.82 1 8.57 1 5.29 1
12. Dairy products 1.85 9 3.77 7 2.76 7
13. Canning, freezing and dehydrating 1.66 15 1.52 19 2.26 9
14. Grain mill products 2.25 5 4.94 5 4.07 4
15. Fats and oil mills 2.18 4 7.19 3 4.20 3
16. Textiles, apparel and fabrics 1.37 26 1.09 27 1.58 20
17. Agricultural, forestry and
fishery services 1.78 11 1.70 16 2.08 11
18. Other agricultural processing 1.53 18 6.48 4 1.53 23
Other Industrial Sectors
19. Mining 1.48 22 1.79 15 1.44 24
20. Construction 1.54 17 1.98 12 1.66 15
21. Lumber and wood products 1.51 19 1.35 22 1.65 16
22. Chemicals and fertilizer 1.94 8 3.20 8 2.09 10
23. Petroleum refining and
related industries 2.12 6 7.67 2 3.40 5
24. Farm machinery 1.47 23 1.45 20 1.63 18
25. Other manufacturing 1.50 20 1.52 19 1.61 19
26. Transportation and warehousing
services 1.49 21 1.55 17 1.42 25
.27. Communications (radio, television,
etc.) and utility (electric, gas and
sanitary) services 1.59 16 1.99 11 1.57 21
28. Wholesale and retail trade 1.35 27 1.16 25 1.27 29
29. Finance, insurance and real estate 1.43 25 1.84 13 1.35 27
30. Other services 1.54 17 1.40 21 1.54 22
31. Government enterprises 1.66 14 1.22 24 1.64 17
The multipliers are large, relative to those ot
other sectors, because they are closely linked with
sources of input supplies and resources within
the state. For example, the meat products sector
depends directly on livestock and poultry producers
for supplies of slaughter animals. These producers,
in turn, demand large quantities of feed grains and
other productive inputs from agricultural supply
and other sectors.
Income and employment multipliers were also
large for agricultural sectors. Meat products, poul-
try and eggs and fats and oil mills sectors had
the largest income multipliers of all sectors. It was
estimated, for instance, that if the meat products
sector sufficiently expanded its sales to final de.
mand and that if one additional dollar was paid
in wages, salaries and other income. then the total
effect on the Texas economy would equal a $5.29
rise in total income.
Other agricultural. and related processing sec-
tors had relatively large income multipliers, as
did certain manufacturing sectors. The largest
manufacturing income multiplier was 3.40 in the
petroleum refining sector.
Employment multipliers were highest in the
meat products, petroleum refining and fats and
oil mills sectors of the Texas economy. The cre-
ation of one new man-year of employment in either
of these sectors, resulting from increased output,
would have a significant impact on total employ-
ment in the general economy. This again reflects
the relatively close relationship and high demand
for resources located within the state.
Use of Economic Multipliers
The initiation of ,economic development strat-
egies that maximize the total effects on output,
income and employment in the state's economy
would seem an appropriate development goal. The
estimated multipliers shown in Table I provide a
comparative analysis of the economy in this respect.
As general guidelines, these multipliers may be
used in conjunction with other economic and social
development planning factors, such as resource
availability, environmental factors and capital and
labor requirements, to select industrial sectors that
should receive emphasis in achieving development
goals.
For example, if the development goal is to make
a currently underemployed labor force (made up
of semi-skilled laborers) productive, resource de-
velopment funds would be better spent in the
agricultural processing sector rather than the fi-
nance sector. Employment and output multipliers
give some indication of how much more fruitful
any developmental activities in one sector would
be when compared with another.
Additional information regarding the interpre-
tation and application of these multipliers to prob-
lem solving and decision making can be secured
from the Extension resource development econ-
omist or your local county agricultural agent.
Results reported here are based on a statewide
study. Regional multipliers provide more specific
coefficients for interested decision makers. (See
references.)
References
Texas Agricultural Experiment Station Publication B-1121, Structure of the Texas Economy: Emphasis
on Agriculture.
The following. publications are available from the Office of the Governor, Division of Planning
Coordination.
An Input-Output Model of the Upper Rio Grande Region of Texas
An Input-Output Model of the High Plains Region of Texas
An Input-Output Model of the Low Rolling Plains Region of Texas
An Input-Output Model of the North Central Region of Texas
An Input-Output Model of the Northeast Region of Texas
An Input-Output Model of the South Central Region of Texas
An Input-Output Model of the Lower Rio Grande Region of Texas
An Input-Output Model of the Houston Region of Texas
An Input-Output Model of the Southeast Region of Texas
Educational programs conducted by the Texas Agricultural Extension Service serve people of all ages regardless of socio-
economic levelsl racel colorl sex, religion or national origin.
Cooperative Extension Work in Agriculture and Home Economics, Texas A&M University and the United States Department
of Agriculture cooperating. Distributed in furtherance of the Acts of Congress of May 8, 1914, as amended, and June 30, 1914.
3M-7-72 AECO 1


The Economic Impact of Agriculture and Other Industries in Texas.

Texas A&amp;M Repository

3 0 ()IL-l057THE ECONOMIC IMPACT OF AGRICULTURE ANDOTHER INDUSTRIES IN TEXASL. L. Jones, R. L. Prewett and J. M. Sprott*What is the economic impact of different typesof businesses and industries on the economy ofTexas? What type of new plant or enterprise willcreate the greatest amount of new output andincome within the state? How does the economiceffect of a change in demand for agriculturalproducts and processing compare with manufac-turing, mining and services?Decision-makers concerned with the develop-ment of agriculture and other sectors of Texaseconomy frequently ask these questions. To answerthem, one must measure not only the direct orinitial effect of a change in the economy but alsoall secondary effects and repercussions resultingfrom the initial change. In economic terms, thiskind of measure is called the "multiplier effect."The Multiplier ConceptIndustrial activity can be classified into threebroad categories: primary, processing and serviceindustries.Farming, mining and forestry are classified asprimary industries because they are tied directlyto natural resources. Secondary or processing in-dustries use raw materials from primary industriesin their manufacturing operations. These second-ary industries include petroleum refining, plasticmolding, meat packing, dairy processing and others.A third category-service industries-produce tomeet the needs of primary and processing indus-tries and their employees. These industries includewholesale and retail stores, transportation, insur-ance, finance and communications.An understanding of the three kinds of in-dustries assists in understanding the economic·*Respectively, agricultural economist, The Texas AgriculturalExperiment Station; Extension resource development economistand economist-management, Texas A&M University.39.9multiplier concept. Economic activity in the pri-mary and processing industries tends to have reper-cussions in other primary and processing industriesas well as in service industries. Therefore, a unitof primary and secondary economic activity usuallytends to have a greater impact on total output inthe economy than a unit of service industry activity.Three types of mUltipliers are often consideredin comparing industries. They are output, employ-ment and income multipliers. Each is related tochanges in final consumer demand, such as' anincrease in household consumption; exports fromthe state or government purchases.An output multiplier indicates the total dollarchange in output generated in the economy froma $1 change in the final demand for the productof a particular industry. To illustrate this con-cept, suppose there is an increase in the out-of-state(export) demand for Texas-processed meat prod-ucts. To meet this demand, Texas meat processorsincrease their output of processed meat. This isthe direct effect. But to produce more meat re-quires increased production of Texas livestock,plus more feed, fertilizer, agricultural chemicals,services and other inputs. These comprise thesecondary output effects of the initial change andcontinue in chain reaction until virtually all seg-ments of the Texas economy are affected. Thetotal change in output in the entire economyresulting from a $1 increase in final demand in aparticular industry is summarized in the outputmultiplier.As output increases, additional employees arerequired in the production, processing and servicesindustries. An employment multiplier may thenbe estimated to express the total ch~nge in em-ployment resulting from this one-unit change inemployment in a particular industry.Similarly, an increase in output and employ-ment causes an increase in income. The totalchange in income resulting from a $1 change inincome of a particular industry is measured by theincome multiplier.In the highly complex and interrelated Texaseconomy, these multipliers provide tools to measurethe impact of a change in the demand for productsin one industry on the entire economy. A recent re-search study provides estimates of output, employ-ment and income multipliers that may be used byprivate and public decision-makers in fostering thefuture growth and development of the Texas econ-omy.! This fact sheet summarizes major findingsof the study.lJones, Lonnie L. and Gholam Mustafa, Th.. Structur.. of th..Tnas Economy, Emphasis on Agrlcultur.., Bulletin 1121, TheTexas Agricultural Experiment Station, Texas A&M University,College Station, Texas.Multipliers by Economy SectorsThe state's economy can he classified or dividedin many ways. For purposes of the study, it wasdivided into 31 major industries, which are shownwith each industry's economic multiplier in TahIr1.Agriculture and its processing sectors, whichsignificantly influence the economy, are closelyinterrelated with other sectors of the general econ-omy. Their output, income and employmentmultipliers were among the largest of the 31 sectormultipliers computed in the study. The meatproducts output multiplier of 2.82 was the largest,followed hy the poultry and eggs sector and meatanimals sector with multipliers of 2.46 and 2.36,respectively. These output multipliers indicatethe total change in output in the economy that isrequired to meet a $1 increase in final demandfor each of the given sectors.Table 1. Output, Employment and Income Multipliers by Sectors, Texas EconomyEmploy-Output ment IncomeMulti- Multi- Multi-Type and Name of Sector plier Rank plier Rank prier RankAgricultural Product Producing S..ctors1. Dairy farm products 2.04 7 1.80 14 2.56 82. Poultry and eggs 2.46 2 2.57 9 4.36 23. Meat animals and otherIivestock products 2.36 3 2.37 10 3.25 64. Cotton 1.83 10 1.54 18 1.83 125. Food, feed grains and grass seeds 1.77 12 1.27 23 1.73 136. Fruit and tree nuts 1.45 24 1.11 26 1.30 287. Vegetables and other crops 1.53 18 1.16 25 1.39 268. Oil bearing crops 1.75 13 1.27 23 1.67 149. Farm forest, greenhouse and nursery 1.32 28 1.08 28 1.22 3010. Forestry and fishery products 1.50 20 3.95 6 1.39 26Agricultural Product Processing Sectors11. Meat products 2.82 1 8.57 1 5.29 112. Dairy products 1.85 9 3.77 7 2.76 713. Canning, freezing and dehydrating 1.66 15 1.52 19 2.26 914. Grain mill products 2.25 5 4.94 5 4.07 415. Fats and oil mills 2.18 4 7.19 3 4.20 316. Textiles, apparel and fabrics 1.37 26 1.09 27 1.58 2017. Agricultural, forestry andfishery services 1.78 11 1.70 16 2.08 1118. Other agricultural processing 1.53 18 6.48 4 1.53 23Other Industrial Sectors19. Mining 1.48 22 1.79 15 1.44 2420. Construction 1.54 17 1.98 12 1.66 1521. Lumber and wood products 1.51 19 1.35 22 1.65 1622. Chemicals and fertilizer 1.94 8 3.20 8 2.09 1023. Petroleum refining andrelated industries 2.12 6 7.67 2 3.40 524. Farm machinery 1.47 23 1.45 20 1.63 1825. Other manufacturing 1.50 20 1.52 19 1.61 1926. Transportation and warehousingservices 1.49 21 1.55 17 1.42 25.27. Communications (radio, television,etc.) and utility (electric, gas andsanitary) services 1.59 16 1.99 11 1.57 2128. Wholesale and retail trade 1.35 27 1.16 25 1.27 2929. Finance, insurance and real estate 1.43 25 1.84 13 1.35 2730. Other services 1.54 17 1.40 21 1.54 2231. Government enterprises 1.66 14 1.22 24 1.64 17The multipliers are large, relative to those otother sectors, because they are closely linked withsources of input supplies and resources withinthe state. For example, the meat products sectordepends directly on livestock and poultry producersfor supplies of slaughter animals. These producers,in turn, demand large quantities of feed grains andother productive inputs from agricultural supplyand other sectors.Income and employment multipliers were alsolarge for agricultural sectors. Meat products, poul-try and eggs and fats and oil mills sectors hadthe largest income multipliers of all sectors. It wasestimated, for instance, that if the meat productssector sufficiently expanded its sales to final de.mand and that if one additional dollar was paidin wages, salaries and other income. then the totaleffect on the Texas economy would equal a $5.29rise in total income.Other agricultural. and related processing sec-tors had relatively large income multipliers, asdid certain manufacturing sectors. The largestmanufacturing income multiplier was 3.40 in thepetroleum refining sector.Employment multipliers were highest in themeat products, petroleum refining and fats andoil mills sectors of the Texas economy. The cre-ation of one new man-year of employment in eitherof these sectors, resulting from increased output,would have a significant impact on total employ-ment in the general economy. This again reflectsthe relatively close relationship and high demandfor resources located within the state.Use of Economic MultipliersThe initiation of ,economic development strat-egies that maximize the total effects on output,income and employment in the state's economywould seem an appropriate development goal. Theestimated multipliers shown in Table I provide acomparative analysis of the economy in this respect.As general guidelines, these multipliers may beused in conjunction with other economic and socialdevelopment planning factors, such as resourceavailability, environmental factors and capital andlabor requirements, to select industrial sectors thatshould receive emphasis in achieving developmentgoals.For example, if the development goal is to makea currently underemployed labor force (made upof semi-skilled laborers) productive, resource de-velopment funds would be better spent in theagricultural processing sector rather than the fi-nance sector. Employment and output multipliersgive some indication of how much more fruitfulany developmental activities in one sector wouldbe when compared with another.Additional information regarding the interpre-tation and application of these multipliers to prob-lem solving and decision making can be securedfrom the Extension resource development econ-omist or your local county agricultural agent.Results reported here are based on a statewidestudy. Regional multipliers provide more specificcoefficients for interested decision makers. (Seereferences.)ReferencesTexas Agricultural Experiment Station Publication B-1121, Structure of the Texas Economy: Emphasison Agriculture.The following. publications are available from the Office of the Governor, Division of PlanningCoordination.An Input-Output Model of the Upper Rio Grande Region of TexasAn Input-Output Model of the High Plains Region of TexasAn Input-Output Model of the Low Rolling Plains Region of TexasAn Input-Output Model of the North Central Region of TexasAn Input-Output Model of the Northeast Region of TexasAn Input-Output Model of the South Central Region of TexasAn Input-Output Model of the Lower Rio Grande Region of TexasAn Input-Output Model of the Houston Region of TexasAn Input-Output Model of the Southeast Region of TexasEducational programs conducted by the Texas Agricultural Extension Service serve people of all ages regardless of socio-economic levelsl racel colorl sex, religion or national origin.Cooperative Extension Work in Agriculture and Home Economics, Texas A&M University and the United States Departmentof Agriculture cooperating. Distributed in furtherance of the Acts of Congress of May 8, 1914, as amended, and June 30, 1914.3M-7-72 AECO 1

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The Economic Impact of Agriculture and Other Industries in Texas.

Abstract

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Texas A&M University

Texas A&M Repository

The Economic Impact of Agriculture and Other Industries in Texas.

Abstract

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Full text

Available Versions

Texas A&M University

Texas A&amp;M Repository

Texas A&M Repository