Weighing in
Study gauges impact of local ag co-ops on
rural economies of Great Plains, eastern Cornbelt
By Kevin T. McNamara
Joan Fulton
Susan Hine
Editor’s note: Kevin T. McNamara
and Joan Fulton are professor and associate
professor, respectively, in the
Department of Agricultural Economics,
Purdue University. Susan Hine is an
associate professor in the Department of
Agricultural and Resource Economics,
Colorado State University
ural economic development
always a topic of
great importance to
community and government
leaders has
taken on even greater importance
today, given recent changes in the rural
and agricultural marketplace.
Increased consolidation of American
agriculture is resulting in fewer farms,
which, in turn, places pressure on rural
economies, since there are fewer farm
families to generate spending and economic
activity.
In addition, recent low commodity
prices are placing pressure on the
spending ability of producers and farm
families, which puts further pressure
on rural economies. Locally owned
agricultural cooperatives businesses,
which have typically centered on farm
supply and grain marketing have
historically been an integral component
of the local economy.
The objectives of this article are to:
(1) calculate the direct and total
employment and income impacts of
locally owned farm supply and grain
marketing cooperatives in Colorado
and Indiana; (2) evaluate the loss of
employment and income that would
occur in Colorado and Indiana if the
locally owned agricultural cooperatives
were to cease business; and (3) compare
the local economic impact of
these agricultural cooperatives in the
Great Plains (Colorado) and the
Eastern Cornbelt (Indiana).
Data for the analysis in the article
was obtained from 70 locally owned
cooperatives in Colorado and Indiana
(35 cooperatives in each state). In-person
interviews with the managers were
conducted in the spring of 2000 and
data was collected on level of sales,
number of employees and the volume
of business that would be lost to the
local economy if the cooperative were
not operating.
Ag’s impact on state economies
The agricultural sector is a large
industry in both Colorado and
Indiana. The ag output of Colorado
was valued at just over $5 billion in
1999 (USDA Economic Research
Service) and contributed more than
$3.67 billion in value added to the
state economy (Bureau of Economic
Analysis). That’s about 2.47 percent of
the total $153.72 billion value added
generated in Colorado in 1999. Cattle
and calves accounted for about 53 percent
of 1999 farm receipts in
Colorado, which is home to 28,268
farms and ranches. Following cattle in
importance were: corn (6 percent of
ag receipts), dairy (6 percent), wheat
(5 percent) and hogs (4 percent). The
value of Colorado agricultural production,
while spread across the state, is
concentrated in the northeast region
of the state. About 39 percent of
Colorado’s ag receipts come from
Weld and Yuma counties.
Total 1999 farm receipts in Indiana
were $4.89 billion (USDA Economic
Research Service). Agriculture, forestry
and fisheries, and farms contributed
$2.94 billion to Indiana’s total $182.2
billion of value added in 1999 (Bureau
of Economic Analysis).
Corn (31 percent) soybeans (23 percent),
hogs (12 percent), dairy (7 percent)
and eggs (6 percent) accounted
for the largest share of ag receipts in
Indiana. Agricultural production is less
concentrated in Indiana than in
Colorado. Kosciusko and Dubois
counties, Indiana’s leading farm counties,
accounted for less than 6 percent
of total state agricultural receipts.
Measuring ag’s impact
using multipliers
Multiplier’s used for estimating the
contribution of agriculture to the
economy have not always been valid.
For instance, seven is a commonly
quoted farm multiplier which can be
traced back to Carl Wilken, an analyst
for the Raw Materials National
Council. In 1944, he published a
report that used a multiplier of seven,
based on the 7-to-1 ratio of nominal
national income to farm marketings
that year (Schluter). Applying Wilken’s
ratio today would yield a farm multiplier
in the 20s.
The advent of the computer and
better access to data have allowed a
number of economists to construct
input/output models that can be used
to present a more exact estimate of the
economic impacts of agriculture.
Studies using these models were conducted for a number of states in the
1990s.
The contribution of agriculture to
an economy is generally evaluated by
totaling the sums of output, employment
and income for all industries in
the food and fiber supply chain. These
include input suppliers, farm-production
units, processing, marketing and
distribution. Sales, value-added and
employment from these activities are
added to the induced impacts associated
with household spending of income
earned in the food and fiber system to
produce estimated total sales, valueadded
and employment impacts.
Using such methodology in an
input-output framework, as calculated
by Schluter and Edmondson (1986),
shows that about 21 percent of the
national civilian workforce was
involved in the food and fiber system.
Several economists have conducted
similar studies to assess the importance
of agriculture to state economies.
Johnson and Wade (1994) estimated
the impact of Virginia’s agriculture system
on the state’s economy to be 12
percent of the state’s total value added
and 15 percent of employment in the
state. Henry (1995) included the state’s
forestry sector, and estimated that the
agriculture and natural resource industries
accounted for a 23-25 percent
share of the South Carolina economy.
The food and fiber industry in
Colorado and Indiana account for
about 14 percent of employment in
both states (USDA Economic
Research Service). In Colorado, agricultural
production accounts for 1.7
percent of employment, farm inputs
0.2 percent, processing and marketing
1.3 percent and wholesale and retail
10.6 percent.
In Indiana, farms account for 2.3
percent of employment, farm inputs
0.4 percent, processing and marketing
1.4 percent and wholesale and retail 10
percent.
Economic impact of ag cooperatives
Cooperatives provide a critical link
in the food and fiber supply chain. By
supplying production inputs, cooperatives
meet producers’ supply needs.
The effectiveness of cooperatives influences
producers input costs and, consequently,
their profitability. Likewise,
the marketing functions that cooperatives
perform influence farmers’ ability
to market their commodities and
directly affect the profitability of producers’
operations. Cooperatives, like
other input suppliers and service
providers, are a critical part of the food
and fiber industry’s supply chain.
Another aspect of cooperative operations,
which is the focus of the following
discussion, is as a source of
local employment and income. It is
also a source of goods and services to
non-agricultural rural residents. In
other words, cooperatives function as a
critical element in sustaining a community’s
economic base.
Direct impacts of local cooperatives
Thirty-five cooperatives in both
Colorado and Indiana provided information
about the number of people
they employed. The Colorado cooperatives
employed 1,524 people, who
earned a total of $20.94 million. Using
employment and income multipliers for
the retail establishments of 1.74 and
2.25 respectively, estimated total
employment and income impacts associated
with the Colorado cooperatives
in the sample is 2,652 jobs and nearly
$47.13 million in total income. The
Indiana cooperatives reported a total
employment of 2,651 and income of
$36.43 million. These jobs stimulated a
total employment impact of 4,613 jobs
and nearly $81.98 million of income.
What loss of co-ops would mean to
jobs and business service
To estimate the impact of cooperatives
as a source of local employment,
in addition to the retail/service support
they provide for agricultural producers,
cooperative managers were asked
what local employment and business
impact would be felt by the local economy
if the cooperative were to go out
of operation. The managers were
asked to estimate what share of their
employees would have to move out of
the county or be unable to find
employment. They were also asked to
estimate what share of their business,
in terms of sales of products and services
such as farm supplies, would be
moved to business establishments outside
of the local economy.
Managers of the Colorado cooperatives
estimated that 429 (28 percent) of
the 1,524 people who work for their
cooperatives would have to move out
of the county to find work. While
these jobs would not be lost to the
Colorado economy, they would be
shifted from the rural areas to other
communities. The result would be a
decline in the employment base of the
local economy.
For many farming communities, the
probability is low of other investment
coming into the county to create
replacement jobs. Additionally, the
cooperative managers indicated that
about 32 percent of sales of products
and services from all reporting cooperatives
would have to move to suppliers
in counties outside the economy where
the cooperative currently operates.
The reporting cooperatives indicated
that they had $472 million in sales
during 1999 and would lose $163 million
of sales to suppliers outside the
county if the cooperative were not in
business. Twenty-four of the 33 cooperatives
indicated that local business
would be lost. On average, the cooperatives
estimate that 37 percent of total
business would be lost. The range was
15 to 100 percent.
Managers for the Indiana cooperatives
estimated that 265 people (18
percent) working in the 2,651 co-op
jobs would have to move out of the
local economy to find work if the
cooperative went out of business.
Higher population densities and
greater economic diversification in
rural Indiana counties lessen the
potential impact of employment losses,
but the loss would be substantial for
the most remote counties.
The Indiana co-op managers estimated
that 27 percent of sales of
products and services from all reporting
cooperatives would move to
another county if a cooperative went
out of business. The cooperatives,
which reported more than $1.07 billion
in 1999 sales, said the county
would lose $289 million in sales if the
cooperative were not in business.
Twenty-seven cooperatives said local
sales in the range of 15-75 percent
would be lost.
Comparing Colorado and
Indiana economies
While the agricultural sector is an
important part of the economies for
both Colorado and Indiana, the states
and the regions they represent are
quite different. Indiana is part of the
established manufacturing region of
the country. Manufacturing is the
largest employment sector, accounting
for about 22 percent of all jobs and 32
percent of gross product in Indiana
(Bureau of Economic Analysis).
The service sector is the second
largest sector in the Indiana economy,
accounting for 17 percent of gross
state product. Indiana’s population of
just over 6 million has grown 11 percent
during the past 20 years. And
while Indiana boasts a strong, diversified
agricultural sector, every Indiana
resident is within 60 miles of a major
city, so off-farm employment possibilities
exist for farm families. Just over
1.6 million people, 26 percent of the
state’s population, live in the
Indianapolis metropolitan area.
Colorado, part of the Great Plains
region, has an economy based on services
and finance, real estate and insurance
(FIRE). The service sector
accounts for the largest share of the
state’s value-added activity, contributing
23 percent of gross state product.
FIRE accounts for 17 percent (Bureau
of Economic Analysis). Colorado’s
population of 4.3 million is 49 percent
larger than in 1980. About 60 percent,
or 2.85 million, of the state’s total population
live in the Denver metropolitan
area. The manufacturing sector
contributes 10 percent of gross state
product. The state is known for some
of the nation’s best vacation and recreation
sites, a fact that supports the
importance of the service sector to the
state economy.
The rural areas of Colorado and
Indiana are different from each other
in economic structure, farm structure
and population density. According to a
classification system developed by the
USDA Economic Research Service, 30
rural Indiana counties (or 55 percent
of the state’s non-metropolitan counties)
are classified as manufacturing
dependent (table 1). This means that
30 percent or more of total personal
income in each of these counties was
earned from manufacturing wages and
salaries. Only three Indiana counties
are classified as farm dependent counties in which 25 percent or more
total personal income over the past five
years was earned in the farm sector. In
Colorado, by contrast, 17 of 53 nonmetropolitan
counties were classified
as farm dependent. No Colorado
counties were classified as manufacturing
dependent.
The number of people impacted by
agriculture in the respective states is
noteworthy. About 25,000 people live
in Indiana’s three farm-dependent
counties. There are 17 farm-dependent
counties in Colorado. There are 3.3
persons per square mile in the farmdependent
counties of Colorado compared
to 29.6 (nine times greater) persons
per square mile in the farmdependent
counties in Indiana.
While it is useful to examine the
impacts of local cooperatives on
employment and income at the state
level, those aggregate measures may
not tell the complete story with
respect to their importance to rural
communities. To illustrate the impact
from the perspective of rural communities,
one locally owned agricultural
cooperative’s county level data was
evaluated. In this one Colorado county,
the local cooperative accounted for
20 of the 807 civilian jobs. In that
same county there were 47 private,
non-farm establishments. The cooperative
operated a convenience store,
retail gasoline station, retail farm supply
outlet, car-care operation, and
grain-marketing facility, and it sold
animal health and feed products as
well as liquid propane, fertilizer and
bulk petroleum.
The cooperative obviously represents
an integral part of the county’s
economy. It provides local jobs. It also
is a major supplier of goods and services
to the local economy. If cooperatives
in remote rural counties like this
were to go out of business, jobs would
be lost and consumers could lose
access to critical retail markets.
Conclusions
Agricultural cooperatives are an
important source of income and
employment in Colorado and Indiana.
Seventy reporting cooperatives account
for 4,175 jobs and an estimated $56
million in income in the two states.
The combined total employment and
income impacts associated with the
operation of the cooperatives are:
7,265 jobs and $129 million in personal
income.
While the income and employment
contribution of cooperatives is important
to the state economies, cooperatives
can be a critical income and
employment source to remote rural
communities.
To the extent that a community
can sustain a cooperative as a viable
local enterprise, it is maintaining the
associated income and employment in
a community that would not be competitive
in attracting other private
business capital (manufacturing,
retail, or service) because a business
could not achieve the scale of operation
to obtain a competitive return on
investment.
Given the presence of cooperatives
in rural communities, rural development
programs should consider the
importance of sustaining cooperatives
as viable businesses for their
income/employment contribution to
the local economy. Policy might also
consider strategies that use the management
and other resources of local
cooperatives as a building block for
development activities that expand the
availability of goods and services to
rural residents.
References:
For references, contact Sue Hine
at (970) 491-7370, or
suehine@lamar.colostate.edu.
