Thursday, May 28, 2015

Q&A with Prof. Houk about north state ag economics

There's quite a bit of interest around the state in an economic study recently completed by Eric Houk, an ag business professor at Chico State. As I reported this week, Houk found that agriculture has boomed in northeastern California over the last decade and now accounts for nearly 1 in 5 jobs and 17 percent of all economic activity in the region.

Some of my sources in the San Joaquin Valley have taken notice in Houk's conclusion that ag accounted to nearly 7 percent of the state's total value added in 2013 and contributed 7.6 percent of the state's jobs. Many media reports have said agriculture only contributes about 2 percent of the gross state product, based at least partly on figures from UC-Davis' Agricultural Issues Center.

Here is the Q&A I did via email with Professor Houk for my story.

What would be the most important takeaway that people should glean from the study?

I think there are two major things I want people to take away from the report. First, I want them to realize how “Agriculture” includes a lot more than farm production. We often see a focus on production values, but we need to think about agriculture in a much broader way and include agricultural production, processing, and related activities. The second thing I want people to get from the study is understanding how the economy in some regions is more dependent upon agriculture than others. In this report I focused on northeastern California and I included some statewide comparisons so the reader can see how much more dependent northeastern California’s economy is on agriculture than the state as a whole.

To what extent do you think the drought has impacted the numbers since the study period?

2013 was a drought year and total production was likely impacted, but isolating these effects is difficult. The top three commodities in this region in terms of total value of production is Rice, Walnuts, and Almonds. A common response to a lack of water is land fallowing/idling, but in the case of Walnuts and Almonds this is not an option. As a result, these producers were unlikely to have reduced acreage very much. Instead they probably faced higher irrigation costs due to increased groundwater pumping or needing to purchase/lease water from other sources. Since Rice is an annual crop we did see some land fallowing in 2013. Drought induced land fallowing will decrease the total value of rice production in the region, but relatively strong rice prices also would have contributed to adding some acreage and the higher prices would help offset the effects of land fallowing to some degree.

You mention that your study differs from a UC Agricultural Issues Center economic study in terms of methodology. What did you do differently to arrive at the figures you cite?

I think the methods would have been relatively similar, but we probably defined “Agriculture” in slightly different ways. Once we defined the direct level of economic activity for agriculture, we both used IMPLAN to capture the multiplier effects (indirect and induced effects). The Measure of California Agriculture report states “Including multiplier effects, California farms and closely related processing industries…” contribute to the economy in several ways, but I was never able to see exactly which sectors of the economy they included as “closely related processing”. I assume we would have identified the same farm production sectors and most of the same agricultural processing sectors. However, I also included “Agricultural Related” activities like farm machinery manufacturing, support activities for agriculture, etc. and it does not appear that they included those as direct effects. These types of economic activities are typically part of what we would call the Farm Service Sector and I included them as part of the overall “Agriculture Industry”. The approach I used was more consistent with a report by English, Popp, and Miller (2013) that was used to estimate the economic contribution of agriculture to the Arkansas economy.

What I find interesting is that my statewide results are not that different from the UC AIC highlight report for 2009, but with one major difference. The UC AIC Highlights opens with the following sentence “Including multiplier effects, California farms and closely related processing industries generate 6.7 percent of the state’s private sector labor force (including part-time workers), 1.3 percent of the Gross State Product (GSP) and 6.1 percent of the state labor income (2009).

In terms of employment (7.6% versus 6.7%) and labor income (7% versus 6.1%), we are somewhat similar. However, when it comes to the percentage of Gross State Product I estimated it at 6.8% while they stated 1.3%. I am still confused how they would have gotten 1.3% of Gross State Product if they actually included processing and multiplier effects as they indicated. I was not able to find the detailed report that was used to create the updated highlights report for 2009, but they do have the full detailed report for the 2002 MOCA available online. Table 5-5 in that report summarizes the overall economic impact of CA Ag production and processing for 2002 and when I look at those numbers (total value added including direct, indirect, and induced relative to the total value added by the California economy) I get something like 6.5% in 2002. This is much more consistent with what I estimated for 2013.

Coincidently, if you look at my report and focus only on “Agricultural Production”, ignore Processing and Ag Related sectors along with the multiplier effects (Indirect and induced effects), I get 1.4% which is very similar to their 1.3% estimate. It makes me wonder if the 1.3% estimate actually includes processing and multiplier effects, I haven’t reached out to authors to try and confirm this.

I guess the potential concern here is if this 1.3% number is being used by the press to potentially minimize the role of agriculture in the state…

The photo of Professor Houk is courtesy of the Chico State College of Agriculture's website.

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