Agriculture in Arizona’s Economy: An Economic Contribution Analysis

Report
Authors
Ashley Kerna Bickel
Publication Date: October 2014 Download the report

As a leader in the production of many agricultural commodities, it is clear that agriculture is an important activity in Arizona. Arizona ranks second in the country (only to California) in the production of lettuce (head, leaf, and romaine), cauliflower, broccoli, spinach, cantaloupes, hon- eydews, and lemons (USDA, NASS, 2011). It also ranks in the top ten in the production of pima cotton, upland cotton, cottonseed, durum wheat, barley, tangerines, pecans, cabbage, chile peppers, watermelons, and principal vegetables (USDA, NASS, 2011). Turning to livestock production, Arizona ranks 10th in the nation in the number of cattle on feed (USDA, NASS, 2011). Clearly, Arizona is a prominent player in national agricultural production. But, closer to home, how does agriculture contribute to Arizona’s economy?

The contribution of Arizona agriculture to the state economy extends beyond the commodities directly produced on farms and ranches. Several industries provide critical support for agricultural production, basing their own economic activity on Arizona agriculture. First, there are industries in Arizona that almost exclusively provide goods and services as inputs to agricultural production. These agricultural service and input-supply industries, such as pest management consultants, fertilizer manufacturers, and farm equipment manufacturers, provide jobs and wages for local residents and contribute to the overall economic activity of the state. Secondly, industries that process and pack agricultural products, or agricultural processing industries, also contribute to the economic activity of the state. Both of these agricultural support industries depend on Arizona agricultural production, thus increasing agriculture’s role in the state economy.

This analysis examines the contribution of the entire agribusiness system to the state economy. It includes primary commodity agriculture (crop and livestock production) as well as the closely related input-supply and processing industries that depend on agricultural activity in Arizona.

n addition to the direct effects from the agribusiness system, these industries stimulate further demand for goods and services in other, non-agricultural industries. For example, industries hat provide water, electricity, gas, warehousing, transportation, and banking services, among others supply critical inputs to agribusiness firms. Yet, these industries are not exclusively agricultural. They also provide their goods and services to other industries. A good example of this is the warehousing industry. While warehousing services are critically important to agricultural producers and processors, non-agricultural retail sectors and wholesale sectors also rely heavily on warehousing services. So, warehousing is not exclusively agricultural. Nevertheless, because of agriculture, there is more demand for ware- housing (and other non-agricultural goods and services), than there otherwise would be.

Economists call these increases in demand for inputs outside the direct industry indirect effects. Indirect effects also account for the fact that non-agricultural suppliers of inputs to agriculture must themselves purchase more inputs to deliver goods and services. Thus, demands for agricultural inputs have additional backward linkages to other sectors of Arizona’s economy. This “ripple” of economic activity is one part of the multiplier effect of agricultural activity. Induced effects are another important economic multiplier. Induced effects measure the economic activity resulting from proprietors and workers in agribusiness firms—as well as employees at input-supply firms—spending their earnings on consumer goods and services within the state. These house- holds take the paychecks they earn and spend them at the grocery store, doctor, and restaurants and movie theaters, thus generating economic activity in sectors completely unrelated to agriculture. These indirect and induced multiplier effects are combined with the direct effects to measure the total contribution of the agribusiness system to Arizona’s economy.

The first section of this report provides a basic profile of Arizona agriculture, compiling data from the 2012 Census of Agriculture, the most recent and comprehensive report on agriculture available. Next, we present estimates of the total economic contribution of Arizona’s agribusiness system, including the indirect effects from non-agribusiness suppliers and the induced effects from household spending of proprietors and workers in the agribusiness sectors. The contributions of the agribusiness system to the state economy are discussed in terms of output (sales), value added (GDP), labor income, and employment.