Economic Importance of Minnesota's Poultry Industry

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I. Introduction to Minnesota's Poultry Industry

As shown in Figure 1, poultry sales accounted for 7% of the state's total agricultural output in 1996.² This percentage has been growing steadily over the last fifteen years, as shown in Figure 2. In 1980, only 4.6% of Minnesota's agricultural sales came from poultry production. As with production, poultry processing accounts for about 6% of the total food processing gross sales in Minnesota.³

While the poultry industry is a small part of the state's agriculture, it appears to be relatively productive. Highly productive industries tend to result in higher returns to labor. As shown in Figure 3, poultry workers had higher average personal incomes (includes both wages and self-employment incomes) than workers in other agricultural sectors and the average of all industries.⁴

Figure 1. Value of Agricultural Production, Minnesota 1996

Figure 2. Poultry Sales, Percent of Total Farm Sales, Minnesota 1980-1996

Figure 3. Personal Income per Worker, Minnesota 1994

II. Export Sales from Minnesota's Poultry Industry

Figures 4 and 5 show the exports to other states and to foreign nations for farm level poultry production and for poultry processing. Naturally, a much higher percentage of processed poultry is exported from the state than is farm level production. Six percent of the farm production is exported (5% to other states and 1% internationally). Twenty-eight percent of the processed poultry is sold outside the state (22% to other states and 6% to other nations).

As expected, most of the of the farm production in Minnesota (78%) is sold to processing plants in Minnesota. Ten percent goes directly to consumers, 5% is exported to processors in other states, while 6% goes to international and other sectors. The 1% foreign sales is not included.⁵

While the above sections give a general description of the poultry industry, the industry actually impacts many more employees than this would suggest. The following sections discuss these linkages to the rest of Minnesota's economy.

Figure 4. Poultry Production Sales by Sector, Minnesota 1994

Figure 5. Poultry Processing Sales by Sector, Minnesota 1994

III. Introduction to Impact Analysis

Input-output analysis has several limitations that are outlined at the end of the paper. However, input-output has been used widely for examining the importance of agricultural sectors and their linkages to other parts of the economy.⁷ An earlier University of Minnesota study examined the overall impacts of the food and agricultural system. This is the first study to examine the poultry industry.⁸

Before it was possible to estimate the impacts, the national data in the IMPLAN model had to be adjusted to reflect Minnesota production costs. The sectors adjusted were poultry production, prepared feeds, agricultural services, and poultry processing.⁹

Figure 6. Poultry Industry Employment, Minnesota 1996

IV. Employment Impacts

What is the total employment impact of Minnesota's poultry industry?

Yet, as we will see later, the 10,308 jobs in the poultry industry are only 39% of the 26,349 jobs in Minnesota that depend directly on the poultry industry.

As shown in Figure 7, over 10,600 jobs are in supply industries.¹² The supply industries include not only feed grains, prepared feeds, fuels, and transportation but also all of those industries that, in turn, support these industries.

In addition, the employees in the poultry industry and the employees in supply industries depending on the poultry industry spend a portion of their income in Minnesota. The model estimated that 5,402 additional jobs were created due to employee spending.¹³

Figure 7. Jobs in Supply Industries Depending on Poultry Industry, Minnesota 1996

In summary, a total of 26,344 jobs were created in Minnesota in 1996 as a result of the 10,308 persons employed directly in the poultry industry. Figure 8 shows the employment for production, processing, suppliers, and induced by employee spending for each segment of the poultry industry.¹⁴ Figure 9 shows the same information for each of the four parts of the poultry industry.

In which industries are the jobs created?

The agriculturally related industries (agricultural services, soybean, corn, and veterinarians) account for 28% of the total spin-off jobs and 18% of the total jobs depending on the poultry industry. Together the farm production (15% of the total), processing (24% of total), and the agriculturally related sectors account for 57% of the 26,344 jobs in Minnesota that depend on the poultry industry.

Figure 8. Jobs Dependent on Poultry Industry, Minnesota 1996

Figure 9. Jobs Dependent on Poultry Industry by Sector, Minnesota 1996

The other 43% of the jobs fall in business categories that are not classified as agricultural. As shown in both Tables 2 and 3, the spin-off employment due to the poultry industry in the business services and retail trade is greater than the employment in the corn and feed grains sector. Business services include personnel services, accounting, management and consulting services, computer and data processing, equipment rentals and leasing, legal services, research and testing, business associations, and business lodging expenses.

Table 3. Job Impacts in Spin-off Industries Due to Poultry Industry, Minnesota 1996

V. Income Impacts

How much income does the poultry industry contribute to the state's economy?

How much of the income is earned by the poultry industry and how much by the spin-off sectors?

Figure 10. Income Earned by Poultry Industry, Minnesota 1997

Figure 11. Income Generated by the Poultry Industry, Minnesota 1996

VI. Comparison of Poultry Industry to Selected Companies

As shown in Figure 12, the "total poultry" industry company (includes production, processing, and support industries) employs more people than either 3M or Northwest Airlines. Since the airlines and manufacturing pay higher wages, the income earned in 3M and NWA is higher than for the total poultry industry.

While this comparison gives a handy picture of the size of the poultry industry, it is comparing apples to oranges (or turkeys to Post-its® and jets). We are comparing the entire industry to individual companies and we are not showing the individual companies' supporting industry employment and income.

Is the poultry industry the most important economic sector in Minnesota? Of course not. But with 26,300 people employed in it or supported directly by it, it is probably bigger and more important than you imagined.

Figure 12. Minnesota Poultry Jobs & Income vs. Large Firms, 1996

VII. Limitations of This Study

Regional input-output models such as IMPLAN provide tremendous detail on the impacts. However, this detail carries with it a number of major assumptions, including: 1) the supply of labor and other intermediate resources is not limited so growth will not increase wages or other prices, 2) the percent of supplies that are purchased outside the region will stay the same as growth occurs, 3) household consumption of each item increases in direct proportion to income, 4) there is no underemployment, 5) there are no economies of scale, and 6) there will be no substitution between inputs due to price changes.¹⁸

If the first three assumptions are not correct, the impacts are likely to be overestimated when there is economic growth. In this study, the first assumption is not likely to be a problem. The size of the poultry industry, while an important part of the Minnesota economy, is not large enough to cause wages or other prices to increase. The second assumption is not a problem since existing linkages are being examined. If the model was used to examine increases in the industry, this aspect would need careful examination. The third assumption would definitely be a problem in this study if the full income was used for estimating the induced employee spending impacts. To correct for this, only one-half of the income stemming from the industry was used for household consumption spending. If this project was examining an expansion in the poultry industry, assumptions four and five would be problematic. However, for a structural linkage study as was done here, these assumptions do not present problems. Assumption six is unlikely to be a problem since prices are not likely to be changed.¹⁹

Overall, input-output appears to be a reasonable approach for looking at the linkages between the poultry industry and the rest of the Minnesota economy.²⁰

Data on output for the production sectors and on the employment in processing sectors were readily available. The major data limitations were in adapting the expenditure functions for the aggregated poultry sector to reflect the differences between turkey, broiler, and egg production. Relatively good data were available for the turkey and broiler industries but no detailed published data on cost functions for eggs were found. Consequently, for this sector, the IMPLAN default data for the poultry sector were used. Fortunately the egg sector makes up only 12% of the Minnesota poultry industry so the approach used is unlikely to change the overall results for the poultry industry very much. For more detail on the data sources see footnotes 8, 9, and 10. Future studies will explore the potential of an industry survey of expenditure functions to refine this aspect of the study.

References

Corporate Report Fact Book, 1998 Edition. Corporate Report Inc. Minneapolis, Minn., 1997.

Johnson, Thomas G. "Methods in Rural Development Policy Analysis," in Rural Development Research: A Foundation for Policy, ed. by Thomas D. Rowley et al. Westport, Conn.: Greenwood Press, 1996.

Lasley et al. The U.S. Turkey Industry, USDA/ERS/AERS #525, Washington, D.C., March 1985.

Leones, Julie, Gerald Schluter, and George Goldman. "Redefining Agriculture in Interindustry Analysis," American Journal of Agricultural Economics 76(5): 1123-29, 1994.

Minnesota IMPLAN Group, Inc. IMPLAN Professional User's Guide, Analysis Guide, Data Guide. Stillwater, Minn. 1996.

Otto, Daniel M., and Thomas G. Johnson (editors). Microcomputer-Based Input-Output Modeling: Applications to Economic Development. Boulder: Westview Press, 1993.

Putnam, Judith Jones and Jane E. Allshouse. Food Consumption, Prices, and Expenditures, 1970-1995. USDA, Statistical Bulletin No. 939, Washington, D.C., 1997.

Senf, D., W. Maki, and J.P. Houck. The Economic Importance of Minnesota's Food and Agriculture Industry. St. Paul: University of Minnesota, Department of Agriculture and Applied Economics. Staff Paper P92-18, August 1992.

Vukina, Tomislav, Fritz Roka, Tom Carter, Jon Brandt, and Kelly Zering. Impact of the Poultry Industry on the Economy of North Carolina. North Carolina Agricultural Research Service, North Carolina State University, Technical Bulletin 307, August 1995.

End Notes

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