Introduction
Staley operates two wet corn milling facilities in the Lafayette area,
producing modified corn starch and corn sweeteners. The two facilities
have an annual processing capacity of 80 million bushels. Staley's presence
in the Lafayette area has an impact on farmers' net returns because of
the plant's influence on the corn basis price and the returns to corn producers
who sell directly to Staley (Kane).
Kane estimated that Staley's presence in the Lafayette corn market increased the basis price by 7 cents per bushel. In addition to the basis price effect, corn producers who contract grow and/or sell corn directly to Staley have higher net returns due to premium payments, elevator margin savings, and reduced transportation costs (Kane). Staley's presence stimulates an estimated $9,307,000 increase in net returns to corn producers in the Lafayette area (Kane).
For this analysis, the $9.3 million in increased net returns is considered increased farm household income. An estimated $5.96 million of this income is spent by farm households in the Indiana economy (IMPLAN). Households spend this money on goods and services such as cars, food, housing, entertainment and health care. The remaining balance of the increased income, $3.35 million, is either saved, used for loan repayment, or spent outside of the state economy (e.g., out-of-state vacations, purchases made directly from out-of-state firms).
This paper examines the total economic impacts that farm household spending of the $5.96 million of income has on the state economy. (Impacts of farm household spending on the Greater Lafayette area are presented in Appendix B.) The paper examines output, income, and employment impacts. The methodology used in this study is described in Appendix A.
Output Impact
Output impacts are changes in sales or receipts resulting from an initial
change in the economy (e.g., farm household spending of increased income).
The $9.3 million increase in farm household income results in increased
household spending of $5.96 million in the Indiana economy. This $5.96
million is the direct output effect. It is the money initiating a change
in economic activity.
The total output, or gross receipts, impact associated with increased farm household spending is $10,205,253 (Table 1). This represents the total value of economic activity arising from increased farm household spending, and is the sum of the direct, indirect, and induced effects. The $10.2 million includes the initial $5.96 million spent (direct effect), $1.76 million in spending by industries that supply items to meet the initial demand for goods (indirect effect), and $2.48 million spent by firms servicing households that earned income from direct or indirect activities (induced effect).
For example, a farmer spends money on a new truck purchased locally. This spending, the trucks purchase price, is the direct effect. The truck dealer spends a portion of the funds he receives in the state economy. The dealer pays the truck distributor for the truck. The dealer also purchases supplies in the economy to support the truck dealership, such as advertising, business services, and utilities. The dealer's spending on these supplies are the indirect effects.
The truck dealer and the dealer's suppliers pay a portion of their receipts to employees as income. These employees spend the income to meet various household needs. This household spending is the induced effect of the initial truck purchase.
In this study, the indirect output effects associated with farm household spending of $5.96 million is $1,764,822. Seventy-seven percent of the indirect effects occur in the consumer services, manufacturing, and construction sectors.
The induced effects associated with farm household spending of $5.96
million is $2,482,719. Ninety-three percent of induced effects occur in
the consumer services, wholesale/retail, and manufacturing sectors.
|
|
||||
| Category |
Direct Effect
|
Indirect Effect
|
Induced Effect
|
Total
|
| Ag,Forestry,Fishery |
13,410
|
66,214
|
24,921
|
104,545
|
| Mining |
618
|
8,477
|
2,809
|
11,904
|
| Construction |
|
216,051
|
69,859
|
285,910
|
| Manufacturing |
711,400
|
314,024
|
318,917
|
1,344,341
|
| Consumer Services |
3,547,796
|
883,042
|
1,444,384
|
5,875,222
|
| Wholesale/Retail |
1,577,812
|
151,421
|
547,432
|
2,276,664
|
| Business Services |
20,241
|
114,941
|
43,580
|
178,763
|
| Misc |
86,442
|
10,653
|
30,811
|
127,906
|
| Total |
5,957,719
|
1,764,822
|
2,482,712
|
10,205,253
|
Income Impact
Income impacts are the changes in income received by households as
a result of a change in the economy (e.g., household spending of increased
income). The total income impact associated with farm household spending
of $5.96 million in the Indiana economy is $3,493,295 (Table 2). The income
is the income paid by direct, indirect, and induced output effects associated
with farm household spending.
The direct effect associated with farm household spending of $5.95 million is $2,103,887 (Table 2). This is the income that firms that farm households do business with pay their employees. About $1.9 million of this income, or 91%, is paid by firms in the consumer service and wholesale/retail sectors.
The indirect income effect is $535,238. This income results from supplier firms paying employees. Forty-four percent of this income is paid by firms in the consumer services sector. Firms in the construction, manufacturing, wholesale/retail, and business services sectors paid 52% of the income.
The induced income effect is $854,171. This is income paid to households
working in firms supplying goods and services to households spending direct
and indirect income (e.g., convenience stores, restaurants). Consumer services
and wholesale sectors paid 84% of this income.
|
|
||||
| Category |
Direct Effect
|
Indirect Effect
|
Induced Effect
|
Total
|
| Ag,Forestry,Fishery |
3581
|
16396
|
6318
|
26294
|
| Mining |
103
|
2206
|
713
|
3021
|
| Construction |
|
78298
|
25317
|
103615
|
| Manufacturing |
138499
|
74929
|
66855
|
280283
|
| Consumer Services |
1233549
|
235862
|
484149
|
1953561
|
| Wholesale/Retail |
691281
|
63002
|
238163
|
992446
|
| Business Services |
10449
|
62456
|
23530
|
96434
|
| Misc |
26425
|
2091
|
9125
|
37641
|
| Total |
2103887
|
535238
|
854171
|
3493295
|
Employment Impacts
Employment impacts are changes in employment in the Indiana economy
resulting from an initial change in the economy (e.g., farm household spending
of increased income). The total employment impact associated with farm
household spending of $5.96 million is 153 jobs (Table 3). In other words,
153 jobs were created in Indiana as a result of the increased demand for
goods and services.
The direct employment effect is 97 jobs. These are jobs created by firms that farm households do business with. Firms in the consumer services and wholesale/retail sectors add over 93% of the direct employment opportunities.
The indirect employment effect is 20 jobs. These are jobs in firms supplying goods and services to businesses experiencing an increase in demand for their goods and services by firms producing for farm households. Consumer services and business services sectors account for the 62% of new employment as a result of indirect employment effects.
The induced effect is 39 jobs. These are jobs in businesses, such as
restaurants and convenience stores that provide goods and services to employees
spending their direct and indirect income. Firms in the consumer services
and wholesale/retail add 86% of the induced employment opportunities.
|
|
||||
| Category |
Direct Effect
|
Indirect Effect
|
Induced Effect
|
Total
|
| Ag,Forestry,Fishery |
0
|
1
|
1
|
2
|
| Mining |
0
|
0
|
0
|
0
|
| Construction |
0
|
2
|
1
|
3
|
| Manufacturing |
4
|
2
|
2
|
8
|
| Consumer Services |
46
|
9
|
18
|
73
|
| Wholesale/Retail |
45
|
2
|
15
|
62
|
| Business Services |
1
|
3
|
2
|
5
|
| Misc |
2
|
0
|
1
|
3
|
| Total |
97
|
20
|
39
|
156
|
The $9.3 million in farm household income stimulates an estimated increase in farm household spending of $5.95 million in the Indiana economy. The total output or sales impact associated with the spending is $10 million. This $10 million in increased output/sales has a total income impact of $3.5 million and total employment impact of 156 jobs. Eighty-seven percent of the total jobs are in the consumer service and wholesale/retail sectors. The average wage of these jobs is $22,392.
The impacts reported in this study are those associated with increased farm household spending that results from Staley's presence in the Lafayette corn market. The impact estimates do not include output/sales, income, or employment associated with the operation of Staley facilities, farmers production of corn, or any other activity associated with the facilities operating in the Lafayette economy.
References
Kane, Tom. 1998. "Corn Processors' Impact on Corn Price and Producer Returns." Master's Thesis, Purdue University.
Minnesota IMPLAN Group, Inc. 1997. IMPLAN Professional: Social Accounting & Impact Analysis Software.
Prentice Hall Information Services. 1988. Standard Industrial Classification Manual. Prentice Hall.
Schaffer, William A. 1976. On the Use of Input-Output Models for Regional Planning. Leiden: Martinus Nijhoff Social Sciences Division.
Appendix A: Methodology
An input-output (I/O) modeling technique is applied to determine the
total economic impact of an increase in net returns to farmers using IMPLAN
(Impact Analysis for PLANning) software. Input-output analysis is widely
used to examine the interactions in an economy among businesses, and between
businesses and final consumers (IMPLAN Pro User's Guide). The degree of
interaction among various economic entities determines the total economic
impact. Three types of impacts are reported in this paper: output, income,
and employment.
Output impacts are the change in sales or receipts resulting from an initial change in the economy (e.g., increase in net returns to farm households). Income impacts are changes in household income resulting from changes in total sales. (When total sales increase, demand for employees increase, and household incomes increase.) Employment impacts are jobs added in the economy by firms with increased output or sales.
Total impacts equal the sum of direct, indirect, and induced effects. The direct effect is always the largest component of the three effects. It is the initial change in the economy. The direct effect in this analysis is farm household spending of income associated with Staley's presence in the Lafayette area market. Indirect effects reflect inter-industry transactions resulting from change in economic activity. (For example, a construction company may increase purchases from a building supply firm to meet farm household demand.) Induced effects are those associated with household expenditures of income paid by firms. The total impact of an economic change occurs in several different sectors of the economy.
The economic sectors are based on Standard Industrial Code (SIC) classifications (SIC Manual). Sectors are aggregated according to the 1-digit SIC level: Agriculture, Mining, Construction, Manufacturing, TCPU (Transportation, Communications, Public Utilities), Trade, FIRE (Finance, Insurance, Real Estate), Services, Government/Public Administration, and Other (Non-classifiable Establishments). In the following sections the output, income, and employment impacts are reported for each sector.
National income accounts serve as the empirical base for economic analysis performed with IMPLAN. National income accounts measure the productivity of the entire nation in terms of products and income generated by production of all goods and services in the U.S. economy. Because the national income accounts are based on aggregated county level data, it is possible to examine regional economic activity in terms of any combination of counties. IMPLAN uses 1994 Indiana data. The output, income, and employment impacts of the Staley plant under consideration are reported for the state of Indiana as well as the four-county region of Benton, Carroll, Tippecanoe, and White counties. Results at the state level are reported in the text of this report, while the four-county data are included in Appendix B.
Appendix B: Economic Impacts of Increased Returns to Corn Producers Associated with Wet Corn Milling in the Greater Lafayette Area
Output Impact
The total output, or gross receipts, impact associated with increased
farm household income is $7.6 million, in the four-county region of Benton,
Carroll, Tippecanoe, and White Counties (Table B1). This represents the
total value of economic activity arising from increased farm household
spending, and is the sum of the direct, indirect, and induced effects.
This includes the initial $5 million spent (direct effect), $1 million
in spending by industries that supply items to meet the initial demand
for goods (indirect effect), and $1.5 million spent by firms servicing
households that earned income from direct or indirect activities (induced
effect).
Eighty-two percent of the indirect effects occur in the consumer services,
manufacturing, and construction sectors. Ninety-four percent of induced
effects occur in the consumer services, wholesale/retail, and manufacturing
sectors.
|
|
|||||
| Category |
Direct Effect
|
Indirect Effect
|
Induced Effect
|
Total
|
|
| Ag,Forestry,Fishery |
9,039
|
36,853
|
10,765
|
56,656
|
|
| Mining |
787
|
2,134
|
681
|
3,602
|
|
| Construction |
|
161,252
|
38,858
|
200,110
|
|
| Manufacturing |
406,851
|
119,050
|
118,478
|
644,379
|
|
| Consumer Services |
3,159,984
|
615,374
|
916,165
|
4,691,523
|
|
| Wholesale/Retail |
1,422,502
|
86,847
|
354,715
|
1,864,064
|
|
| Business Services |
17,562
|
61,255
|
18,943
|
97,760
|
|
| Misc |
70,559
|
6,275
|
18,170
|
95,004
|
|
| Total |
5,087,286
|
1,089,038
|
1,476,774
|
7,653,097
|
|
Income Impact
Income impacts are the changes in income received by households as
a result of a change in the economy (e.g., household spending of increased
income). The total income impact associated with farm household spending
of $5 million in the four-county economy is $2.6 million (Table B2). The
income is the income paid by direct, indirect, and induced output effects
associated with farm household spending. This figure shows that the increase
in farm household spending required firms to hire more workers, or pay
overtime, to meet the increased demand for goods and services.
The direct effect associated with farm household spending of $5 million is $1.8 million. This is the income that firms that farm households do business with pay their employees. About 94% of this income is paid by firms in the consumer service and wholesale/retail sectors.
The indirect income effect is $324,691. This is income associated with income firms supplying goods and services to other industries in order to satisfy additional output demand. Forty-nine percent of this income is paid by firms in the consumer services sector. Firms in the construction, manufacturing, wholesale/retail, and business services sectors paid 89% of the income.
The induced income effect is $506,805. This is income paid to households
working in firms supplying goods and services to households spending direct
and indirect income (e.g., convenience stores, restaurants). Consumer services
and wholesale sectors paid 89% of this income.
| Table B2: Income Impact of Farm Household Spending of Increased Income in the Four-County Region Economy* | |||||
| Category |
Direct Effect
|
Indirect Effect
|
Induced Effect
|
Total
|
|
| Ag,Forestry,Fishery |
1,788
|
7,749
|
2,278
|
11,815
|
|
| Mining |
109
|
540
|
151
|
802
|
|
| Construction |
|
56,847
|
13,698
|
70,546
|
|
| Manufacturing |
66,899
|
24,765
|
20,842
|
112,508
|
|
| Consumer Services |
1,062,581
|
161,982
|
300,090
|
1,524,654
|
|
| Wholesale/Retail |
611,525
|
35,910
|
151,730
|
799,164
|
|
| Business Services |
9,193
|
35,702
|
10,807
|
55,701
|
|
| Misc |
29,055
|
1,197
|
7,207
|
37,459
|
|
| Total |
1,781,152
|
324,691
|
506,805
|
2,612,648
|
|
Employment Impact
Employment impacts are changes in employment in the four-county region
economy resulting from an initial change in the economy (e.g., farm household
spending of increased income) (Table B3). The total employment impact associated
with farm household spending of $5 million is 133 jobs. In other words,
133 jobs were created in the four-county area as a result of the increased
demand for goods and services.
The direct employment effect is 93 jobs. These are jobs created by firms that farm households do business with. Firms in the consumer services and wholesale/retail sectors add over 94% of the direct employment opportunities.
The indirect employment effect is 14 jobs. These are jobs in firms supplying goods and services to businesses experiencing an increase in demand for their goods and services by firms producing for the farm households. Consumer services and construction sectors account for the 68% of new employment as a result of induced employment effects.
The induced effect is 26 jobs. These are jobs in businesses, such as
restaurants and convenience stores that provide goods and services to employees
spending their direct and indirect income. Firms in the consumer services
and wholesale/retail add 88% of the induced employment opportunities.
|
|
||||
| Category |
Direct Effect
|
Indirect Effect
|
Induced Effect
|
Total
|
| Ag,Forestry,Fishery |
0
|
1
|
0
|
1
|
| Mining |
0
|
0
|
0
|
0
|
| Construction |
0
|
2
|
1
|
3
|
| Manufacturing |
2
|
1
|
1
|
3
|
| Consumer Services |
43
|
8
|
12
|
62
|
| Wholesale/Retail |
45
|
2
|
11
|
57
|
| Business Services |
1
|
2
|
1
|
3
|
| Misc |
3
|
0
|
1
|
4
|
| Total |
93
|
14
|
26
|
133
|
The $9.3 million in farm household income stimulates an estimated increase in farm household spending of $5 million in the four-county region economy. The total output or sales impact associated with the spending is $7.6 million. This $7.6 million in increased output/sales has a total income impact of $2.6 million and total employment impact of 133 jobs. Ninety percent of the total jobs are in the consumer service and wholesale/retail sectors. The average wage of these jobs is $19,644.