The University of Georgia
Center for Agribusiness and Economic Development
College of Agricultural and Environmental Sciences
Economic Impacts and Public Benefits
of Georgia Cotton Production
Prepared by:
Archie Flanders and John McKissick
Center Report: CR-07-17
November 2007
Economic Impacts and Public Benefits of Georgia Cotton Production
Executive Summary
Cotton is produced on Georgia farms that are part of rural community economies. Rural
communities have fewer economic development alternatives than do community economies with
higher population density and a broader industrial base. Communities highly dependent upon
agriculture form regional centers of commerce that include medium sized cities. Regional
economies with a mixture of agriculture, manufacturing, trade, and services creates employment
opportunities throughout Georgia. Community impacts lead to statewide impacts in Georgia, as
well as the entire U.S. economy.
Cotton production in Georgia occurs in rural community economies that compose the cotton
producing regions Georgia. For each dollar received in government payments by the Georgia
cotton industry, $2.06 is generated for federal, state, and local treasuries in the U.S. economy.
Without government payments, average farm income in the cotton production sector of Georgia
would be -$30,840. Government payments are essential for a viable Georgia cotton industry.
Economic impacts that begin with cotton production in community economies of Georgia would
be lost without government payments.
Economic Impacts and Public Benefits of Georgia Cotton Production
Cotton is produced on Georgia farms that are part of rural community economies. Rural
communities have fewer economic development alternatives than do community economies with
higher population density and a broader industrial base. Communities highly dependent upon
agriculture form regional centers of commerce that include small towns and medium sized cities.
Regional economies with a mixture of agriculture, manufacturing, trade, and services creates
employment opportunities throughout Georgia.
The diverse Georgia economy is composed of industries with distinctive regional characteristics.
Although food and fiber industries are important throughout Georgia, relative dependency on
agriculture for community economies varies between counties. Many county economies with
significant food and fiber industries have other large nonagricultural industries. Other county
economies have fewer industries not related to agriculture, making these economies more
dependent on food and fiber industries.
Cotton leads all Georgia crops in acreage planted. Georgia farms producing cotton generally
utilize proper agronomic rotation practices with peanuts and corn that make cotton production an
essential component of a diversified state agricultural economy. Georgia’s status as a large
cotton producer creates economic impacts for the rural communities where cotton is produced.
Impacts due to cotton production create employment in both the agricultural and nonagricultural
sectors of community economies. Community impacts lead to statewide impacts in Georgia, as
well as the entire U.S. economy. The objective of this report is to quantify the economic benefits
of cotton production that begin in rural Georgia communities and extend throughout the national
economy.
Data
A simulation model of the Georgia cotton production industry analyzes costs and returns for
production and derives sector data for determining economic impacts of the cotton sector. Prices
and yields applied for industry simulation are presented in Table 1. Expected U.S. cotton price of
$.606/lb. is determined by projections for the 2008 production year from the Agricultural and
Food Policy Center (AFPC) at Texas A&M University. Historical differences between annual
U.S. prices determine expected Georgia price and Adjusted World Price (AWP) in Table 1.
Expected 2008 price received for cotton seed sold is $110/ton. Expected 2008 yield of 805
lbs./acre is the average state yield for 2003-2007 adjusted by the trend in the moving 5-year
averages for 2002-2006. Yields for direct payments (DP) and counter cyclical payments (CCP)
are state averages published by the Farm Services Agency of USDA. Provisions for commodity
programs in the 2002 Farm Act are applied in this analysis. Cotton production on 700 acres is the
typical acreage manageable by one harvesting unit and represents average cotton acreage on a
diversified Georgia farm. Average 2008 cotton sector costs for 700 acres of cotton in Table 2 are
based on University of Georgia (UGA) crop enterprise budgets for 2007 and predicted 2008
price increases from AFPC.
1
Table 1. Simulation Prices and Yields
Unit
Value
Georgia Price
$/lb.
0.615
US Price
$/lb.
0.609
AWP
$/lb.
0.570
Seed Sold
$/ton
110
Expected Yield
lbs./acre
805
DP Base Yield
lbs./acre
688
CCP Base Yield
lbs./acre
717
Table 2. Average Costs, 700 Acres
Dollars
Seed
40,385
Agricultural Services
73,381
Electricity
9,083
Fuel & Lube
25,062
Nitrogen
26,078
Other Nutrients
37,679
Chemicals
59,630
Crop Insurance
11,612
Repairs
18,212
Labor
16,400
Operating Interest
5,043
Variable Costs
322,564
Capital Insurance
Overhead Expenses
Capital Interest
Capital Recovery
Property Tax
Fixed Costs
5,803
11,507
19,356
34,841
4,708
76,216
Stochastic simulations for 500 iterations are calculated with the empirical distribution function of
Simetar software. Covariance relationships between prices and yields are determined with data
from the National Agricultural Statistics Service (NASS) for 1997-2006. A negative correlation
coefficient between price and yield of -0.12 is statistically significant. Application of stochastic
simulation leads to results that incorporate the relationship between price and yield in
determining revenue, income, and government payments.
2
Simulation results for the average of 500 iterations are presented in Table 3. Total market
revenue from lint and seed is $387,190. Government payments (GP) of $62,046 lead to total
revenue of $449,236. Net returns in Table 3 of $50,456 are calculated by subtracting costs in
Table 2 from total revenue. Rented acreage of 350 acres is based on the aggregate average for
state crop acreage from the 2002 Census of Agriculture. Land rental rates of $55/acre are derived
from published rates for all Georgia crop acreage by NASS and a survey conducted by UGA.
The relationship between cotton prices and total GP is presented in Appendix 1. As price
approaches $0.67/lb., GP approaches a minimum that is equal to DP of $27,304 ($39/acre). The
substitution of market receipts for GP is indicated by Appendix 2. Georgia cotton farmers
receive increased GP when there are shortfalls in market receipts. GP decreases during periods
when economic conditions lead to increased market revenue. Appendix 3 indicates that expected
farm income is within a constant interval as price is less than $0.60/lb and increases with prices
above $0.60/lb. The charts in Appendixes 1-3 show that farm income increases only as market
prices increase above $0.60/lb., as GP is decreasing and market revenue is increasing.
Table 3. Simulation Results, 700 Acres
Dollars
Lint Revenue
346,213
Seed Revenue
40,977
Government Payments
62,046
Net Returns
50,456
Land Rent
19,250
Farm Income
31,206
Deducting charges for land rent from net returns results in sector average farm income of
$31,206. This is the cotton contribution to total farm income and is available for family living
expenses, after meeting income tax liabilities. Deducting GP from farm income in Table 3 leads
to income of -$30,840. The magnitude of negative income from only market receipts indicates
the importance of commodity programs in maintaining the financial viability of the Georgia
cotton sector.
Input-Output Models and Economic Impact Analysis
Economic impacts can be estimated with input-output models that separate the economy into
various industrial sectors such as agriculture, construction, manufacturing, trade, and services.
An input-output model applied to IMPLAN software calculates how a change in one industry
changes output, income, and employment in other industries. These impacts are expressed in
terms of direct and indirect effects. Impacts are interpreted as the contribution of the enterprise to
the total economy. Direct impacts represent the initial impact on the economy of cotton
production. Indirect impacts are changes in other industries caused by direct impacts and include
changes in household spending due to changes in economic activity that begin with direct
impacts. Thus, the total economic impact is the sum of direct and indirect impacts. Input-output
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models interpret the impacts of cotton production in terms of output (sales), labor income
(employee compensation and proprietary income), employment (jobs), and tax revenue.
Economic impacts result from a multiplier effect that begins with expenditures in cotton
production stimulating business to business spending, personal income, employment, and tax
revenue. IMPLAN includes a regional purchase coefficient (RPC) for each industry that
represents percentage of demand that is satisfied by production within an impact area. Demand
for inputs not satisfied within the impact area represent leakages that have no indirect impacts in
the impact area. Industries vary in their multiplier effects due to differing expenditure levels,
RPC’s, and sectors in which their expenditures occur.
Output impacts are a measure of economic activity that results from expenditures in a specific
industrial sector. Output is equivalent to sales, and the multiplier effect determines how initial
economic activity in one sector leads to sales in other sectors. Labor income impacts measure
purchasing power that is created due to the output impacts. This impact provides the best
measure of how standards of living are affected for residents in the impact area.
An enterprise involves a specified number of employees that is determined by the technology of
the enterprise. Employment multipliers indicate the effect on employment resulting from the
enterprise initiating economic activity. IMPLAN indirect employment includes both full-time
and part-time jobs without any distinction. Jobs calculated within an IMPLAN industrial sector
are not limited to whole numbers and fractional amounts represent additional hours worked
without an additional employee. With no measure of hours involved in employment impacts,
IMPLAN summations for industrial sectors which include fractional employment represent both
jobs and job equivalents. Since employment may result from some employees working
additional hours in existing jobs, instead of terming indirect employment impacts as “creating”
jobs, a more accurate term is “involving” jobs or job equivalents.
Economic Impacts to the Georgia Economy
Costs and returns data from Table 2 and Table 3 are expanded to 1.01 million acres to estimate
economic impacts due to the Georgia cotton production sector. Expanded acreage is equal to the
NASS November 2007 estimate for Georgia harvested cotton acreage. Table 4 shows the
economic impacts to the state economy due to cotton production. Direct output of $648.2 million
is the total revenue for the cotton sector. Direct employment of 4,329 equals the number of farm
jobs and cotton farmers, while direct labor income of $68.7 million is total employee
compensation and farm income. Indirect output of $498.1 million is the value of other sales in
the state economy that are due to cotton production. These sales lead to 6,773 full-time and parttime jobs with a total labor income of $200.8 million. Total impacts are the combined direct and
indirect impacts. State and local governments in Georgia derive $32.3 million in tax revenues
due to cotton production.
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Table 4. Georgia Cotton Production Economic Impacts to Georgia
Direct
Indirect
Total
Output ($)
648,181,929 498,147,014 1,146,328,943
Labor Income ($)
68,688,657 200,815,737
269,504,394
Employment
4,329
6,773
11,102
State Taxes ($)
15,232,104
Local Taxes ($)
17,098,984
Sum of Taxes ($)
32,331,088
Economic Impacts to the U.S. Economy
The state economy has limited capacity to provide inputs and other support for cotton
production. Leakages in the state economy provide opportunities for other economies in the U.S.
to realize indirect impacts from cotton production in Georgia. Direct impacts in Table 5 are
identical to direct impacts in Table 4. Indirect impacts to the U.S. economy are greater than to
the state economy as the national economy has greater capacity to supply inputs to Georgia
cotton production. Total output in the U.S. economy is $2.1 billion. Total labor income of $516.6
million is distributed over 15,438 jobs in the U.S. economy. Total tax revenues received by
federal, state, and local governments in the U.S. are $184.9 million due to cotton production in
Georgia. Appendix 4 shows the distribution of output, labor income, and employment among
major sectors in the U.S. economy.
Table 5. Georgia Cotton Production Economic Impacts to U.S.
Direct
Indirect
Total
Output ($)
648,181,929 1,416,047,739 2,064,229,668
Labor Income ($)
68,688,657
447,869,296
516,557,953
Employment
4,329
11,109
15,438
State/Local Taxes ($)
72,177,486
Federal Taxes ($)
112,767,519
Sum of Taxes ($)
184,945,005
Tax revenues for federal, state, and local governments in Table 5 average $183 per harvested
acre of Georgia cotton. Farmer receipts of GP in Table 3 average $89 per acre. Thus, for every
dollar received in GP by the Georgia cotton sector, $2.06 is redistributed back to public
treasuries in the U.S. as newly created tax receipts. Appendix 1 shows that as price approaches
$0.67/lb., GP reaches a constant minimum of $39/acre. In this circumstance, the ratio of taxes
generated to GP increases so that for each dollar of GP received there are $4.69 in tax revenues
generated in the U.S. economy.
Comparing GP to the level of taxes generated is consistent with the system of federalism in the
U.S. in which each level of government has functions that it is best suited to perform. Federal
5
programs are uniquely capable of allocating support for agricultural commodities. This action of
agricultural industry support creates additional federal revenue, while generating state and local
revenues for programs best undertaken by these levels of government.
Farm income of -$30,840 with market receipts only and no GP indicates that the cotton sector is
only viable with payments from government programs. Diminished cotton production would
have an immediate impact on community economies. Direct farm employment and labor income
would be lost as cotton output declines. Additional sales, jobs, and income would be lost as
indirect impacts from cotton production decrease. Losses in the local community would result in
additional economic losses throughout Georgia and the U.S.
Summary and Conclusions
Cotton production in Georgia occurs in rural community economies that compose the cotton
producing regions Georgia. Food and fiber industries are important economic sectors, and these
communities have limited alternatives to agricultural production. For each dollar received in
government payments by the Georgia cotton industry, $2.06 is generated for federal, state, and
local treasuries in the U.S. economy. Without government payments, average farm income in the
cotton production sector of Georgia would be -$30,840. Government payments are essential for a
viable Georgia cotton industry. Economic impacts that begin with cotton production in
community economies of Georgia would be lost without government payments.
6
180,000
160,000
140,000
$ GP
120,000
100,000
80,000
60,000
40,000
20,000
0
0.40
0.45
0.50
0.55
0.60
0.65
0.70
0.75
0.80
$/lb.
Appendix 1. Scatter Plot of Cotton Price and GP
600
550
$ Mkt Receipts (000)
500
450
400
350
300
250
200
0
20
40
60
80
100
120
$ GP (000)
Appendix 2. Scatter Plot of Market Receipts and GP
7
140
160
180
200,000
150,000
FI $
100,000
50,000
0
-50,000
0.40
0.45
0.50
0.55
0.60
0.65
0.70
0.75
0.80
$/lb.
Appendix 3. Scatter Plot of Cotton Price and Farm Income
Appendix 4. Georgia Cotton Production Economic Impacts to Major Sectors,
U.S.
Labor
Sector
Output ($)
Income ($)
Employment
Agriculture
794,145,415 164,431,134
8,384
Mining & Construction
44,202,130
12,449,772
118
Utilities
31,483,473
6,660,175
48
Manufacturing
443,812,938
47,189,824
590
Transportation, Warehousing
43,448,630
17,484,488
338
Trade
102,287,231
40,074,223
1,025
Finance, Insurance, & Real Estate
161,516,399
49,343,580
847
Services
381,852,424 172,416,249
3,974
Government and non-NAICS
61,481,028
6,508,509
114
Total
2,064,229,668 516,557,953
15,438
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The Center for Agribusiness
& Economic Development
The Center for Agribusiness and Economic Development is a unit of the College of
Agricultural and Environmental Sciences of the University of Georgia, combining the
missions of research and extension. The Center has among its objectives:
To provide feasibility and other short term studies for current or potential Georgia
agribusiness firms and/or emerging food and fiber industries.
To provide agricultural, natural resource, and demographic data for private and
public decision makers.
To find out more, visit our Web site at: http://www.caed.uga.edu
Or contact:
John McKissick, Director
Center for Agribusiness and Economic Development
Lumpkin House
The University of Georgia
Athens, Georgia 30602-7509
Phone (706)542-0760
caed@agecon.uga.edu
The University of Georgia and Fort Valley State University, and the U.S. Department of
Agriculture and counties of the state cooperating. The Cooperative Extension Service
offers educational programs, assistance and materials to all people without regard to race,
color, national origin, age, sex or disability.
An equal opportunity/affirmative action organization committed to a diverse work force.
Report Number: CR-07-17
November 2007
Issued in furtherance of Cooperation Extension Acts of May 8 and June 30, 1914, the
University of Georgia College of Agricultural and Environmental Sciences, and the U.S.
Department of Agriculture cooperating.
J. Scott Angle, Dean and Director