Impact
pact of
o Policy
o cy o
on Neb
Nebraska’s
as a s
Agricultural Economy
PRESENTED TO
THE VISITING DELEGATION OF THE
MAYOR’S COMMITTEE FOR INTERNATIONAL
FRIENDSHIP, LINCOLN, NEBRASKA
MARCH 1, 2010
ERIC THOMPSON, DIRECTOR
BUREAU OF BUSINESS RESEARCH
UNIVERSITY OF NEBRASKA – LINCOLN
ETHOMPSON2@UNL.EDU
WWW.BBR.UNL.EDU
University of Nebraska
Bureau of Business
Research
2
y Economic and Demographic
g p
Research on Nebraska
and Great Plains Economy
{
{
{
Economic Competitiveness
Fiscal
i l Policy
li
Entrepreneurship
y Research for Federal Government and Foundations
{ United States Small Business Administration
{ United States Department
p
of Labor
{ Robert Wood Johnson Foundation
{ Mike and Terri Dunlap Foundation
{ Krieger
K i
F
Family
il F
Foundation
d ti
UNL Bureau of Business Research
Outline
3
y Nebraska
Nebraska’ss Agricultural Economy
y Agriculture’s Importance to Nebraska’s Economic
Success
y Policy and the Surge In Nebraska Agriculture
{
{
{
Subsidies
Ethanol
Water
y Implication
I li ti off Global
Gl b l R
Recession
i ffor Rural
R lR
Regions:
i
Examples from Nebraska, USA
UNL Bureau of Business Research
Nebraska’s Agricultural Economy
4
y Size of the Industry:
y $17.3
7 3 billion in cash receipts
p in
2008 (5.3% of U.S. total)
{
Livestock $8.3 billion (5.9%)
Ù
{
C l ($7.1
Cattle
($ billi
billion))
Crops $9.0 billion (4.9%)
Corn ($5.7
5 7 billion)
Ù Soybeans ($2.2 billion)
Ù
y Approximately 50,000 farms
y Average farm size 953 acres (386 hectares)
Source: National
i
l Agricultural
i l
l Statistical
i i l Services
i
UNL Bureau of Business Research
Nebraska’s Agricultural Economy
5
y What is the source of Nebraska’s large
g agricultural
g
output in cattle and row crops?
{
{
Quality land (deep topsoil)
Irrigation
i i water – Ogallala
O ll l Aquifer
if
y But,
But there is another,
another equally important reason
y Can you guess this reason?
UNL Bureau of Business Research
Nebraska’s Agricultural Economy
6
y A lack of alternatives - there are not
many other high value uses for the land
y Without much rain
rain, the land is poor for forestry or
fruit trees
y And,
d, with
t low
o popu
population
at o in tthee region,
eg o , tthere
e e iss not
ot
much regional demand for
{
{
{
vegetables or milk
high value specialty crops (flowers, grapes, etc).
vacation property
UNL Bureau of Business Research
Nebraska’ss Agricultural Economy
Nebraska
7
y But,, Agricultural
g
is an Important
p
Part of the
Nebraska Economy
{
{
Agriculture accounted for 6.8% of Nebraska GSP in 2008
Farm Income accounted
d ffor 5.7%
% off Nebraska
b k Income iin 2008
8
y The shares are larger when you consider related
industries
{
For example, agricultural equipment and food processing
account for another 5.5% of GSP
y 6.8% + 5.5% = 12.3%. Quite a large share for a ‘basic’
industry
Source: U.S. Bureau of Economic Analysis
UNL Bureau of Business Research
Nebraska’ss Agricultural
Nebraska
Economy
8
UNL Bureau of Business Research
Nebraska’ss Agricultural
Nebraska
Economy
9
UNL Bureau of Business Research
Agriculture’s Importance to Nebraska’s
Economic Success
10
y Nebraska ((and the Upper
pp Midwest)) have done well
during the recent Global Recession
y Nebraska unemployment rate 4.7%
{ U.S. unemployment rate 9.7%
y Agriculture has helped the economy in terms of both
demand
d
d for
f workers
k
(strong
( t
industries),
i d t i ) and
d iin th
the
supply of workers (i.e., the quality of the workforce)
UNL Bureau of Business Research
Agriculture’s Importance to Nebraska’s
Economic Success
11
y In terms of demand for labor…..
y Four major industries in Nebraska
{ Agriculture
{ Manufacturing related to Agriculture
{ Transportation (major rail and trucking firms)
{ Insurance Carriers
y Rising farm land values have helped maintain
household wealth in Nebraska (compared to
California, for example)
UNL Bureau of Business Research
Agriculture’s Importance to Nebraska’s
Economic
Success
12
Insurance Carriers
33
33
32
32
31
31
30
UNL Bureau of Business Research
2010.4
2010.3
2010.2
2010.1
2009.4
2009.3
2009.2
2009.1
2008.4
2008.3
2008.2
2008.1
2007.4
2007.3
2007.2
2007.1
30
Agriculture’s Importance to Nebraska’s
Economic Success
13
Manufacturing
105
100
95
90
85
UNL Bureau of Business Research
2010.4
2010.3
2010.2
2010.1
2009.4
2009.3
2009.2
2009.1
2008.4
2008.3
2008.2
2008.1
2007.4
2007.3
2007.2
2007.1
80
Agriculture’s Importance to Nebraska’s
Economic Success
14
Non-Farm Employment
970
965
960
955
950
945
940
UNL Bureau of Business Research
2010.4
4
2010.3
3
2010.2
2
2010.1
1
2009.4
4
2009.3
3
2009.2
2
2009.1
1
2008.4
4
2008.3
3
2008.2
2
2008.1
1
2007.4
4
2007.3
3
2007.2
2
2007.1
1
935
Agriculture’s Importance to Nebraska’s
Economic Success
15
Measure
Nominal Income
Taxable Sales
Population
Growth 2009
9
-0.5%
-3.2%
3
+0.8%
Unemployment
p y
Rate
2009
4.8%
4
UNL Bureau of Business Research
Growth 2010
+4.1%
+3.5%
35
+0.8%
2010
4.8%
4
Agriculture’s Importance to Nebraska’s
Economic Success
16
Unemployment Rate
5 0%
5.0%
4.5%
4.0%
3.5%
3.0%
2.5%
UNL Bureau of Business Research
20
010.4
20
010.3
20
010.2
20
010.1
20
009.4
20
009.3
20
009.2
20
009.1
20
008.4
20
008.3
20
008.2
20
008.1
20
007.4
20
007.3
20
007.2
20
007.1
2.0%
Agriculture’s Importance to Nebraska’s
Economic Success
17
y In terms of supply
pp y of labor…..
y Nebraska farm producers are small businesspeople
{ Entrepreneurial skill
{ Strong work ethic
{ Achievement in secondary and higher education
y They
Th have
h
lead
l d to
t a workforce
kf
highly
hi hl ““attached”
tt h d” tto
the labor market – consistently low unemployment
y Unemployment rates have risen nationwide
{
{
In the United States, from 5.5% to 9.7%
In Nebraska, from 3.0% to 4.7%
UNL Bureau of Business Research
Policy and the Surge in Nebraska Agriculture
18
y Agricultural
g
Subsidies are not that important
p
y Subsidies $
$0.5
5 billion of $4
$4.0 billion in income in
2008
y Why such a small share?
UNL Bureau of Business Research
Policy and the Surge in Nebraska Agriculture
19
y In U.S.,, livestock producers
p
get
g few subsidies
{ Livestock is half of Nebraska agricultural sales
y Crop subsidies are now a small share of crop
producer income
{
{
Most crop subsidies in the United States are based on price
floors (payments to guarantee a minimum price), rather than
guaranteed subsidies
But, prices have
h
b
been much
hh
higher
h over the
h llast ffew years
UNL Bureau of Business Research
Policy and the Surge in Nebraska Agriculture
20
y Biofuel ((ethanol)) policy
p
y has been important
p
y Federal Policy
{ Mandates for biofuel usage
{ High trade barriers on imported ethanol (Brasil)
{ Ethanol subsidies (per gallon)
y St
State
t P
Policy
li
{ Mandates for biofuel availability
{ Additional state ethanol subsidy
{ Subsidy for new capital investment
UNL Bureau of Business Research
Policy and the Surge in Nebraska Agriculture
21
y But,, how critical was ethanol versus other
explanations, such as rising world prices (demand
from BRIC countries)
y Estimates are that ethanol accounted for half of the
i
increase
in
i corn prices
i
($
($0.41 off $
$0.80/bushel)
8 /b h l)
y World
W ld demand
d
d also
l was iimportant
* Fortenbery and Park (2008)
UNL Bureau of Business Research
Policy and the Surge In Nebraska Agriculture
22
y WATER – is a major
j issue
y In the American West – Water is like Gold
y Without enough
g rainwater,, manyy Nebraska farmers
rely on irrigation – groundwater irrigation
y Farmers are losing grip on water resource:
{
{
{
Conflict with surface water users (Cattle)
Conflict with urban water users
Conflict with environmental concerns
UNL Bureau of Business Research
Policy and the Surge In Nebraska Agriculture
23
y In the American West,, states (like
(
Nebraska)) own
the water
y Individual landowners own the right to use water for
irrigation
y States reduce water use for irrigation
{
{
Purchase water rights (with compensation)
Reduce amount of irrigation water for each acre (no
compensation)
p
)
y State’s use local “natural resource districts” to decide
how to reduce water usage – this builds local
acceptance of results
UNL Bureau of Business Research
Policy and the Surge In Nebraska Agriculture
24
y A key
yq
question is: Who Pays?
y
y Nebraska wants local natural resource districts to
pay, by taxing farmers and all property owners
y But, it is important to remember it is the urban areas
and environmental interests that benefit from the
policy
li
{
My own research shows that reductions in irrigation could lead
to a 6% decline in the economyy is some farm districts
y Legal courts have ruled against local taxes
UNL Bureau of Business Research
Implications of Global Recession for Rural Regions
Risks – A Lost Cost Advantage
25
y In the latter half of this decade,, an exaggerated
gg
cost
of living made many areas on the West and East
Coasts less competitive.
{
Climate,
l
access to oceans h
have amenity value,
l
b
but property
prices had risen far in excess of those amenity values on the
East and West Coasts
y This problem has now been addressed
{ Property prices have declined, more in line with the real value
off amenities
iti
y As a result, Nebraska has lost a competitive
advantage that it held in the 2005
2005-2008
2008 period
UNL Bureau of Business Research
Implications of Global Recession for Rural Regions
Advantages – An Increase in Resource Flows
26
Year
2005
5
2006
7
2007
2008
2009
9
Nebraska Population
p
Growth Rate
0.6%
0.5%
0.6%
0.8%
0.8%
UNL Bureau of Business Research