The Role of Agriculture in the North Dakota Economy

F. Larry Leistritz, David K. Lambert, and Randal C. Coon




Table of Contents

 

   Sales for Final Demand (Economic Base)

   Gross State Product

   Employment

   Role of Agricultural Processing and Farm Input Manufacturing

   Conclusions and Implications

    

Figures

    Figure 1

    Figure 2

    Figure 3

 



     North Dakota’s economy historically has been closely tied to natural resource-intensive industries, particularly agriculture. Since about 1980, problems in the farm sector, including low commodity prices and adverse weather, have contributed to the long-term trend of declining farm numbers. During the same period, the percentage of the state’s population living in urban places (i.e., towns with 2,500 or more residents) has grown from 45.6 percent in 1980 to 53.3 percent in 1990 and 55.0 percent in 2000. These trends suggest some restructuring of the state’s economy may have occurred.


     Economic development and diversification have long been priorities for North Dakota policy makers. During the1990s, developing agricultural products processing facilities within the state was a major economic development initiative. Farm input manufacturing also has become an important component of North Dakota’s manufacturing sector, as several input manufacturers began or expanded operations during the 1990s.


     The purpose of this report is to assess the role of agriculture in the North Dakota economy, as well as recent changes in the state’s economic structure. Key indicators used in the analysis include sales for final demand (i.e., sales to out-of-state markets), gross state product (value added), and employment for each economic sector.


Sales for Final Demand (Economic Base)


     North Dakota’s sales for final demand (economic base) are those activities that create products or services sold to markets outside North Dakota, thus bringing money into the state. These basic sector (or primary sector) activities include agriculture, federal government outlays, manufacturing, tourism, energy extraction/conversion, and exported services.


     North Dakota’s economic base in 2000 is illustrated in Figure 1, where the components of the state’s sales for final demand are categorized by type of economic activity. Thus, agricultural crop and livestock sales (including commodity program payments) are grouped together as agriculture, expenditures by out-of-state visitors are categorized as tourism, exports of energy products are described as energy extraction/conversion, exports of manufactured products (including food products and farm inputs) are described as manufacturing, while activities involving service activities to out-of-state markets or clients are classified as exported services. Federal payments includes not only salaries and wages of federal employees and federally funded construction and purchases of goods and services, but also all transfer payments. Transfer payments include not only payments for programs such as Social Security and Medicare but also payments to landowners participating in land retirement or easement programs (e.g., the Conservation Reserve Program). In 2000, federal payments constituted 29.4 percent of North Dakota’s economic base, followed by agricultural commodity exports with 26.5 percent. The tourism industry accounted for 19.4 percent, manufacturing – 12.3 percent, energy extraction/conversion – 9.9 percent, and exported services – 2.6 percent of the economic base.


     Table 1 presents North Dakota sales for final demand for the basic economic sectors for the 1960-2000 period, expressed in constant year 2000 dollars. One measure of the importance of agriculture to the state’s economy is the percentage of the total comprised of livestock and crop sales. (Crop sales include federal government farm program payments.) Agricultural sales for final demand have grown from just over $2.7 billion in 1960 to over $3.8 billion in 2000, during which time total sales for final demand went from $4.3 billion to $14.6 billion (Table 1). Among the years shown in Table 1, agricultural sales for final demand (inflation-adjusted) were highest in 1975 ($5.4 billion).

 
Table 1. Sales for Final Demand, by Major Industry, North Dakota, Million constant 2000 dollars, 1960-2000

 

 

Agriculture


Manu-facturing

Energy

Extract & Conv



Tourism


Export Serv

All

Primary

Industry


Federal

Pymts



Total

Year

Crops

Lvstk

Total

1960 1,885.7 846.1 2,731.8 318.9 135.0 96.0 3,281.7 1,064.2 4,345.9
1965 2,495.5 1,113.9 3,609.4 352.8 193.1 198.0 -- 4,353.3 1,766.0 6,119.3
1970 2,471.5 1,003.7 3,475.2 545.5 230.2 420.7 -- 4,671.6 2,761.5 7,433.1
1975 4,159.9 1,210.7 5,370.6 819.8 366.3 401.1 -- 6,957.8 3,020.8 9,978.6
1980 3,230.6 1,466.3 4,696.9 1,055.0 1,225.5 361.6 -- 7,339.0 3,369.4 10,708.4
1985 3,756.8 1,014.4 4,771.2 848.8 1,620.7 368.1 -- 7,603.8 3,352.3 10,961.1
1990 2,807.8 1,006.6 3,814.4 864.4 1,443.6 433.7 -- 6,556.1 3,720.2 10,276.3
1995 3,147.1 617.2 3,764.3 1,106.8 1,329.3 883.9 -- 7,084.3 4,125.6 11,209.9
2000 3,220.9 639.4 3,860.3 1,788.2 1,447.6 2,829.7 381.6 10,307.4 4,282.9 14,590.3



     The changes in North Dakota’s economic base that occurred from 1990 to 2000 are summarized in Figure 2. North Dakota’s total sales for final demand (adjusted for inflation) increased from $10.3 billion in 1990 to $14.6 billion in 2000, a 42 percent increase. All the major types of primary sector activity increased, but some grew more rapidly than others. Agriculture’s share of total sales for final demand fell from 37 percent in 1990 to 26.5 percent in 2000. The tourism sector (i.e., purchases by out-of-state visitors) grew from 4 percent of sales for final demand in 1990 to 19 percent in 2000, while manufacturing grew from 8 percent in 1990 to 12 percent in 2000. The exported services sector, which accounted for a negligible share of state exports in 1990, had grown to 3 percent of sales for final demand in 2000.      


Gross State Product


     Another measure of the role of various sectors of the state economy is gross state product. The Bureau of Economic Analysis (BEA), U. S. Department of Commerce reports estimates of Gross Domestic Product (GDP) for the United States at periodic intervals. GDP estimates the value-added by each industry and government to the Nation’s economic activity. State economic activity is reported in a similar measure termed Gross State Product (GSP), which represents the value added to intermediate inputs by the labor and capital resources located in a state. In addition to total state economic activity, economic activity by industries is estimated by the BEA. An industry's GSP, referred to as its "value added", is defined as its gross output (the value of shipments and other income, taxes, and inventory change) less purchases of intermediate inputs used in production.


     Growth of the major economic sectors, as well as the average share of real (inflation-adjusted) GSP for each sector in 1977-1979 and 1998-2000, is presented in Table 2. The largest real growth occurred in the manufacturing sectors, as durable goods manufacturing GSP increased more than four-fold over the period while GSP in nondurable goods manufacturing more than doubled. The greatest growth in durable goods manufacturing occurred in industrial machinery manufacturing, which accounted for about 66 percent of the growth in the sector’s GSP. Food and kindred products accounted for about 64 percent of total growth of nondurable goods manufacturing over the 24-year period


     The shares of total state GSP for 1977-1979 and 1998-2000 reflect the relative growth of the various sectors over the 24-year period. The three largest sectors in 1977-1979 were government, finance, insurance, and real estate (FIRE), and services, accounting for 19.2, 17.2, and 16.4 percent of total GSP, respectively. In 1998-2000, the same three sectors again accounted for the largest shares of GSP, but their relative positions had changed with services now the largest sector (17.5 percent), followed by government (13.7 percent), and FIRE (13.6 percent). The greatest growth occurred in manufacturing, which accounted for 9.4 percent of state GSP in 1998-2000 compared to only 3.9 percent in 1977-1979. The agriculture, forestry, and fisheries sector accounted for 9 percent of GSP in 1977-1979 and 8.2 percent in 1998-2000. Although real GSP in the agricultural sector grew by 26 percent over the period, total state GSP grew more (38 percent), resulting in a slight decrease in the sector’s share of total GSP.


     Estimates of gross state product are available for all states and can be used to compare the relative importance of agriculture in North Dakota to its role in other states. In 2000, in only 6 states did the agriculture, forestry, and fisheries sector account for 5 percent or more of total gross state product. These were: South Dakota (11.2 %), North Dakota (7.9 %), Idaho (6.8 %), Nebraska (6.6 %), Iowa (6.0 %), and Montana (5.7 %). Agriculture accounted for 3 percent to 4.9 percent of total GSP in seven other states.

 

Table 2. Shares of North Dakota Gross State Product, 1977-79 and 1998-2000 (based on constant 2000 dollars).

 

 

1977-1979

1998-2000

Change

Sector $ mill. Percent $ mill. Percent $ mill. Percent
Total Gross State Product 12,272a 100.0a 16,975a 100.0a 4,703a 38.3a
Agriculture, forestry, and fish

Farms

Ag. Services

1,107

1,065

41

9.0

8.7

0.3

1,393

1,277

109

8.2

7.5

0.6

286

212

68

25.8

19.9

165.9

Mining 510 4.2 584 3.4 74 14.5
Construction 1,156 9.4 782 4.6 -374 -32.4
Manufacturing

Durable goods

Nondurable goods

473

214

267

3.9

1.7

2.2

1,594

1,076

537

9.4

6.4

3.2

1,121

862

270

237.0

402.8

101.1

Transportation and utilities 947 7.7 1,622 9.6 675 71.3
Wholesale 860 7.0 1,647 9.7 787 91.5
Retail 1,075 8.6 1,742 10.3 667 62.0
Finance, insurance, and real estate 2,109 17.2 2,313 13.6 204 9.7
Services 2,014 16.4 2,966 17.5 952 47.3
Government 2,360 19.2 2,325 13.7 -35 -1.5
a Sum of sectors may not add to totals due to sector-specific constant dollar adjustments

 


Employment


        Employment estimates corresponding with the major sectors of the North Dakota economy have been developed. Expressing the number of workers (proprietors plus wage and salary employees) in the state’s agricultural sector (livestock and crops) as a percent of the total employment for all sectors describes the sector from another perspective. Agricultural employment in the state declined from 37.8 percent of all employment in 1960 to 10.9 percent in 2000 (Table 3). This reflects only direct employment in agriculture (i.e., farmers, ranchers, and farm wage and salary employees). Regions with major trade centers (Figure 3), such as Region 4 (Grand Forks), Region 5 (Fargo), and Region 7 (Bismarck), had the lowest percentage of workers employed in direct agricultural jobs. The trends outlined in Table 3 are consistent with increasing farm size, but interestingly, in three regions (#3, 6, and 8) over one-fifth of all workers were still directly employed in agriculture in 2000.


Table 3. Agricultural Employment as a Percent of Total Employment, by State Region, Selected Years 1960-20001

Area

1960

1970

1980

1990

2000

 

-------------------------Percent-----------------------------

Region 1

35.9

28.0

18.00

20.0

19.4

Region 2

35.8

21.3

17.20

16.0

12.7

Region 3

54.8

37.2

31.30

28.2

22.2

Region 4

30.8

15.7

12.70

8.4

6.7

Region 5

27.2

14.7

9.60

7.3

4.9

Region 6

49.6

32.8

28.00

26.1

21.0

Region 7

39.4

23.8

15.30

13.3

9.9

Region 8

49.5

34.1

24.30

25.1

21.2

State

37.8

22.8

16.80

14.3

10.9

1 Proprietors and wage and salary employment in the livestock and crops sectors.



Role of Agricultural Processing and Farm Input Manufacturing


   To estimate the economic contribution of the agricultural processing and farm input manufacturing sectors, firms and the number of employees per firm for each sector were identified. A sample of firms in each industry was surveyed to estimate direct expenditures within the state. Expenditures, expressed on a per worker basis, were applied to the total number of workers in each industry to estimate total direct outlays (direct impacts). The direct outlays were applied to the North Dakota Input-Output Model to estimate total economic impacts.


   Firms in the two agriculturally-linked industries (i.e., agricultural processing and farm input manufacturing) were identified using Standard Industrial Classification (SIC) codes and a listing of North Dakota manufacturers compiled by the Division of Economic Development and Finance, North Dakota Department of Commerce. A total of 76 farm input manufacturers with 2,418 full-time equivalent workers (FTE) and 160 agricultural processing firms with 7,104 FTE workers were identified.


   Direct outlays per worker in agriculture’s share averaged $60,672 and $50,954 for the farm input manufacturing and agricultural processing firms, respectively. By multiplying the average direct outlay per worker by the number of workers, total direct economic impacts for farm input manufacturers were estimated to be $146.8 million in 2002. Direct expenditures of the agricultural processing firms were estimated to be $361.9 million (Table 4). Using the North Dakota Input-Output Model interdependence coefficients, or multipliers, the total economic impact or contribution of farm input manufacturing firms was estimated to be more than $482 million while agricultural processing firms’ expenditures were estimated to be $1.2 billion. The total annual economic contribution of the two agriculturally-linked industries was almost $1.7 billion.


Table 4. Estimated In-State Direct Expenditures by Economic Sector for Firms Involved in Farm Input Manufacturing and Value-Added Agricultural Processing, North Dakota, 2002.

 


Sector 

Farm Input Manufacturing

Value-Added Ag Processing


           Total

 

-------------------------------million $--------------------------------

Construction

0.3

20.3

20.6

Transportation

8.1

37.5

45.6

Communications & Public Utilities

4.8

30.0

34.8

Ag Processing & Misc Manufacturing

20.7

76.2

96.9

Retail Trade

10.7

24.3

35.0

Finance, Insurance, Real Estate

27.4

52.1

79.5

Business & Personal Services

6.4

6.1

12.5

Professional & Social Services

0.7

1.3

2.0

Households

  67.7

114.1

181.8

Total Direct Expenditures

146.8

361.9

508.7

Secondary Impacts

335.4

839.5

1,174.9

Total Economic Impacts

482.2

1,201.4

1,683.6

      


   Combined total direct employment for agriculturally-linked manufacturing in 2002 was 9,522 workers with secondary employment (i.e., jobs created in other sectors as a result of multiplier effects) estimated to be about 16,270 workers (Table 5). Thus, these agriculturally-linked industries accounted for almost 25,800 jobs in North Dakota in 2002.

 


Table 5. Estimated Direct and Secondary Employment for Firms Involved in Farm Input Manufacturing and Value-Added Agricultural Processing, North Dakota, 2002

 


Employment

Farm Input Manufacturing

Value-Added

Ag Processing


Total

Direct

2,418

7,104

9,522

Secondary

4,440

11,832

16,272



Conclusions and Implications


   Although its relative role has decreased in recent years, agriculture remains the cornerstone of the North Dakota economy. While the share of North Dakota’s economic base accounted for by agricultural commodity (crops and livestock) sales decreased from 37 percent in 1990 to 25 percent in 2000, the decline was largely the result of the growth of other sectors, particularly manufacturing, tourism, and exported services. Growth of the manufacturing sector was led by expansion of both agricultural products processing and farm input manufacturing.



For Further Reading

Coon, Randal C., and F. Larry Leistritz. 2003. The Role of Agriculture Processing and Farm Input Manufacturing in the North Dakota Economy. AAE Rpt. No. 511. Fargo: NDSU, Dept. of Agr. & Applied Economics

 

Leistritz, F. Larry, David K. Lambert, and Randal C. Coon. 2002. The Role of Agriculture in the North Dakota            Economy.Agribusiness and Applied Economics Statistical Series Report No. 57. Fargo: NDSU, Dept. of Agr. & Applied Economics.


  
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