Michigan food, ag economy is stable

February 22, 2009
| By Pete Daly |
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According to a new study from Michigan State University, the agriculture and food-related businesses in Michigan experienced 12 percent growth in 2007. Although food/agriculture may have experienced a decline during the last part of 2008, it is still faring better in the recession than the manufacturing sector.

Manufacturing is still the largest sector in the Michigan economy, but the food and agriculture sector is second, according to Christopher Peterson, director of the MSU Product Center and one of the authors of the study.

“Agriculture is a force for economic stability in Michigan, with yearly economic impact estimated to be $71.3 billion, on the basis of data from 2007,” said Peterson. “This represents a $7.6 billion increase from the $63.7 billion impact projected in an analysis of 2006 data released last year.”

Peterson said that the growth rate of the industry during the first half of 2008 "was probably even higher than the number for 2007," but he added that, when the worldwide economy seemed to “fall out of bed" during the last few months of 2008, there probably was an adverse impact on Michigan food/agriculture, too. He said precise data for all of 2008 has not been compiled yet.

The study, “Second Interim Update on the Economic Impact of Michigan’s Agri-Food and Agri-Energy System,” considers economic contributions from agriculture, food and related industries, including nursery, turfgrass, ethanol, ornamental plants and food processing.

“Michigan’s agri-food system represents almost 20 percent of the state’s overall economic engine, making it the second largest industry in Michigan, and it employs a quarter of the state’s work force,” said Don Koivisto, Michigan Department of Agriculture director. “This report further underscores the importance of this growing industry in rebuilding and diversifying Michigan’s economy.”

The study shows that the agricultural economy expanded at a rate more than five times faster than the growth rate of the general economy (11.9 percent versus 2 percent) between 2006 and 2007.

“If Michigan’s agri-food sector appeared on the Fortune 500 list, it would rank 55th,” Koivisto said. “To me, that speaks volumes about the vitality of the state’s dynamic food and agriculture business sectors, and the intrinsic role it plays in our state’s economic health.”

Evidence also suggests that employment in the agri-food system has increased since the last economic census data was made available in 2004.

The farming industry alone in the Michigan economy increased from about $6.3 billion in 2006 to about $7.2 billion, an increase of about 14 percent.

Processing, wholesaling and retailing of food and other farm products (excluding ethanol) rose from about $63 billion in 2006 to about $70 billion in 2007, an increase of about 12 percent.

Ethanol production was stable from 2006 through 2007 at about $594 million.

The study indicates that Michigan experienced large increases in the value of animal feed crops and wheat produced from 2005 through 2007, in large part reflecting the increase in prices for corn and soybeans.

Most of the state's fruit production and processing is on the western side of the Lower Peninsula, particularly in West Michigan. The economic value of fruit production throughout the state increased 15.6 percent from 2006 through 2007, according to the MSU report. Most of the increase was generated by apples, blueberries and tart cherries.

An analysis of the average annual production values of the major fruit crops in Michigan from 2005 through 2007 showed blueberries in the lead with an estimated total economic impact of $191 million, compared to $167 million for apples and almost $64 million for tart cherries. Next highest were grapes, at $28 million.

Michigan fruit crops, which also include sweet cherries, peaches, pears, plums and strawberries, had a direct impact of more than $353 million and a total economic impact of $507 million.

Fruits exceeded vegetable production in Michigan, and in fact, vegetable production declined slightly, estimated at almost 2 percent.

Vegetables had an average annual direct impact of $253 million from 2005 through 2007, and a total overall impact of $341 million. The vegetable crop with the largest value is cucumbers (mainly processed into pickles and relishes), with a direct value of $32 million and a total economic impact of $42 million. The second most valuable vegetable listed in the MSU study was tomatoes, with a direct impact of $21 million and a total impact of $27 million, when all the processing and retail values are factored in.

Livestock production showed the biggest increase in the Michigan agricultural sector, with an estimated increase in total impact of almost 22 percent from 2006 through 2007. Dairy production is the largest part of that, with an estimated annual total value of $1.9 billion, followed by cattle at $513 million, hogs at $342 million, and eggs at $123 million. Turkeys, which are an important component in West Michigan agriculture, came in at $99 million.

Horses are also included in the agriculture sector economy, and actually account for the second highest chunk of the livestock production value in Michigan with a total annual average impact of $392 million, from 2005 through 2007.

“Our last analysis showed Michigan’s agri-food system accounting for 1.05 million jobs, both directly and indirectly,” said William Knudson, product market economist, MSU Product Center, and the study’s lead author. “We won’t have updated job figures until 2010, but signs point to job growth, putting Michigan jobs related to agri-food well over 1 million.”

Knudson cautions, however, that the agri-food industry may have hit its peak for the next few years.

“Food is a necessity, so the agri-food industry, unlike tourism and manufactured goods, may fare better than other industries in an economic downturn,” Knudson said. “But the system is not immune to the impacts of the global recession.”

The study, while emphasizing the major role agrilcuture and food processing plays in Michigan's economy, concluded with a section headed "A Word of Caution." It reflected Knudson's comment, noting that "the agri-food system is not immune to the impacts of the global recession."

The study noted that the worldwide recession put downward pressure on oil prices, which in turn forced down ethanol prices and in turn corn prices. Milk prices have declined "precipitously" since 2007.

The recession is also expected to adversely affect export markets, as well, and the current scarcity of credit will make investments in farm, food processing, food retailing and food service more difficult to obtain, noted the study. However, the agri-food sector position relative to manufacturing, tourism and other economic sectors within Michigan "may improve. Food purchases vary much less than purchases for manufactured goods, tourist services and other types of activities," states the study.

The study is available online at www.productcenter.msu.edu, under the tab for Market Reports. It is also available on the MSU Project GREEEN Web site: greeen.msu.edu.

The MSU data further support growth trends demonstrated in the recently released U.S. Department of Agriculture 2007 Census of Agriculture, which showed a $2 billion increase in farm gate sales since 2002. For more information on the USDA 2007 Census of Agriculture, visit www.nass.usda.gov

The MSU Product Center provides assistance to help Michigan entrepreneurs develop and commercialize high-value, consumer-responsive products and businesses in the agriculture, food, natural resources and bioeconomy sectors. For more information, visit www.productcenter.msu.edu or call (517) 432-8750.

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