The Economic Impact and Potential of Michigan's Agri-Food System

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January 31, 2006 - Author: H Christopher Peterson, William A Knudson, Gretachew Abate

This report has two purposes: (1) to estimate the current economic impact of Michigan’s agrifood system on the state’s economy, and (2) to establish a reasonable forecast of the potential contribution of this system to future economic development in Michigan.

Both purposes have immediate importance. As will be shown, the agri-food system has an estimated economic impact of $60.1 billion annually with employment estimated to be 1.05 million people. These numbers clearly show that the agri-food system is a substantial component of Michigan’s economy—likely second only to the automotive industry as a primary production sector. The economic health of this system is thus critical to the state and its citizens. Beyond the current economic impact, however, is the need to understand what potential exists in the agri-food system to drive future economic development for the state. Michigan is facing challenging economic times. It is critical to know what contribution the agri-food system can make to meeting these challenges and accelerating growth for the state. When both the current impact and the future potential of the agri-food system are understood, decision makers (both public and private) can help maximize the economic benefits that this system does and can create.

Throughout the report, the term “agri-food system” is used. This system represents all the economic activity associated with the supply chains for food and many non-food uses for agricultural commodities. For either food or non-food use, the supply chain begins with input supply activities (e.g., fertilizer, crop protection products, equipment), and farm production. After the farm gate, the system moves commodities into two distinct supply chains. The food
branch of the supply chain includes commodity assembly and processing (e.g., grain elevator operations, packing, storage, and shipping), food manufacturing, food wholesaling, and food retailing. The non-food branch includes diverse supply chain activities related to bio-energy, nursery/greenhouse/turf, and other emerging commercial and industrial uses of agricultural commodities. The full extent of the economic impact of the agri-food system can not be estimated without consideration of all these various components of the related supply chains.

The report is divided into two major parts aligning with the two purposes. Part I examines the current economic impact of the agri-food system, while Part II focuses on forecasting the system’s potential. Part I analyzes current economic impact in three ways: (1) dollar contribution to Michigan’s economy, (2) job contribution, and (3) investment contribution. All three are important indicators of the system’s impact on Michigan’s economy. Part II utilizes several models of typical venture development projects that represent future economic development opportunities. From these archetypes, two scenarios are created to provide insight into the level of investment, economic activity generation, and job creation that the agri-food system could provide. To improve the readability of the report, the technical discussions of how the estimates were made for each part of the report have been moved to technical appendices that follow the two main parts of the report.

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