MSU Extension Product Center

Interim Update on the Economic Impact of Michigan's Agri-Food System

Summary

The total economic impact (including direct, indirect, and induced) of Michigan’s agri-food and agri-energy system is estimated to be $125.8 billion an increase of about $21.1 billion or 20.2 percent, from the 2018 estimate, that was based primarily on 2016 data.  The direct impact of the agri-food system is estimated to be about $74.0 billion, and the direct impact of the ethanol sector is estimated to be $619 million.   The primary driver of this growth has been the increase in food inflation driven primarily by increased commodity prices and supply chain disruptions.

Table 1 summarizes the economic impact of the agri-food and agri-energy system.  It should be noted that the consumer price index for food was used to estimate the change in the other agri-food category.  This generates a very rough estimate that is subject to change as more up to date data become available. 

The figure for the impact of farming is likely understated.  An average of 2019 through 2021 was used to generate the estimates.  Farm prices rose in 2022, but final figures are not yet available.  The source of growth was in food processing, wholesaling, and retailing.  Higher petroleum prices made ethanol  a more attractive substitute for gasoline which drove up the price, and therefore the economic impact of ethanol production.  Its economic impact more than doubled compared to the 2018 estimate. 

Methodology

These figures should be considered very rough estimates.  For agricultural commodities, three year averages from 2019-2021 were used to get the farm level economic impacts.  This understates the economic impact of the farm sector because although the figures are yet fully available farm prices and farm income were high in 2022.  The numbers are based on numbers obtained from the Michigan Agricultural Statistics Service except where noted.  The other agri-food figures were based on spending on food and alcoholic beverages and adjusted for the food CPI.

A complete analysis of the impact of the agri-food and agri-energy system cannot be undertaken at this point in time.  This is due to issues in obtaining up to date data.  A complete analysis would require data that is not yet available.  This is primarily due to the fact that good data on food processing, wholesaling, and retailing is only released once every five years.  The results in this interim report are subject to revision. 

As a result of this incomplete data, impacts on employment have not been estimated.  Given the growth of the sector and its relative maturity employment is likely to be relatively stable.  COVID may have reduced employment in the restaurant industry as that industry has yet to fully recover.  Also, labor shortages may be impacting other sectors especially fruit and vegetable production as well as some processing sectors.  Labor shortages are a constraint to growth in the agri-food sector. 

Economic Impact of the Farm Sector

The economic impact of the farm sector is shown in the following tables.  As previously noted these are averages for 2019 through 2021.  An average is used to smooth out year to year variations in price and yields.  However, the years 2019 through 2021 were less profitable years than the mid-2010s.  Farm prices and income rebounded in 2022 but are not reflected in the farm income tables. These figures are based on numbers provided by the Michigan Agricultural Statistics service with multipliers provided by IMPLAN, a standard economic impact software package, to generate the total impact figures.

Table 2 shows the economic impact of selected field crops.

Overall, the value of field crop production declined by more than $1.0 billion or 25 percent from the previous study. Most of this decline was due to the decline in corn from $1.87 billion to $1.13 billion. Wheat, sugarbeets, and soybeans also declined in value. Potatoes and dry beans are the two field crops that showed an increase in their value and economic impact. Corn and soybeans remain the most important field crops in terms of acreage and value of production.

Table 3 shows the economic impact of fruit production.

The value of fruit production increased by more than $300 million or 87 percent from the previous study.  The value of apple production more than doubled and the value of blueberry production almost doubled.  The tart cherry industry continues to face difficulty due to changing consumer tastes and foreign competition.  Access to labor is also an issue facing some fruit growers.  Not all fruits are captured in table 3 as the USDA  represses some data to protect the identity of some producers.  However, total farm receipts are included in the farming figure in Table 1. 

There appears to be a fairly dramatic decline in vegetable production.  The USDA no longer publishes output of carrots, sweet corn, celery, and fresh and processed tomatoes.  This is likely due to the increased concentration in the production of these vegetables as well as a reduction in the output of these vegetables. 

Table 4 outlines the value and economic impact of vegetable production from 2019 through 2021.

Compared to the 2018 figure, sales of vegetables declined by $75.78 million, and the total economic impact has declined by $116.59 million.  This may somewhat overstate the decline as some vegetable production figures may be suppressed to prevent the disclosure of some farms’ output.  However, it appears that vegetable production has declined in the state. 

This is likely due to the lack of labor to plant and harvest vegetables.  The COVID outbreak restricted labor movement and immigration, and current immigration policy also appears to restrict immigration despite the wages and benefits paid by farmers.  Increased foreign competition has also been an issue in some vegetable markets. 

Table 5 shows the economic impact of livestock production.

Table 5: The Economic Impacts of Livestock Products

*Census of Agriculture

The figures for livestock are essentially unchanged from the 2018 study.  Dairy, and hogs are up slightly, and beef is down slightly.  Eggs are down 32 percent and are seriously underestimated.  Egg prices were low in 2020 and 2021 and made a major recovery in 2022.

A Word of Caution

These figures should be considered a rough estimate.  Inflationary pressures have increased food prices and have led to an increase in the economic impact of the agri-food system.  Most of this increase is in the food processing, wholesaling, and retail industries.  The restaurant industry is still recovering from COVID, and the impact of more people working at home. 

The figures for the farm sector are probably somewhat understated.  Prices for most farm commodities increased in 2022 and are not captured here.  It is anticipated that farm prices and net farm income will decline somewhat in 2023.