MSU Product Center 2012 Economic Impact Report


March 31, 2012 - William A Knudson and H Christopher Peterson


Michigan’s food and agriculture system is a major contributor to income and employment in the state’s economy. The food and agriculture system accounts for approximately $91.4 billion in direct, indirect and induced economic activity. This sector also accounts for an excess of 923,000 jobs both directly, indirectly and through induced activity.

The food and agriculture system is fairly complex. The supply chain for products produced by this sector goes through several steps. Inputs are used at the farm level to grow the crops, livestock and milk, and fruits and vegetables. Farm products in turn are collected, graded, sorted, etc. After this step, the commodities are sent to food processors to create manufactured food products or in the case of fresh fruits and vegetables sent to wholesalers and brokers to be sold to retailers such as supermarkets or the food service industry. The manufactured food markets are then wholesaled and retailed or consumed in restaurants.

Agricultural products used for energy such as ethanol which uses corn as a feedstock follows a somewhat different path. In the case of ethanol, corn is collected and the ethanol is extracted from the corn. The primary residual product Dried Distillers Grains (DDGs), is used as an animal feed.

As the above outline shows, the food and agricultural system is complex and interconnected. Agriculture is much more than farming. As such, in order to obtain a complete picture of the economic impact of the sector, allied economic activity and employment also need to be considered as well as the income and employment generated throughout the system. The primary method used to generate figures on the total economic activity generated by the food and agriculture system is an input-output model with multipliers generated by IMPLAN, a company that specializes in economic impact analysis software. More information about IMPLAN and the underlying assumptions the program uses can be found in the appendix.

This paper will analyze the economic impact of the farm, food processor and wholesale and retail levels of the agri-food supply chain on the Michigan economy. The input supply sector will also be considered as will first level handlers of agricultural commodities such as grain elevators. For the purposes of this report, the nursery and landscape industries will also be considered part of the agri-food sector. Michigan is an important producer of many nursery and landscape products. The size and impact of the ethanol sector will also be discussed. Currently, the state has five ethanol plants and no biodiesel facilities in operation.

However, there are several biodiesel facilities and advanced biofuel facilities under consideration. The Agri-Energy industry will likely grow in the future. It should be noted that the research methodology in this paper is based on that in Professor John N. Ferris’ Sta! Paper 00-11, An Analysis of the Importance of Agriculture and the Food Sector to the Michigan Economy, which was written in May of 2000. In most respects, this paper is an update of Professor Ferris’ previous study.


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