Gustav’s agricultural damage reaches beyond farmers’ pockets

Kurt Guidry, Merrill, Thomas A., Fannin, J. Matthew "Matt"  |  9/12/2008 10:59:24 PM

News Release Distributed 09/12/08

LSU AgCenter economists estimate Louisiana’s agricultural damage from Hurricane Gustav will total hundreds of millions of dollars while stressing the economic losses stretch well beyond the losses to farmers and associated businesses.

Preliminary estimates developed by the LSU AgCenter of damages from Hurricane Gustav to the food and fiber sector in the state indicate a loss in expected revenue of more than $400 million to production agriculture. But those damages are just one part of the picture, and they don’t begin to include losses in associated industries or businesses that support the agricultural economy, potential reductions in spending by those employed in the food and fiber sectors or the vital part agriculture plays in the economy of many of the state’s parishes, according to LSU AgCenter economists Dr. Kurt Guidry and Dr. Matt Fannin.

“These estimates do not include additional impacts such as increased harvest costs, infrastructure damage and impacts on the processing, input and service industries that support production agriculture,” Guidry said. “Also, these estimates are highly dependent on weather conditions for the next several weeks after the storm. As a result, damage estimates could and will likely change as additional assessments continue to be made.”

Guidry stressed that more rain or an additional storm could result in increased yield losses to such major Louisiana crops as cotton, rice, soybeans, sugarcane and sweet potatoes – crops that meant more than $1.1 billion of agriculture’s $9.5 billion in farm gate value to the state last year, according to the 2007 Louisiana Summary of Agriculture and Natural Resources from the LSU AgCenter.

Guidry and Fannin also said the overall picture concerning the damage to agriculture has to be viewed.

“In starting to look at the potential impact this storm will have – not only to agriculture, but to the state of Louisiana as a whole – it is important to consider what the food and fiber sector of the state encompasses,” Guidry said. “The first thought of many may be to strictly view the food and fiber sector of the state as production agriculture – farmers, ranchers and landowners who produce agricultural and forestry commodities.

“But a true view of the food and fiber sector must consider all other industries that depend either directly or indirectly on production agriculture,” he said.

Although federal Bureau of Economic Analysis statistics show the contribution of production agriculture to Louisiana’s gross domestic product at roughly 1 percent, Fannin said that statistic is “misleading regarding the food and fiber sector’s importance to the state’s economy on several levels.”

He estimates the overall contribution of the food and fiber sector and its associated contributions to other industries is more like 2.6 percent – and his figures are based on a 2007 study he conducted along with colleagues in the LSU AgCenter.

Fannin explained the view of agriculture taken by the federal figures is “simply production agriculture,” and those figures don’t consider industries that process raw commodities and provide inputs and services to production agriculture – other pieces in the overall food and fiber sector of the state.

“Many other businesses such as grain elevators, cotton gins and warehouses are quite dependent on production agriculture,” he explained. “Also, industries like farm input suppliers, farm machinery suppliers, crop consultants and other input and service suppliers are very much impacted by the welfare of production agriculture and therefore should be included in terms of the overall impact of the state’s food and fiber sector.”

The economists also pointed out that another issue is the relative importance of the food and fiber sector to various areas of the state.

“While the food and fiber system may have a relatively small impact on the economies of more urban areas, there are definitively areas within the state in which the food and fiber sector is an extremely significant contributor to the region’s economy,” Guidry said.

The food and fiber sector’s contribution to the labor force also must be considered when looking at the overall economic impact, according to the economists.

Fannin said his studies show the food and fiber product sector – production agriculture, along with the processing industries tied to it – represents roughly 4 percent of the state’s total employment level. When other parts of the retail sector and food chain are considered, however, the number can increase to roughly 10 percent.

The economists also argue that looking at only the state-level contributions of the food and fiber sector can diminish its importance to regions and area of the state.

“When examining individual parishes and regions of the state, the contribution of the food and fiber product sector to employment varies significantly,” Fannin stressed, adding, “In 41 of the state’s parishes, the food and fiber product sector (production agriculture and agricultural processing) accounts for more than 10 percent of employment, and in 22 of those parishes, it accounts for more than 25 percent of employment.”

Furthermore, five Louisiana parishes depend on the sector for more than 50 percent of employment.

“That means the food and fiber product sector plays a very significant role in many regions and areas of the state,” Fannin said. “For example, in the nine Northeast Louisiana parishes, the food and fiber product sector accounts for more than 10 percent of the total employment in 8 of those parishes – and it tops 25 percent in four of those and 50 percent in two of them.”

The economists also said current estimates of the storm’s effects on the economy haven’t yet considered what reduced revenues might mean to household expenditures from farmers and agricultural laborers.

“The damage created by Hurricane Gustav undoubtedly will affect the revenue generated by agricultural producers through lost production and lower prices due to quality damage,” Guidry explained. “This reduction in revenue will affect household incomes of agricultural producers, which, in turn, is likely to reduce what they spend – thus reducing that aspect of their contribution to the economies of the communities and regions in which they live and buy things.”

The resulting losses can cascade through a variety of effects on other sectors of the economy – and can even affect revenue to local governments, according to the economists.

“In rural parishes where local governments and school boards are highly dependent on sales taxes to operate, these spending reductions may have an impact on their ability to deliver the desirable level and quality of public services,” Fannin said.

All those factors point to the potential for Hurricane Gustav to not only create “significant hardships” for some individual farmers but also to have noticeable consequences for the economy of some areas of the state, as well as the state as a whole, Guidry and Fannin said.

“It’s clear the food and fiber sectors of Louisiana contribute significantly to the state’s economy, and looking only at the 1 percent contribution of production agriculture to the state economy creates the misconception that damage to this industry will have only a marginal impact,” Guidry said.

“In those areas of the state in which the food and fiber sector represent significant percentages of total employment, the economic ramifications of this storm can be expected to be much greater than marginal,” he added.

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Contacts:
Kurt Guidry at (225) 578-4567 or kmguidry@agcenter.lsu.edu 
Matt Fannin at (225) 578-0346 or mfannin@agcenter.lsu.edu

Writer:
Tom Merrill at (225) 578-5896 or tmerrill@agcenter.lsu.edu

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