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- Economic Potential of Industrial Hemp Production in Louisiana
Staff Report No. 2019-42, April 23, 2019
Dr. Michael A. Deliberto
Louisiana State University Agricultural Center
Department of Agricultural Economics & Agribusiness
Industrial hemp is an agricultural commodity that is cultivated for use in the production of a wide range of products, including foods and beverages, cosmetics and personal care products, nutritional supplements, fabrics and textiles, yarns and spun fibers, paper, construction and insulation materials, and other manufactured goods. Hemp can be grown for fiber, seed, or other dual-purpose crops. However, hemp belongs to the same plant family as marijuana-Cannabis sativa. As a result, production in the United States is restricted, and the U.S. market is largely dependent on imports (Johnson, 2018; Robbins, et. al, 2013; Williams and Mundell, 2015). No official estimates are available as to the value of U.S. sales of hemp-based products. Scant detailed information is available for other related hemp-based product sectors, such as hemp derived products used in construction, biofuels, paper, textiles, or products for other manufacturing uses. Data are also not available on existing businesses or processing facilities. Most researchers acknowledge the potential profitability of industrial hemp but also stress the potential obstacles to its development as well. Current challenges facing the industry include the need for re-establishing agricultural supply chains, conducting research on varietal development, customization of extant harvesting equipment, modernizing processing and manufacturing facilities, and identifying new market opportunities (Johnson, 2018).
Efforts to estimate the potential range of farm gate values for industrial hemp production in Louisiana are presented for three categories: grain and fiber; seed; and Cannabidiol oil (CBD). Assumptions regarding the yield per acre for fiber, seed and CBD (dry matter) were obtained from the existing economic literature (Robbins, et. al., 2013; Smith and Kantrovich, 2019; Mark and Shepherd, 2019). Yields for fiber (grain and straw) production were assumed to be 3 tons per acre; 700 pounds of certified seed per acre; and 2,500 pounds of dry matter (single crop) per acre for purposes of extracting CBD. Market price data were assumed based from the existing literature and presented over a range of market values for the purposes of this analysis. Market prices were estimated to range from $40 to $200 per ton for fiber (grain and straw); $0.70 to $1.50 per pound for certified seed; and $10 to $42 per pound (raw value) of dry matter harvested for CBD extraction. Pricing for CBD oil was estimated from industry observations in Journal-Advocate, 2018; Bennett, 2019. The potential acreage devoted to industrial hemp in Louisiana was set to vary from an imposed lower bound of 200 acres to a proscribed maximum of 1,000 acres. Although no production currently exists, these ranges are suggestive of possible ranges for the cultivation of hemp in Louisiana.
Tables 1 through 3 present the estimated gross farm value of industrial hemp by product category across varying market price scenarios.
Table 1. Estimated gross farm, value of industrial hemp used for fiber (grain sand straw production).
Estimated Gross Revenue ($/acre) from Industrial Hemp used for Straw, varying price per ton
| Potential Acres |
$40.00 |
$60.00 | $80.00 | $100.00 | $120.00 | $140.00 | $160.00 | $180.00 | $200.00 |
| 200 | $24,000 | $36,000 | $48,000 | $60,000 | $72,000 | $84,000 | $96,000 | $108,000 | $120,000 |
| 400 | $48,000 | $72,000 | $96,000 | $120,000 | $144,000 | $168,000 | $192,000 | $216,000 | $240,000 |
| 600 | $72,000 | $108,000 | $144,000 | $180,000 | $216,000 | $252,000 | $288,000 | $324,000 | $360,000 |
| 800 | $96,000 | $144,000 | $192,000 | $240,000 | $288,000 | $336,000 | $384,000 | $432,000 | $480,000 |
| 1,000 | $120,000 | $180,000 | $240,000 | $300,000 | $360,000 | $420,000 | $480,000 | $540,000 | $600,000 |
The estimated gross farm value from the production of industrial hemp used for fiber (grain and straw production) is estimated to range from $24,000 on 200 acres to as much as $600,000 on 1,000 acres.
Table 2. Estimated gross farm, value of industrial hemp used for certified seed production.
Estimated Gross Revenue ($/acre) from Industrial Hemp used for Seed, varying seed price per pound
| Potential Acres |
$0.70 |
$0.80 | $0.90 | $1.00 | $1.10 | $1.20 | $1.30 | $1.40 | $1.50 |
| 200 | $98,000 | $112,000 | $126,000 | $140,000 | $154,000 | $168,000 | $182,000 | $196,000 | $210,000 |
| 400 | $196,000 | $224,000 | $252,000 | $280,000 | $308,000 | $336,000 | $364,000 | $392,000 | $420,000 |
| 600 | $294,000 | $336,000 | $378,000 | $420,000 | $462,000 | $504,000 | $546,000 | $588,000 | $630,000 |
| 800 | $392,000 | $448,000 | $504,000 | $560,000 | $616,000 | $672,000 | $728,000 | $784,000 | $840,000 |
| 1,000 | $490,000 | $560,000 | $630,000 | $700,000 | $770,000 | $840,000 | $910,000 | $980,000 | $1,050,000 |
The estimated gross farm value from the production of industrial hemp used for seed production is estimated to range from $98,000 on 200 acres to as much as $1,050,000 on 1,000 acres.
Table 3. Estimated gross farm, value of industrial hemp used for CBD oil.
Estimated Gross Revenue ($/acre) from Industrial Hemp used for CBD, varying price per pound harvested plant product
| Potential Acres |
$10.00 |
$14.00 | $18.00 | $22.00 | $26.00 | $30.00 | $34.00 | $38.00 | $42.00 |
| 200 | $5,000,000 | $7,000,000 | $9,000,000 | $11,000,000 | $13,000,000 | $15,000,000 | $17,000,000 | $19,000,000 | $21,000,000 |
| 400 | $10,000,000 | $14,000,000 | $18,000,000 | $22,000,000 | $26,000,000 | $30,000,000 | $34,000,000 | $38,000,000 | $42,000,000 |
| 600 | $15,000,000 | $21,000,000 | $27,000,000 | $33,000,000 | $39,000,000 | $45,000,000 | $51,000,000 | $57,000,000 | $63,000,000 |
| 800 | $20,000,000 | $28,000,000 | $36,000,000 | $44,000,000 | $52,000,000 | $60,000,000 | $68,000,000 | $76,000,000 | $84,000,000 |
| 1,000 | $25,000,000 | $35,000,000 | $45,000,000 | $55,000,000 | $65,000,000 | $75,000,000 | $85,000,000 | $95,000,000 | $105,000,000 |
The estimated gross farm value from the production of industrial hemp used for CBD oil production is estimated to range from $5,000,000 on 200 acres to as much as $105,000,000 on 1,000 acres.
Using the Impact Analysis for Planning (IMPLAN) model to measure the potential input-output economic effect of hemp as an agricultural enterprise in Louisiana, the economic multiplier for industrial hemp production is estimated to be 2.16. That is, for every one dollar of hemp related agricultural output, there is an estimated increase of $2.16 in total economic activity across all economic sectors within Louisiana. This includes the original $1 of hemp agricultural output (farm gate value) plus an additional $1.16 multiplier effect (indirect and induced effect) for output.
Assuming that all hemp production in the state had a market, each dollar of agricultural hemp output would be multiplied by 2.16 as to calculate the total economic effects of hemp production (both the direct effect of the farm gate value plus the economic multiplier effect).The estimated economic impact from the production of industrial hemp used for fiber (grain and straw production) on the Louisiana economy is estimated to range from between $51,840 on 200 acres to as much as $1,296,000 on 1,000 acres. The estimated economic impact from the production of industrial hemp used for certified seed production to the Louisiana economy is estimated to range from between $211,680 on 200 acres to as much as $2,268,000 on 1,000 acres. The estimated economic impact from the production of industrial hemp used for CBD oil to the Louisiana economy is estimated to range from between $10,800,000 on 200 acres to as much as $226,800,000 on 1,000 acres.
For the foreseeable future, hemp production in the United States faces a number of obstacles, such as U.S. government drug policies (Johnson, 2018). Yield uncertainty with industrial hemp production will likely result in highly variable returns for the individual grower. Uncertainty also surrounds the structure of marketing contracts for industrial hemp, especially CBD production. The use for industrial hemp for CBD is viewed as a driving force behind possible production expansion in the U.S (Smith and Kantrovich, 2019).
References
Bennett, C. “Growing Hemp for CBD, Seed, or Fiber”. AgWeb. February 26, 2019. Mexico, MO.
IMPLAN. Huntersville, NC.
Johnson, R. Hemp as an Agricultural Commodity. Congressional Research Service. Report RL32725. June 22, 2018.
Journal-Advocate. “Hemp Can Be Lucrative, but there are Drawbacks.” February 27, 2018. Sterling, CO.
Mark, T. and J. Shepherd. Industrial Hemp Budgets 2019. University of Kentucky. Department of Agricultural Economics. February 12, 2019.
Robbins, L., W. Snell, G. Halich, L. Maynard, C. Dillion, and D. Spalding. Economic Considerations for Growing Industrial Hemp: Implications for Kentucky’s Farmers and Agricultural Economics. University of Kentucky. Department of Agricultural Economics. July 2013.
Smith, N. and A. Kantrovich. Industrial Hemp Economics. South Carolina Industrial Hemp Program. Clemson Cooperative Extension. Industrial Hemp. Date Accessed: 22 April 2019.
Williams, D. and R. Mundell. An Introduction to Industrial hemp, Hemp Agronomy, ad UK Agronomic Hemp Research. 2015.
Department of Agricultural Economics and Agribusiness at (225) 578-3282