Farm Management
Economic Model
This analysis uses IMPLAN to estimate the contribution of Alabama’s agricultural and forestry industries. IMPLAN is a regional economic analysis software package that estimates the effects of a specific economic activity within a specific geographic area. The software implements an input-output (I-O) and social accounting matrix (SAM) model to provide estimates of the connectedness in economic activity (IMPLAN 2024).
The IMPLAN modeling approach analyzes the inputs to production necessary to provide a specific product or service. Then, it quantifies the backward linkages from production to provide those goods and services. Multipliers are estimated to reflect changes in output and employment from the specific activity being modeled within the economy.
Direct effects represent the production value for a specific sector and are the basis for determining additional economic activity. IMPLAN estimates indirect and induced effects based on the level of production (direct effects) the researcher defines. Indirect effects represent the business-to-business purchases necessary to provide the raw materials needed to produce the economic activity specified by the direct effects. The induced effects are the household expenditures generated from employment income related to the specific production sector. Together, the direct, indirect, and induced effects represent the total economic contribution of the various agricultural and forestry industries in Alabama.
Data Sources
The data packaged in IMPLAN are collected from many different government entities. They include the US Department of Commerce, the Bureau of Economic Analysis, the US Bureau of Labor Statistics, the US Census Bureau, and the US Department of Agriculture (USDA) as well as other sources. The reliability of this data was verified through stakeholder discussions and a review of additional materials from those same government entities. Based on this review, adjustments to the data provided by IMPLAN were made as necessary to reflect the additional information obtained for a particular sector and the general scope of this specific project.
Contribution Analysis Versus Impact Analysis
Two types of analyses are used to model economic activity—a contribution analysis and an impact analysis. These two approaches
are sometimes discussed similarly, i.e., the impact of a specific activity within a geographic area. However, there are distinct differences in the modeling approach. Even when defined with the same sectors, there are differences in the outcomes that result from these two methodologies. One way to think about which study is more appropriate is the following:
An impact analysis is used to determine how a direct change in expenditure of a specific project will affect the local economy.
A contribution analysis provides evidence of how important a particular sector is to the existing economy.
This study is a contribution analysis as it looks at the included sectors’ existence and their effects on the total Alabama economy.
Choices of Geographic Scope and Sectors for Modeling
When defining an industry contribution study, there are two primary considerations. First, the geographic scope to be modeled must be determined. In this study, the state of Alabama is specified as the relevant economy. More local effects are also of interest. The USDA defines regional areas within the state as Agricultural Statistical Districts. Each group of counties in a region represents similar geography, climate, and cropping practices.
The second consideration is how broadly or narrowly to define the industries to be included. This can be thought about as how far down the supply chain the analysis goes. Would that economic activity exist in the state without the contribution of the agricultural and forestry industries? The approach used in this study focuses on the agricultural and forestry supply chain through the processing and manufacturing sectors. This is because of their dependence upon the state’s agricultural and forestry production activities. However, the effects of distribution activities such as wholesale operations, restaurants, and retailers are not modeled because these sectors do not strictly rely upon Alabama agricultural and forestry products for their existence. Specific sectors are identified based on the North American Industry Classification System (NAICS) codes. NAICS codes are used to group businesses based on their primary operation.
Adam N. Rabinowitz, Associate Professor and Extension Economist, and Dennis Brothers, Associate Extension Professor, both with Auburn University
This is an excerpt of Agriculture & Forestry Grow Alabama: An Economic Contribution Study, ACES-2817