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Agricultural Trade Multipliers: Effects of Trade on the U.S. Economy

Contents
 

2010 Data Overview

U.S. agricultural exports generated employment, income, and purchasing power in both the farm and nonfarm sectors. ERS estimates that each dollar of agricultural exports stimulated another $1.34 in business activity in 2010. The $115.8 billion of agricultural exports in 2010 produced an additional $154.9 billion in economic activity for a total economic output of $270.7 billion. Every $1 billion of U.S. agricultural exports in 2010 required 7,800 American jobs throughout the economy. Calendar year 2010 agricultural exports required 907,000 full-time civilian jobs, which included 609,000 jobs in the nonfarm sector. The agricultural export surplus helped to offset some of the nonagricultural trade deficit.

Introduction

As the world’s economies become more integrated, global trade and the links between countries grow ever deeper.  Agricultural exports reversed course in 2010 and surpassed the record set in 2008 by $400 million. U.S. agricultural trade is still a significant contributor to the overall U.S. economy, with impacts felt in countries worldwide.  The United States is a net exporter of agricultural products, with the surplus helping to offset some of the U.S. nonfarm trade deficit of almost $824 billion in 2010.

Trade has always been important to U.S. farm and rural economies. From early colonial days, when tobacco and cotton were the most important export commodities, to today’s grain, oilseed, and processed foods, agricultural trade has contributed to U.S. economic growth. Trade agreements have expanded agricultural trade with developed and developing countries and, in turn, have created growth opportunities for U.S. agriculture. Free trade agreements, such as the North America Free Trade Agreement, have lowered trade barriers and created additional consumer demand in foreign nations for U.S. agricultural commodities.  That demand is then satisfied with purchasing power acquired in foreign nations when their products are sold in the United States and elsewhere.
 
While domestic harvests remained at about the same level as 2009, agricultural exports rebounded to 2008 levels in both quantity and value. Foreign demand for these exports was spurred by continued economic growth in other countries whose recessions were not as severe as in the U.S. and by continued softening of the U.S. dollar. The U.S. dollar nominal exchange rates were in decline in 2010. The dollar fell against all major currencies, including those of  Japan, China, the European Union (EU), Great Britain, Canada, and Mexico, making the price of U.S. goods more competitive in those countries.

China, for the first time, was the leading U.S. market for agricultural goods, consuming $17.5 billion of the $115.8 billion in U.S. exports and exporting $3.4 billion to the U.S. Together with Canada, Mexico, and Japan, these nations bought over 50 percent of U.S. agricultural exports. Despite the weak buying power of the U.S. dollar, U.S. imports of agricultural goods were the highest ever at $81.9 billion. U.S. imports from Canada were worth $16.3 billion in 2010, down from $18.0 billion in 2008 but still 20 percent of all 2010 U.S. agricultural imports. Together, Canada, Mexico, and the EU supplied 54 percent of all 2010 U.S. agricultural imports. Since 2005, the 27 countries that make up the EU have been either our first- or second-largest supplier of agricultural imports. If the EU is not considered as a single entity, China then becomes the third-largest supplier with imports of $3.4 billion in 2010. U.S. consumers continued in 2010 to demand a large variety of imported goods and were willing to pay a premium for them. 

Agricultural trade is most importantly a generator of output, employment, and income in the U.S. economy. For every dollar spent on U.S. exports in 2010, another $1.34 was created in the U.S. economy to support the exporting activity. ERS Estimates of Agricultural Trade Multipliers show that every $1 billion of U.S. agricultural exports in 2010 required 7,800 American workers, engaged in both direct and indirect supporting activities.

Impacts of Agricultural Trade in 2010

The impacts of agricultural trade on the U.S. economy change from year to year. Just as the composition of the agricultural export “basket” changes yearly, so too do the direct and indirect impacts on the economy. The structure of the U.S. economy also changes over time, which influences the domestic impacts of agricultural exports. The domestic economy is now dominated by the service sector, and the high level of supporting activity in those industries reflects that structure.

In calendar year 2010, the $115.8 billion of U.S. agricultural exports produced an additional $154.9 billion in economic activity for a total of $270.7 billion of economic output (see U.S. economic activity triggered by agricultural trade, 2010icon_excel_notext). Supporting activity was one and a half times as much as the $100 billion mark surpassed in 2005. Agricultural exports also generated 907,000 full-time civilian jobs, including 609,000 jobs in the nonfarm sector. Farmers’ purchases of fuel, fertilizer, and other inputs to produce commodities for export spurred economic activity in the manufacturing, trade, and transportation sectors. (For information on how the data are derived, see ERS Estimates.)

The production equivalent of over one-fourth of U.S. cropland moved into export channels in 2010. Of raw crops, the United States exported 55 percent of food-grain production, 16 percent of feed grains, and more than 47 percent of oilseeds. Coarse grain exports as a percentage of production held steady in 2010  from 2009 levels, while food and oilseed exports increased. Because the value of all agricultural exports exceeded that of imports, net agricultural exports in 2010 contributed $34.0 billion to the overall U.S. economy, an increase of $7.0 billion from $27.0 billion in 2009.

Exports Generated New Business, Added Jobs

Of the almost $116 billion in direct U.S. agricultural exports in 2010, the value of exported raw products was $42.5 billion, compared with $47.6 billion of processed commodities and $25.7 billion for transport and trade services. Almost  $155 billion of supporting or indirect activity was generated by agricultural exports in 2010, encompassing the value of activity required to facilitate the movement of exports to their final destination (e.g., computer and financial services, warehousing and distribution, packaging, and additional processing). The service sector generates $67.0 billion of the total. All nonfarm sectors of the economy received about 78 percent of this additional economic activity.

Employment required to produce, transport, and service agricultural exports in 2010 increased to 907,000 from the 2009 level of 828,000. Price changes, which affect the estimates of workers per billion dollars of exports, as well as the export commodity mix and the volume of goods exported, were responsible for the increase. Of the 907,000 full-time civilian jobs related to agricultural exports in 2010, more than 298,000 were U.S. farm workers. Based on a Bureau of Labor Statistics estimate of 1,823,000 full-time-equivalent agricultural workers, this implies that approximately 16 percent of the U.S. farm workforce is producing for export. In 2010, 609,000 jobs in the nonfarm sector were involved in assembling, processing, distributing, and servicing agricultural products for export, an increase of 79,000 from 2009 levels. About 108,000 of those 609,000 jobs were in food processing, 196,000 in trade and transportation, 66,000 in other manufacturing sectors, and 238,000 in other services.

Bulk exports have a smaller proportional effect on the nonfarm economy than processed, or high-value, exports.  Bulk exports of $43.4 billion generated an additional $41.1 billion of business activity, while nonbulk exports of $72.4 billion generated $113.8 billion (e.g., $0.90 additional output per dollar of bulk exports, $1.57 for nonbulk exports, and $1.34 for all agricultural exports).

Over 59 percent of the additional business activity attributed to bulk exports took place in the other services sector and less than 0.1 percent in food processing. By contrast, the additional business activity for nonbulk exports was 11 percent in food processing and 38 percent in services. Of the 907,000 jobs related to U.S. agricultural exports, 603,000 (66 percent) supported nonbulk exports.

In 2010, Non-bulk agricultural exports generate more total business activity than bulkd

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Impacts of Agricultural Imports on U.S. Output

It is not currently possible to measure the total economic activity associated with imports because there are no end-use data on imports available. When imports enter the United States, their value is recorded. After that, they are no longer tracked as imports but instead enter the general domestic economy to be used in the same fashion as domestically produced goods.

The end-use of a product is what determines its multiplier effects. Imports can be put into inventory (an almost negligible multiplier) or used in a highly processed product (a very large multiplier). Thus, without end-use data, the indirect or supporting impacts of actual agricultural imports cannot be measured in terms of output, employment, value-added or as a multiplier. Only the value of imports as measured upon entry into the United States can be discerned (direct effects).

Imports can be assigned the generally held view of an economy-wide domestic business multiplier of between 2.00 and 2.50, because activities associated with “absorbed” imports are the same as those associated with any other domestic commodity. After adjusting for inflation from the benchmark year (2002) to 2010, the average output-weighted domestic business multiplier in 2010 for all U.S. business can be calculated as 2.31.

To illustrate the point, consider that almost all fish products are imported. If reliable statistics on consumers’ demand for and consumption of fish were available, the supporting activity required to deliver imported fish could be measured. But this would be only part of the contribution of fish imports to the economy because fish is also turned into meal and feeds, processed products, pet foods, and other uses not related to direct human consumption. These uses become completely intertwined with domestic production. Finally, to fully measure all fish outputs, one would also have to separate the movement of imported fish products from the small but growing amount of products from domestic farm-raised fish.

Because of these data limitations, the economic impact of imports described here is the value of imported products as if they were produced in the United States and then assigned the value of that activity as a theoretical loss of economic activity to the United States. The only actual “loss” to the U.S. economy that can be measured is the actual value of agricultural imports.

The domestic output effect of the $81.9 billion of agricultural imports into the United States in 2010 was $195.0 billion. Just as with exports, moving imported products to consumers generates jobs in the data processing, financial, legal, management, administrative, marketing, and transportation sectors. Each dollar spent on agricultural imports in 2010 would have required another $1.38 in supporting goods and services if those imported items had been produced domestically, indicating an output multiplier of 2.38.

U.S. agricultural trade had a positive effect on all sectors of the economy in 2010. Any  theoretical loss in trade in high-value processed products (-$4.6 billion) was offset by gains from trade in bulk products and the supporting activity associated with bulk and nonbulk trade. The farm sector’s $76.2 billion of output associated with agricultural exports more than offset the $38.5 billion of farm output implicitly lost because of agricultural imports (see U.S. economic activity triggered by agricultural trade, 2010icon_excel_notext). The nonfarm sectors, including food processing, gained $38 billion in total output via the agricultural trade balance, creating about 103,700 jobs and generating $17.3 billion in income. The U.S. economy gained a net $75.7 billion in output (after the theoretical loss to agricultural imports is considered).

Outside of farming and food processing, the United States gained a net $2.5 billion in 2010 from direct agricultural trade—that is, exports minus imports of agricultural goods that are neither farm nor processed goods (pharmaceuticals and adhesives, for example) —and $26.2 billion in total output because the direct plus indirect value of these exports was greater than that of the imports.

Total Jobs Required Per Billion Dollars of Agricultural Exports Drop in 2010

In 2010, 7,800 workers were required to deliver agricultural exports to their final consumer, a decline from the 8,400 per billion required in 2009. The farm sector is the largest generator of jobs related to agricultural exports. While some of the major coarse grain crop prices fell slightly in 2010, most of the others—including livestock and cotton—posted large increases.

When farm prices are low, customers buy large amounts of bulk grains and oilseeds. Jobs are created on the farm and in the supporting transportation and distribution industries, but job growth bypasses the processing and manufacturing sectors. In 2006, record-setting quantities of bulk commodities were exported, and because volume largely determines overall labor requirements, many farm and farm-related jobs were generated as a result.
In that year $24.4 billion of bulk exports required 180,000 jobs while in 2008, a period of high bulk prices, $48.4 billion of bulk exports required the services of only 131,000 workers.

In 2010, according to USDA’s National Agricultural Statistics Service, prices received by farmers for food grains, and oilseeds decreased between 3 and 5 percent while feed grains increased 2 percent from 2009 prices. There were much larger price increases in every other farm sector except greenhouse and nursery products. The total value of bulk exports increased 21 percent, from $36 billion in 2009 to $43.4 billion in 2010.

Because some of the change in agricultural export value over 2009 was driven by price and not quantity, and labor productivity continued to increase, there was a decrease in the number of jobs required per billion dollars of exports in 2010.  Farm and closely related farm industry jobs are dependent on bulk exports, which saw prices hold steady from 2009. Productivity increases also contributed to the decline in jobs required per billion dollars of agricultural exports in 2010. The small dip in some bulk prices was not low enough to overtake nonbulk exports as the primary engine of export job creation.  . In 2010 nonbulk exports generated 1, 300 more jobs per billion dollars of exports than bulk.

While the jobs per $1 billion of exports declined, the total employment supporting U.S. agricultural exports increased from 828,000 in 2009 to 907,000 in 2010. In the early 1980s, $35 to $45 billion of exports (in nominal dollars) generated an estimated 1-1.2 million jobs.  Now it takes over $100 billion of exports to create the 907,000 jobs in 2010. ERS estimates for 1983 indicate that $38 billion of agricultural exports created 1.1 million jobs that year, a multiplier of 29,000 jobs per billion dollars of exports (Foreign Agricultural Trade of the United States, 1984). Because of price changes, increased productivity, and structural/technological advances in the intervening years, the number of jobs per billion dollars of exports has declined to 7,800 workers in 2010.

 

Number of civilian jobs required by U.S. agricultural exports, 1994-2010d

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Historical Analysis

For more information, contact: Mathew Shane

Web administration: webadmin@ers.usda.gov

Updated date: March 16, 2012