The Economic Impact of CV Ag: A Case Study

The Economic Impact of Central Valley Agriculture: A Case Study on Merced County
by Maxwell Norton, retired farm advisor in Merced County, 35 years

Sunshine nearly 300 days a year, warm days and cool nights, no snow, no floods, and the largest patch of class 1 soils in the world makes California’s Central Valley a precious gem. The Central Valley is really two valleys: San Joaquin to the south and Sacramento to the north. It is about 450 miles long from Bakersfield to Redding. The valley is 60 miles at its widest, between the Sierra Nevada to the east and the Coast Ranges to the west. Year-round growing seasons make the Central Valley a virtual cornucopia with over 350 different crops distributed locally and shipped worldwide. What a place!

If the valley is so large what is the trouble if we lose an acre here and there or several hundred here or there? What does it really mean? Or better, why should we care? The obvious direct benefactor of saving farmland is the farmer and his/her family, but the extended benefits to people and communities, and the state as a whole, are tremendous.

So, what is the value or impact to a county of an acre of farmland?

As with any basic industry, agriculture generates most of its economic wealth after the product leaves the farm gate. Goods and services are purchased by the farmer from a wide variety of enterprises, which in turn purchase from others. The largest multiplier of economic growth is in the form of packing, processing, packaging, transporting and marketing of agricultural products.

Plainly, the multiplier effect comes about because injections of new demand for goods and services into the circular flow of income stimulate further rounds of spending – in other words one person’s spending is another’s income. This can lead to a bigger eventual final effect on output and employment.

Merced County

To get a perspective on the economic impact of an acre of irrigated ag land using a real example, look at Merced County. San Joaquin Valley crops are often high value commodities and in many cases a considerable amount of processing activity is generated in the regional economy as a result of their production.

The really big multiplier in California is in the processing sector of agriculture: canneries, almond hullers, wineries, cheese companies, nut processors, meat processors, tomato paste manufacturers, milk processing, frozen fruits and vegetables, and fresh product shippers.

To estimate the impact on Merced County’s local economy of an acre of irrigated land, and consequent loss as a result of conversion to other uses, extension agents from Merced County Cooperative Extension used a University of California study on the economic multiplier of crops grown in Stanislaus County (1) which gives the economic multiplier factors for individual crops.

The economic multiplier summarizes the total direct spending and indirect re-spending effects of farming activity and agricultural processing in the local economy. The agricultural economies of Merced and Stanislaus counties are very similar in that they grow similar crops and both have substantial agricultural processing industries.

Merced County Cooperative Extension consulted reliable industry sources to obtain typical yields for well-managed operations and multiplied those by recent average prices to give the farm gate value of the crop. By multiplying the farm gate value by the multiplier factor, they are able to get a rough estimate of the total economic impact of an acre of irrigated cropland on the local economy.

These are the losses, per acre, per year, to the Merced County regional economy for:

Almonds: $24,000
Processing tomatoes: $20,640
Shipping tomatoes: $23,400
Cling peaches: $52,440
Sweet potatoes: $29,250

Using the same methodology and a multiplier factor of 3.0, the total farm gate value for Merced County alone is about $4.5 billion, which generates more than $13.5 billion of economic activity. When you include food processing, agriculture employs about a third of the county’s workforce.

Far-reaching Benefits, California impacts

The economic impact of saving farmland is huge, while the loss of this same farmland is remarkably greater. If we apply the same approach again to the current service area of Central Valley Farmland Trust, we see a staggering economic impact to the valley economy.

Value of Ag – “Farm Gate” Value  – 2014 County Ag Commissioner Reports

Madera                       $2,265,881,000
Merced                        $4,429,987,000
Stanislaus                   $3,663,000,000
San Joaquin                 $3,234,705,000
Sacramento                   $495,379,000
Total                           $14,088,952,000

X economic multiplier of 3.0

= Total economic impact in our service area of $42,266,856,000

In 2014, agriculture had a total economic impact in our service area of over $42 billion.

UC Davis Ag Issues Center (UC Davis AIC) research shows that agriculture generates a quarter of all private sector employment in this Valley. Every job in agriculture generates 2.2 additional jobs in other parts of the economy. In this valley there are dozens of business categories who depend on selling products and supplies to farming operations.

There are just as many types of businesses that sell specialized services to these family farms:  harvesting, irrigation design, ag engineering, ag construction companies, labor contractors, veterinarians, bookkeepers, on-line data services, ag banking, insurance, real estate and legal services.

California is very lucky that some of our output is exported, according to UC Davis AIC for every billion in ag exports, 27,000 jobs are created in this state.  For every dollar in exports, 1.40 is generated in economic activity. This is really important for our state.

Especially considering the current drought, it goes without saying that the supply and cost of water influences agricultural output and subsequent food processing activities. Because of our very special combination of climate, soils and availability of water in the summer, production of the specialty crops that are lost here will not shift to another part of the U.S. economy – it will shift overseas and the jobs will be created there.

Billions of Reasons to Protect Farmland

While the economic reasons to protect farmland are clear, the subtler and sometimes more powerful reasons still ring true. The land is the foundation of our way of life and she cannot be replaced. The richness of the land cannot be accounted for in just her produce or dollar value.

The land provides opportunity, peace of mind and space –  all things Californians today and tomorrow need and treasure. An investment in land protection today saves all of this and more for tomorrow.