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Mid-South gins — economic benefits

Direct and indirect economic effects and value added and labor income factors associated with cotton ginning had an impact of almost half a billion dollars on the Mid-South states in 2007.

Direct output spending amounted to $258 million, while $181 million of indirect effects bumped the total to $439 million, Matt Fannin, Louisiana State University Agricultural Center assistant professor, said at the summer meeting of the Southern Cotton Ginners Association at Branson, Mo.

Additionally, there was another $227 million in value-added and $131 million in labor income created by Mid-South cotton ginning activities, he says.

The study, begun in 2008 and funded by the SCGA and the Agricultural Research Service, was conducted by Fannin and Kenneth W. Paxton, also at the LSU AgCenter, with in-kind support from Tommy Valco with USDA’s Agricultural Research Service at Stoneville, Miss.

“Ginning is only one part of the overall cotton supply chain; it also includes production, ginning, warehousing, marketing,” Fannin notes. “This study shows that the gin supply chain does have an impact on communities — even in periods of low cotton prices, there are expenditures for fixed and variable costs that spill over and ripple through local economies.

“Cotton differs from other commodities in that it is generally processed and warehoused in the region in which it is produced.”

With the substantial reductions in cotton acreage across the Mid-South in recent years, Fannin says, there has been increasing concern by producers, ginners, and others in the cotton supply chain as to the long-term sustainability of the industry.

“Cotton gin numbers continue to decline along with the drop in cotton acres, and producers are concerned that there is no economically viable next-best use for portions of the supply chain infrastructure, such as gins. And they’re worried that gin closures will accelerate and eliminate opportunities for them to plant cotton in future years when market conditions improve.”

The focus of the study, Fannin says, was to measure the economic impact that gins have on the Mid-South economy, particularly through their spending on material and service inputs and household spending that occurs through the incomes paid to full-time and seasonal labor, as well as profits earned by gin owners.

The researchers worked with the SCGA in the development of its tri-annual ginning cost survey to include questions regarding specific variable input ginning costs. In addition to direct, indirect, and total output effects, calculations were done for value added effects and labor income effects.

In 2007, Mid-South gins processed a total of 5.15 million bales; in 2008, that dropped to 3.4 million bales.

Per bale ginning costs across the Mid-South in 2007 averaged $39.02. Tennessee had the highest average cost, $45.63, followed by Louisiana, $40.29, Missouri, $39.34, Mississippi, $37.03, and Arkansas, $35.73.

Tennessee’s higher total costs were primarily driven by higher capital improvement costs at those gins surveyed, Fannin notes, while Arkansas’ lower costs were due to lower energy and seasonal labor costs. Insurance and office costs were not included in the survey.

“Spending over all categories resulted in over $258 million of direct economic impact across the Mid-South,” he says. “When additional spin-off, or multiplier effect, spending is included, the total economic output effects exceeded $438 million. Over $249 million, or 57 percent, was generated by employee and gin ownership spending.

“Total value added effects exceeded $227 million and labor income effects totaled almost $131 million from initial spending by gins, their employees, and gin ownership.”

For each $1 increase in demand for ginning services there is a total increase in output across all sectors of the five-state Mid-South economy of $2.39.

In terms of output, Fannin says, the sector most impacted by the ginning industry is manufacturing, accounting for $153 million of the $258 million total, or 59 percent.

“This isn’t surprising, given the amount of manufactured goods purchased in both capital improvements and repair/maintenance of gins.”

The next largest category is transportation and warehousing, at just over $30 million, or 11.62 percent of total direct output effects.

The state spending multiplier was 1.65 for Missouri, 1.61 for Tennessee, 1.52 for Louisiana, 1.50 for Arkansas, and 1.45 for Mississippi.

The variation in multipliers across states is due to several reasons, Fannin notes. “Some states have in-state suppliers for a large number of gin input categories. For example, a large proportion of suppliers are located around Memphis, which results in a larger multiplier for Tennessee. Missouri gins purchase most of their natural gas from an in-state supplier, resulting in an increased multiplier. Mississippi’s slightly smaller multiplier may be due to gins, especially those in the northern third of the state, purchasing supplies from some of the Memphis suppliers, and by incomes earned by gin owners being spent on goods and services in the Memphis area.”

Cotton has a multiplier effect 1.5 to 2 times that of corn and soybeans, regardless of the Mid-South location, he says. “It is similar to rice in regions with rice mills, and greater in regions without rice mills.”

This study, Fannin says, has suggested new research to properly evaluate the capacity of the Mid-South ginning infrastructure, a historic evaluation of cotton growing regions economies without cotton, and an evaluation of alternative gin seed rebate models.

A proposal for the study was submitted to and approved by the USDA’s Agricultural Marketing Service.

The aim is to identify the number and size of gins that will maintain viable marketing channels in the overall cotton marketing supply chain, Fannin says.

“We’re looking forward to information that can be derived from this new study.

“Cotton ginning is one of the oldest processing industries in the U.S. During its history, the sector has adjusted to major changes both upstream and downstream in the cotton supply chain. With continual evaluation and readjustment, the sector should continue to be sustainable in the long term.”


TAGS: Cotton
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