The Economic Contributions of Indiana Agriculture

Economic Analyst, Indiana Business Research Center, Indiana University Kelley School of Business

Indiana was home to nearly 58,700 individual farms as tallied by the 2012 Census of Agriculture. These farms cover more than 14.7 million acres, accounting for 64 percent of the state’s total land area.

Hoosier farmers combined to sell $11.2 billion worth of unprocessed agricultural commodities in that same year—the 10th-highest total among states (see Figure 1). With $42.6 billion in commodity sales in 2012, California is far and away the nation’s top agricultural producer, followed by Iowa ($30.8 billion) and Texas ($25.4 billion). Indiana ranked just behind North Carolina ($12.6 billion) and Wisconsin ($11.7 billion), but ahead of North Dakota ($11.0 billion), South Dakota ($10.2 billion) and Ohio ($10.1 billion).

Figure 1: Value of Agricultural Production by State

Source: U.S. Department of Agriculture, 2012 Census of Agriculture

Indiana’s agricultural production is heavily concentrated in corn and soybean growing. The state ranked fifth and fourth, respectively, among states in the value of sales of these commodities in 2012 (see Table 1). What’s more, these two crops alone combined to account for 63 percent of the state’s total value of agriculture production. By contrast, these commodities generated just 27 percent of the value of sales nationally in 2012. Only Illinois had a larger share of total sales claimed by these two crops at 77 percent.

Table 1: Value of Indiana Agriculture by Commodity

Source: USDA, 2012 Census of Agriculture

Economic Contributions of Agriculture and Forestry

Indiana’s status as a top 10 agricultural producer translates into big business for a host of other industries in the state.

A Hoosier grain farmer, for instance, buys a range of production inputs from other Indiana businesses. From fertilizers and fuels to trucking and accounting services, the ripple effects from these supply chain purchases cascade throughout the state economy. Furthermore, Indiana’s farms and forests support hundreds of agricultural processing and manufacturing establishments in the state, which also engage other Indiana-based suppliers. The following tables aim to account for all of these ripple effects and to provide estimates of the full economic contributions of agriculture.

For the purposes of this analysis, agriculture as an industry consists of two types of activities: agricultural production and agriculture-dependent processing or manufacturing industries.

Production refers to the crop and livestock industries covered in the previous section, as well as forestry and agricultural support services. The processing and manufacturing activities refer to industries that utilize farm and forest production as the key input into their finished goods. Examples include fruit and vegetable canning, animal processing, ethanol production, and veneer and plywood manufacturing, to name a few.

The Indiana Business Research Center (IBRC) research team used IMPLAN economic modeling software to estimate the total economic effect of Indiana agriculture and forestry. The model draws from a variety of secondary data sources to provide a detailed account of the Indiana economy. For example, the model indicates that Indiana sawmills purchase nearly 50 percent of their production inputs from other Hoosier establishments. The estimated economic effects of these supply chain purchases are reported in the “indirect effects” columns in the tables. Additionally, workers in the agriculture production and processing industries—as well as employees at supplier firms—spend their earnings on food, housing, health care, entertainment, etc. The estimated ripple effects from this household spending are presented in the “induced effects” columns.

Summary of Economic Contributions

In 2012, Indiana’s agriculture-and forestry-related establishments combined to generate an estimated $31.2 billion in direct economic output—a measure which is analogous to total sales (see Table 2).

Table 2: The Economic Contributions of Agriculture and Forestry to Indiana's Economy, 2012

Source: IBRC, using data from the USDA and the IMPLAN economic modeling software.

The multiplier offers a useful way to interpret these ripple effects. The ratio of total effects to direct output yields a multiplier of 1.41, meaning that each dollar of output generated by Indiana’s agriculture and forestry establishments stimulates another $0.41 in economic activity in the state.

With an estimated total output effect of nearly $25.8 billion, the state’s processing and manufacturing industries accounted for nearly 59 percent of Indiana agriculture’s total economic footprint in 2012. While the state’s production industries may have had a smaller contribution to total output, their output multiplier effect of 1.57 was quite a bit stronger.

Economic output estimates are useful “headline numbers.”  They provide an approximate sales total and most people readily understand the concept of a dollar’s worth of sales. That said, the value added metric provides a more meaningful appraisal of agriculture’s contribution to Indiana’s economy because this measure is analogous to the official GDP figures released at the national or state level.

Indiana’s agriculture-related establishments combined to generate an estimated $7.9 billion in direct value added in 2012 (see Table 2, second section). This level of activity triggered nearly $7.0 billion in indirect and induced effects throughout the state to bring the industry’s total value added impact to $14.9 billion. In 2012, the state’s total value added was roughly $306 billion, which means that the combined effects of agriculture and forestry accounted for 4.9 percent of Indiana’s GDP in that year.

As for employment, more than 107,500 jobs in Indiana were directly related to agricultural production and processing in 2012. Nearly 75 percent of these direct jobs were in the state’s agricultural production industries. The purchase of production inputs from Indiana-based suppliers supported an estimated 40,450 additional jobs in the state, while the household spending of direct and indirect workers accounted for another 40,660 jobs.

In all, the total employment footprint of agriculture- and forestry-related industries in the state was an estimated 188,640 jobs in 2012. The ratio of total employment effects to direct employment gives a multiplier of 1.8, meaning that every 10 jobs directly related to Indiana agriculture and forestry supported an additional eight jobs in the state.

Economic Contributions by Industry

With Indiana ranking among the top five states in the production of corn, soybeans and hogs, it is no surprise that these three industries dominate the state’s agricultural employment. As of 2012, nearly one-third of Indiana’s direct agriculture and forestry workers were engaged in corn, wheat and other grain farming (see Table 3). Add in soybean and other oilseed farming and hog production, and these three industries combine to account for six out of every 10 direct agricultural workers in the state.

Table 3: Agriculture and Forestry's Contribution to Indiana's Employment, Top 15 Industries, 2012

*Ripple effects refer to both indirect and induced effects.
Source: IBRC, using data from the USDA and the IMPLAN economic modeling software.

The ripple effects of Indiana’s grain production in 2012 supported an estimated 14,970 additional jobs around the state, while soybean and other oilseed farming and hog production combined to generate an estimated 14,030 additional jobs in other non-agriculture industries. In total, these three industries were responsible for nearly 93,600 jobs in 2012. Among other agriculture industries, non-poultry animal processing had the next largest total employment impact (10,010 jobs), followed by agricultural support services (9,520) and wet corn milling (9,390).

While Indiana’s “big three” production industries account for a large share of agriculture’s total employment effect, the state’s processing and manufacturing industries tend to have larger employment multipliers. Wet corn milling, for instance, has an employment multiplier above 7, while fats and oils refining and flour milling are not far behind at 6.8 and 4.4, respectively. Taken as a group, Indiana’s agricultural processing industries have an employment multiplier of 2.5 compared to 1.5 for farm production. Industries with large employment multipliers are those that tend to be production input-intensive, meaning that they engage very long supply chains while producing their output with relatively few direct employees.

As with the employment effects, grain and soybean production are easily agriculture’s top contributors to Indiana value added (see Table 4). The combined effects of corn, wheat and other grain production totaled an estimated $2.4 billion in value added in 2012, while the direct and ripple effects of soybean and other oilseed farming in the state were an estimated $2.3 billion. Again, given the state’s total value added of $306 billion in 2012, the combined effects of these two industries represent 1.5 percent of Indiana’s GDP. The wet corn milling ($1.1 billion in value added), milk and butter manufacturing ($991 million), and fruit and vegetable canning ($934 million) industries round out the top five generators of GDP.

Table 4: Agriculture and Forestry's Contribution to Indiana's Value Added, Top 15 Industries, 2012

*Ripple effects refer to both indirect and induced effects.
Source: IBRC, using data from the USDA and the IMPLAN economic modeling software.

Conclusion

The importance of agriculture to the Indiana economy is clear. The combined effects of agriculture industries support an estimated 188,600 jobs in the state and create $14.9 billion in value added—an amount equal to nearly 5 percent of Indiana’s total GDP. Keep in mind that Indiana’s farmers and agriculture-related manufacturers generated these impressive numbers during a tough year plagued by a severe drought. These impacts would likely be higher during a more typical year.

These findings demonstrate that efforts to support, or even expand, Indiana’s agricultural production and processing can have positive ripple effects throughout the state’s economy. This is especially true in regions of the state that are facing declines in other key industries. Therefore, the degree to which agriculture is able to contribute to Indiana’s economic growth going forward will be an important economic indicator for the state.

Note: This article is an excerpt from a larger report titled “Beyond the Farm: A State and Regional Report on the Economic Contribution of Farms, Forests and Related Industries.” View this report to find estimates of the economic contributions of agriculture for Indiana’s congressional districts and its USDA crop reporting districts. The report also includes a detailed methodology.