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Economic Impacts of Hog Operations

by 5m Editor
14 September 2007, at 12:00am

By Glynn Tonsor, Livestock Extension Economist, Michigan State University and published in MSU Pork Quartlery 2007 Volume 12 No. 2. Reprint of MSUE bulletin “Economic Impact of Hog Operations” from the series “Animal Agriculture and the Environment.”

For some time there has been concern regarding the net economic impact on rural communities of new and expanding livestock production facilities. As with many controversial issues, there are often “winners” and “losers” associated with local changes in the livestock industry. The purpose of this bulletin is to succinctly summarize the current literature regarding associated economic impacts.

Often the first question raised is how new livestock facilities impact local property values. This question is difficult to answer easily or universally because each situation will have a significant number of unique factors involved that ultimately drive resulting property valuation adjustments. Similarly, extrapolating the results from site-specific studies is complicated, since the characteristics of different locations and different livestock facilities vary widely. Nevertheless, recent research has provided some evidence about property value impacts of livestock operations. Some main points include:

  • Separate analyses of residential sales in rural Pennsylvania between 1998-2002 and in southeast North Carolina in 1992-1993 suggest that the impact of livestock operations on property values declines with distance from livestock facilities (Ready and Abdalla; Palmquist, Roka, and Vukina).
  • Ready and Abdalla found livestock operations exhibit negative impacts on residential property values. Property valuation reductions are estimated to be 6.4% and 1.6% for homes within 500 and 1,200 meters, respectively, of livestock facilities. This study of property valuations in rural Pennsylvania also found that the size of negative property value impacts do not necessarily increase as livestock operations increase in size.
  • Research of residential property sales during 1992-2002 in Iowa concludes that moderately sized operations negatively affect neighboring property values, but also that the moderate-sized operations have a larger impact than larger-sized operations. The authors hypothesize that management, facility age, and types of manure handling systems of larger operations may mitigate negative effects. The estimated average property valuation decrease was 8-9% for introduction of a moderately sized livestock facility one-half mile upwind from a home previously located at least three miles from the nearest livestock facility (Herriges, Secchi, and Babcock).
  • An evaluation of residential property sales during 1993-1994 in rural Minnesota revealed that the existence of nearby livestock facilities positively impacts property values. The estimated average property value increase was 6.6% (Taff, Tiffany, and Weisberg).
  • Examination of 1979-1999 Illinois farmland transactions reveals that as swine operations increase in size, the more positive influence they have on nearby farmland values. Higher concentrations of farms (more farms in a given geographic area) exhibit negative impacts on farmland valuation (Huang, Miller, Sherrick, and Gomez).
  • Mixed evidence exists of differences in impacts across livestock species. In a Colorado study, Park, Seidl and Davis found existence of nearby beef and dairy cattle operations to be positively correlated with residential sales prices while swine and sheep operations were found to be negatively correlated. However, Ready and Abdalla assessment of impacts in Pennsylvania suggests no significant difference in impacts across species.

A second issue of importance is how the broader local community is economically impacted by introduction of a new livestock operation. It is important to appreciate that the hog industry consists of a series of activities spanning from production of feed inputs, through actual hog production, to the processing and distribution of pork products. Hence the total economic effect of the hog industry is much larger than direct employment and activity on swine farms. Local economies that are more heavily involved in the different stages of the industry (for example growing the feed inputs, raising the hogs, and operating slaughtering facilities) stand to reap a higher portion of the total economic benefits than communities that are less involved in the cumulative industry activities. As such, it is important to again note that each case tends to have a significant number of unique factors involved that ultimately drive resulting economic impacts. Some main points available from current research include:

  • A study of hog operations in Iowa suggests that wages per worker (table 1) and that net fiscal benefit to local communities increases with operation size (table 2) (Otto, Orazem, and Huffman).
  • Thompson and Haskins suggests that operation of one 3,400 sow unit employs 11 less people than twenty-three 150 sow units would employ. However, this analysis incorrectly assumes that operation size has no impact on firm competitiveness or likelihood of survival in the future.
  • In an examination of swine operations in Minnesota, Lazarus et al. found that over 85% of the inputs purchased by producers surveyed were purchased within the state. Construction supplies were found to typically be purchased from outside the state and 99% of complete feeds and 89% of premixes were found to be purchased in the state.
Table 1. Employment and Earnings Summary
Size of Operation
150 Sows 300 Sows 1,200 Sows 3,400 Sows
Direct Employment (jobs) 1.4 3.0 10 21
Employee Income $40,750 $87,100 $294,686 $709.097
Earnings/Worker $29,107 $29,033 $29,496 $33,767
Earnings/Worker/Sow $194 $97 $25 $10
Secondary Employment (jobs) 1.3 2.7 9 19
Employee Income $21,598 $46,163 $156,183 $375,821
Earnings/Worker $16,614 $17,097 $17,354 $19,780
Earnings Worker/Sow $111 $57 $14 $6
Total Employment (jobs) 2.7 5.7 19 40
Employee Income $63,348 $133,263 $450,869 $1,084,918
Earnings/Worker $23,092 $23,379 $23,730 $27,123
Earnings/Worker/Sow $154 $78 $20 $8
Source: Otto, Orazem, and Huffman


Table 2. Fiscal Impact Summary
Size of Operation
150 Sows 300 Sows 1,200 Sows 3,400 Sows
County Revenue $1,474 $3,435 $13,032 $30,522
City Revenue $1,964 $2,108 $7,024 $14,414
All Revenues to Local Schools $3,062 $4,168 $13,891 $32,028
Total Local Revenue $6,501 $2,792 $9,301 $18,592
County Expenditures $998 $6,732 $24,021 $50,353
City Expenditures $1,344 $14,336 $50,944 $112,902
Total Local Expenditures $5,405 $11,631 $40,346 $83,358
Net Benefit $1,096 $2,704 $10,598 $29,544
Net Revenue to State Gov’t $2,401 $5,157 $17,512 $43,720
Estimated Local Property Taxes Paid by Operators $1,327 $2,806 $12,516 $27,972
Source: Otto, Orazem, and Huffman

A third issue that may arise in evaluating the impact of new livestock facilities is the characteristics of employees likely to be involved in the new operation. A comparison between educational levels of employees in the swine industry and the general U.S. population suggests that swine industry employees are more likely to have completed high school and to have obtained a college degree (table 3). Using data from a national survey of both pork producers and employees, Hurley, Kliebenstein, and Orazem found larger operations pay higher wages, offer more generous benefit packages, and have better work environments. The researchers note this possibly reflects the need for more skilled labor to couple with the newer technology and the higher costs of turnover relative to smaller operations.

Table 3. Education Comparison
Highest Completed Swine Industry U.S. Population
No High School 4.2% 19.6%
High School 36.7% 28.6%
Some College 24.8% 27.4%
College Degree 34.2% 24.4%
Source: Hurley, Kliebenstein, Orazem, USDA-ERS


References

United States Department of Agriculture (USDA), Economic Research Service (ERS). 2000 demographic information obtained on March 1, 2007 from: http://www.ers.usda.gov/StateFacts/US.HTM.

Herriges, J.A., S. Secchi, and B.A. Babcock “Living with Hogs in Iowa: The Impact of Livestock Facilities on Rural Residental Property Values.” Land Economics. 81:4(2005):530-545.

Huang, H., G. Miller, B. Sherrick, and M. Gomez. “Factors Influencing Illinois Farmland Values.” American Journal of Agricultural Economics. 88:2(2006):458-470.

Huang, H., G. Miller, B. Sherrick, and M. Gomez. “Factors Influencing Illinois Farmland Values.” American Journal of Agricultural Economics. 88:2(2006):458-470.

Lazarus, W., D. Platas, G. Morse, and S. Guess-Murphy. “Evaluating the Economic Impacts of an Evolving Swine Industry: The Importance of Regional Size and Structure.” Review of Agricultural Economics. 24:2(2002):458-473.

Otto, D. P. Orazem, and W. Huffman. “Community and Economic Impacts of the Iowa Hog Industry.” Chapter 6 of Iowa’s Pork Industry – Dollars and Scents. Department of Economics, Iowa State University. 1998.

Palmquist, R., F. Roka, and T. Vukina. “Hog Operations, Environmental Effects, and Residental Property Values.” Land Economics. 73(1997):114-124.

Park, D., A.F. Seidl, and S.P. Davies. “The Effect of Livestock Industry Location on Rural Residental Property Values.” Department of Agricultural and Resource Economics, Colorado State University. September 2004-EDR 04-12.

Ready, R. and C. Abdalla. “The Amenity and Disamenity Impacts of Agriculture: Estimates from a Hedonic Pricing Model.” American Journal of Agricultural Economics. 87:2(2005):314-326.

Taff, S.J., D.G.Tiffany, and S.Weisberg. “Measured Effects of Feedlots on Residental Property Values in Minnesota: A Report to the Legislature.” Department of Applied Economics, University of Minnesota. July 1006. Staff paper P96-12.

Thompson, N. and L. Haskins. Searching for “Sound Science”: A Critique of Three University Studies on the Economic Impacts of Large-Scale Hog Operations. Walthill, NE: Center for Rural Affairs, 1998.

September 2007