Bureau of Business & Economic Research THEECONOMICIMPACTOFAPPLEGROWING ANDPROCESSINGONTHE WESTVIRGINIAECONOMY ispublishedby: BureauofBusiness&EconomicResearch WestVirginiaUniversityCollegeofBusinessandEconomics (304)293Ͳ7831 bebureau@mail.wvu.edu bber.wvu.edu WRITTENBY Christiadi,PhD ResearchAssociate JohnDeskins,PhD Director Theopinionshereinarethoseoftheauthorsanddonot necessarily reflect those of the West Virginia Higher Education Policy Commission or the West Virginia UniversityBoardofGovernors. ©Copyright2018WVUResearchCorporation ii BureauofBusiness&EconomicResearch TableofContents ListofFiguresandTables 1 ExecutiveSummary 2 1 Introduction .3 2 Methodology 3 3 EconomicImpact 4 3.1 EconomicImpactofCapitalInvestmentActivities 4 3.2 EconomicImpactofAppleGrowingandProcessingOperation .5 ListofFiguresandTables Figure1:EconomicImpactofOngoingAppleGrowingandProcessingOperation 2 Table1:AnnualImpactofCapitalInvestmentͲStageExpenditures 4 Table2:ImpactofAppleGrowingandProcessingOperation,LowerBoundScenario 6 Table3:ImpactofAppleGrowingandProcessingOperation,UpperBoundScenario 6 1 BureauofBusiness&EconomicResearch ExecutiveSummary NicholasCounty,WestVirginia,hasthepotentialtoattractanapplegrowingandprocessingindustryto itsagriculturalregion.Developmentofthisindustrywouldconsistoftwomajorstages:Firstistheinitial capitalinvestmentofsoilpreparation,fencing,timberclearing,treeplanting,andconstructionofan appleprocessingfacility,andsecondistheapplegrowingandprocessingoperation.Inthisstudywe estimatetheeconomicimpactofthesetwostagesontheWestVirginiaeconomyasawhole.Forthe secondstage,weexaminetwopossiblescenarios:alowerͲboundscenariowheretheappleprocessing plantemploys100workers,andtheupperͲboundscenariowheretheplantemploys130workers.Our findingsaresummarizedasfollows: x Theinitialcapitalinvestmentstageisexpectedtogeneratearound$15.5millionineconomic outputannuallyoverafiveͲyearperiod. x Thecapitalinvestmentstageisexpectedtosupportmorethan200jobsannuallywithnearly $8millioninemployeecompensation,andgeneratearound$800thousandinselecttax revenuefortheStateofWestVirginiaandlocalgovernmentswithinthestate. x Ongoinggrowingandprocessingactivitiesareexpectedtogeneratebetween$44millionand $56millionineconomicoutputannually. x Ongoingoperationsinapplegrowingandprocessingareexpectedtosupportbetween379to 481totaljobs,dependingonthelevelofemploymentattheprocessingfacility.Further, ongoingactivitiesareexpectedtosupportbetween$9.3millionand$11.7millioninemployee compensation. x Finally,ongoingoperationsareexpectedtosupportbetween$1.2millionand$1.7millionin selecttaxrevenuefortheStateofWestVirginiaandlocalgovernmentswithinthestate. Figure1:EconomicImpactofOngoingAppleGrowingandProcessingOperation TotalImpact: $44Ͳ$56Million DirectImpact: $24Ͳ$31Million 2 BureauofBusiness&EconomicResearch Introduction NicholasCounty,WestVirginia,hasthepotentialtoattractanapplegrowingandprocessingindustryto itsagriculturalregion.Thiswouldincludebothupstreamactivities–applegrowing–anddownstream activities–appleprocessing.Inthisreportweestimatetheeconomicimpactthatthedevelopmentof thisindustrywouldlikelyhaveontheWestVirginiaeconomy.Ourstudyisfocusedintwoareas:First, weconsidertheinitialcapitalinvestmentrequiredtocreateanapplegrowingbusiness.Thisincludes activitiessuchasconstructionoftheprocessingfacility,soilpreparation,fencing,timberclearing,and treeplanting.ThefirststageisexpectedtobecompletedoverafiveͲyearperiod.Thesecondstageisthe appleprocessingplantoperation.Inthisstageafullyfunctionalplantwillprocesstheapples,turning themintomorerefinedproductssuchasapplejuice,applesauce,vinegar,etc.Thesecondstage includesactivitiessuchasappleprocessing,packaging,labeling,andmarketingtheproducts. InthisstudyweestimatetheeconomicimpactofalltheseactivitiesontheWestVirginiaeconomyasa whole.Weestimatetheimpactintermsofoutput,employment,employeecompensation,andtax impacts. ItshouldbenotedthatNicholasCountyhasexperiencedagreatdealofeconomicweaknessinrecent yearsandcontinuestofacesubstantialeconomicdevelopmentchallengesthatplaguemanyruralareas. Further,giventheruralnatureofthearea,applegrowingandprocessingseemstobeanindustrythat fitswellwithinthearea’scomparativeadvantageandshouldthereforebeanindustrythatiswellsuited tothriveinthearea. Methodology Toestimatetheeconomicimpactoftheappleprocessingactivitiesweapplyadetailedmodelofthe WestVirginiaeconomythatoutlineshowtradeͲflowsamongindustriesinteractwithkeyeconomic indicatorssuchasemployment,income,output,andtaxrevenue.1Theexpendituresassociatedwiththe completionofthefirststageortheoperationoftheappleprocessingplantarereferredtoasthedirect economicimpact.However,thetotaleconomicimpactoftheseactivitiesisnotlimitedtothedirect impact,butalsoincludesthesecondaryeconomicimpactsaccruedasthoseinitialdirectexpenditures arereͲspentthroughouttherestoftheeconomy. Forexample,tosupporttheappleprocessingplant’soperation,variousbusinessthatinteractwiththe processingplant(i.e.,thefarmthatsuppliestheapples,businessesthatsupplythebottle,labels, packagingequipment,aswellasthosesupplyingtheelectricity,officesupplies,etc.)willincreasetheir productioncorrespondingly.Asthesesuppliersincreaseproduction,theirsubsequentsupplierswill increaseproduction,andsowilltheirnextchainofsuppliers,andsoon.Allofthisadditionaleconomic activityisreferredtoasindirectimpacts.Inaddition,theappleprocessingplantandthesesuppliers employnumerousworkers,partofwhoseincomewillbespentintheWestVirginiaeconomy,which generatesadditionaloutput,income,andemployment.Thisactivityisreferredtoasinducedimpacts. ThisstudywasconductedusingtheIMPLANmodelingsoftware,anindustryͲstandardinputͲoutputmodelofthe economy.MoreinformationaboutIMPLANcanbefoundathttp://www.implan.com. 3 BureauofBusiness&EconomicResearch Theseindirectandinducedimpactstogetherformwhatisknownasthe“multipliereffect.”Theoriginal stimulustotheeconomyfromtheplant’sexpendituresisreͲspentmultipletimesthroughtherestofthe economy.Ateachstage,someoftheexpenditures“leak”outofWestVirginiaastheyarespentoutside ofthestate.Thecombineddirectimpactandsecondaryimpactstogetherconstitutethetotaleconomic impactoftheappleprocessingactivities. EconomicImpact 3.1 EconomicImpactofCapitalInvestmentActivities Inthissubsectionweestimatetheeconomicimpactofthefirststageactivities.Thedatausedinthis sectionwereprovidedbyWestVirginiaArmyNationalGuard(WVARNG)andwerenotindependently auditbytheauthors.WVARNGmadeavailabledataonfiveyearsofexpendituresdisaggregatedby typesofactivities,employeecompensation,andnumberofworkers.Tosimplifytheanalysis,weassume thattotalexpendituresarespreadevenlyoverthefiveͲyearperiod.Wethenrepresenttheimpactas theimpactofannualexpenditure,whichimpliesthattheimpactwillrecuratotaloffivetimes. Basedonthedataprovided,averageannualexpendituresforthefirststageactivitiesare$9.6million peryear.Theactivitieswillemployatotalof160workers,whowillearnatotalemployeecompensation of$6.3millionannually(seeTable1). WeestimatethatthefirstͲstageactivitieswillgenerate$5.9millioninsecondaryoutputimpacts, resultinginatotaleconomicimpactof$15.5millioninoutputintheWestVirginiaeconomy.We estimatethefirstͲstageactivitiessupport44additionaljobsinthestateeconomy,resultinginatotal employmentimpactof204jobs.Theoveralleconomicactivityassociatedwiththisoperationis estimatedtogenerateatotalof$0.8millioninselectedstateandlocaltaxrevenue. Table1:AnnualImpactofCapitalInvestmentͲStageExpenditures Direct Indirectand Induced Total Output($,millions) 9.6 5.9 15.5 Employment(jobs) 160 44 204 6.3 1.5 7.8 ͲͲ ͲͲ 0.8 TypeofImpact EmployeeCompensation ($,millions) StateandLocalTaxRevenue ($,millions) Notes:Output,EmployeeCompensation,andTaxRevenuearemeasuredin2018dollars.TaxRevenueimpact includessales,personalincome,property,andcorporationnetincometaxes.Individualcomponentsmaynot sumtototalduetorounding. 4 BureauofBusiness&EconomicResearch 3.2 EconomicImpactofAppleGrowingandProcessingOperation Inthissubsectionweestimatetheeconomicimpactoftheongoingapplegrowingandprocessing operation.ThedatausedinthissectionwereprovidedbyWestVirginiaeconomicdevelopmentofficials andwerenotindependentlyauditbytheauthors.Specifically,WestVirginiaeconomicdevelopment officialsmadeavailabledataontheexpectednumberofworkersandtheirwageandsalary compensation.Twoscenarioswereintroduced.FirstisthelowerͲboundscenariowheretheplantwill employ100workers,andsecondistheupperͲboundscenariowheretheplantemploys130workers. Combiningthisinformationwithasetofotherrelevantinformationontheappleprocessingindustry, wedevelopseveralguidelinesbelow.Weusethemasthebasistoestimatethedirectimpactofthe plant’soperation. x x Theappleprocessingplantwillemployeebetween100to130workers. Theaveragepayperworkerintheprocessingplantis$35,000peryear.Takingintoaccount variousbenefitsupplementstowagesandsalaries,thisyieldsanaverageannualemployee compensationof$43,000perworker.2 x BasedonaninputͲoutputmodelofsimilarindustryandanecdotaldataontheproductioncost ofanappleprocessingbusiness,weestimatethatlaborcost(totalemployeecompensation) accountsfor18percentoftotalplantexpenditures. x Bythesametoken,thecostofapplesaccountsforapproximately35percentoftotal expenditure x Inthisstagetheapplefarmoperationisconsideredaspartoftheindirectimpactsoftheapple processingplant.Tosimplifytheanalysiswetakeintoaccountonlythefarm’soperation associatedwiththeproductionoftheapplesthatprocessedintheplant.Otherfarmactivities notassociatedwiththeproductionoftheseapplesarenotpartoftheanalysis.Forexample,the farmmayproduceanothersideproductotherthanapples.Theimpactofthatpartofactivities isnotincludedinthissection. Table2reportstheimpactofappleprocessingplantoperationunderthelowerͲboundscenario.We estimatethataplantwith100workerswillhaveanannualexpenditureof$23.9millionandatotal employeecompensationof$4.3million.Weestimatethattheappleprocessingplantoperationwill generate$19.8millioninsecondaryimpacts,resultinginatotaleconomicimpactof$43.7millionin outputintheWestVirginiaeconomy.Weestimatethattheoperationwillsupport279additionaljobsin theeconomy,mostofwhichareontheapplefarm,resultinginatotalemploymentimpactof379jobs. Theoveralleconomicactivityassociatedwiththisoperationisestimatedtogenerateatotalof$1.2 millioninselectstateandlocaltaxrevenue. BasedontheBEAdata,totalemployeecompensationintheUSisabout23percentabovewagesͲandͲsalaries. 5 BureauofBusiness&EconomicResearch Table2:ImpactofAppleGrowingandProcessingOperation,LowerBoundScenario Direct Indirectand Induced Total Output($,millions) 23.9 19.9 43.7 Employment(jobs) 100 279 379 4.3 5.0 9.3 ͲͲ ͲͲ 1.2 TypeofImpact EmployeeCompensation ($,millions) StateandLocalTaxRevenue ($,millions) Notes:Output,EmployeeCompensation,andTaxRevenuearemeasuredin2018dollars.Taximpactincludes sales,personalincome,property,andcorporationnetincometaxes.Individualcomponentsmaynotsumto totalduetorounding. Table3reportstheimpactofappleprocessingplantoperationundertheupperͲboundscenario.We estimatethataplantwith130workerswillhaveanannualexpenditureof$31.1millionandatotal employeecompensationof$5.6million.Weestimatethattheappleprocessingplantoperationwill generate$24.5millioninsecondaryimpacts,resultinginatotaleconomicimpactof$55.5millionin outputintheWestVirginiaeconomy.Weestimatethattheoperationwillsupport351jobsinthe secondaryeconomy,resultinginatotalemploymentimpactof481jobs.Theoveralleconomicactivity associatedwiththisoperationisestimatedtogenerateatotalof$1.7millioninselectedstateandlocal taxrevenue. Table3:ImpactofAppleGrowingandProcessingOperation,UpperBoundScenario Direct Indirectand Induced Total Output($,millions) 31.1 24.5 55.5 Employment(jobs) 130 351 481 5.6 6.1 11.7 ͲͲ ͲͲ 1.7 TypeofImpact EmployeeCompensation ($,millions) StateandLocalTaxRevenue ($,millions) Notes:Output,EmployeeCompensation,andTaxRevenuearemeasuredin2018dollars.Taximpactincludes sales,personalincome,property,andcorporationnetincometaxes.Individualcomponentsmaynotsumto totalduetorounding. 6 BureauofBusiness&EconomicResearch AbouttheBureauofBusinessandEconomicResearch Sincethe1940s,theBBER’smissionhasbeentoservethepeopleofWestVirginiabyprovidingthe state’sbusinessandpolicymakingcommunitieswithreliabledataandrigorousappliedeconomic researchandanalysisthatenablesthestate’sleaderstodesignbetterbusinesspracticesandpublic policies.BBERresearchisdisseminatedthroughpolicyreportsandbriefs,throughlargepublicforums, andthroughtraditionalacademicoutlets.BBERresearchersarewidelyquotedfortheirinsightful researchinstateandregionalnewsmedia.TheBBER’sresearchandeducation/outreacheffortsto publicͲandprivateͲsectorleadersaretypicallysponsoredbyvariousgovernmentandprivateͲsector organizations. TheBBERhasresearchexpertiseintheareasofpublicpolicy,healtheconomics,energyeconomics, economicdevelopment,economicimpactanalysis,economicforecasting,tourismandleisure economics,andeducationpolicy,amongothers.TheBBERhasafullͲtimestaffofthreePhDeconomists, andonemaster’sͲleveleconomist.Thisstaffisaugmentedbygraduatestudentresearchassistants.The BBERalsocollaborateswithaffiliatedfacultyfromwithintheCollegeofBusinessandEconomicsaswell asfromotherpartsofWVU. Tolearnmoreaboutourresearch,pleasevisitourwebsiteathttp://www.be.wvu.edu/bber. 7 BureauofBusiness&EconomicResearch .. .THE ECONOMIC IMPACT OF APPLE GROWING AND PROCESSING ON THE WEST VIRGINIAECONOMY ispublishedby: Bureau of Business& Economic Research West VirginiaUniversityCollege of Business and Economics... economy.Ateachstage,some of the expenditures“leak”out of West Virginiaastheyarespentoutside of the state. The combineddirect impact and secondaryimpactstogetherconstitute the total economic impact of the apple processing activities.... Economic Impact of Apple Growing and Processing Operation Inthissubsectionweestimate the economic impact of the ongoing apple growing and processing operation. The datausedinthissectionwereprovidedby West Virginia economic developmentofficials