When the Dairy Farmers of America closed a cheese plant in Fergus Falls last year, the town lost a $44 million business and more than 100 skilled jobs.
Yet the economic aftermath went far beyond that: 350 dairy farmers in 10 counties were forced to ship milk elsewhere; independent milk haulers had to upgrade trucks to serve a more distant dairy plant; the local power company lost a major customer; banking, wholesale trade and construction businesses all felt the closing.
The region’s total loss? More than $100 million a year, says Su Ye, an economist at the Minnesota Department of Agriculture. “It’s not just the plant and the jobs at the plant, that are lost. It’s much, much more.”
In a recent study of the state’s livestock processing, co-funded by AURI and MDA, Ye outlines the total economic activity generated by six Minnesota meat and dairy companies. Her study also estimates economic gains and losses from potential changes in plant output — offering a close look at what Minnesota stands to lose if the livestock processing industry shrinks.
Animals power rural Minnesota, says Michael Sparby, AURI project director in Morris, Minnesota is the top turkey-producing state for the second year in a row and ranks third in hogs, fifth in milk, seventh in red meat production, ninth in eggs and 10th in chickens.
Livestock accounts for more than half of annual farm revenues — $3.9 billion in 2000, according to the Minnesota Department of Agriculture. Livestock processing plants yield another $6.7 billion in annual sales.
But cash receipts from livestock farms and processing plants account for less than half of the industry’s total economic contribution to Minnesota, Ye says.
Animals boost the value of Minnesota-grown grain, including the mounting supplies of distillers dried grains and soybean meal. Livestock farmers and processors purchase supplies, equipment and services in the community; they employ local workers who buy food, houses and entertainment; they pay taxes to run schools and plow streets.
When these economic “multipliers” are added in, Minnesota livestock production and processing generate an estimated $21 billion of commerce a year, Ye says. The industry provides some 51,000 farm and processing jobs, plus another 108,000 jobs dependent on the industry, the Ag Department estimates.
Bring home the bacon
The AURI-MDA report, which uses industry data from 1997, 1998 and 1999, shows the powerful economic force of each processing plant, Sparby says. Take the Hormel Foods pork plant in Austin, for example.
The Austin plant reports annual sales of $764 million. The operation buys $264 million worth of hogs from 700 farmers in southern and central Minnesota. The plant’s 2,900 workers earn an estimated $77 million in wages.
And these sales and expenditures cause ripples of related business activity, the report says: $242 million in manufacturing; $51 million in banking, insurance and real estate; $46 million in transportation, communications and utilities. The study estimates the total economic impact on the state at nearly $2 billion a year.
Likewise, the Austin plant generates an estimated 5,600 jobs in businesses that support or supply the processing operation, including 2,000 jobs in agriculture, 900 in manufacturing and 400 in construction.
Animal farms under fire
The AURI-MDA study comes at a controversial time in a rapidly-changing livestock industry, says report co-author Harold Stanislawski, an MDA dairy expert.
In 1999, the growth of large-scale feedlots prompted the Minnesota Legislature to order the first-ever “Generic Environmental Impact Statement on Animal Agriculture.” Disputes over feedlot permits, public objections to odor, and fears about manure spills and water pollution have spurred local moratoriums on new livestock enterprises. Farmers who want to expand often find themselves at odds with neighbors, township and county boards, and zoning officials.
Growing up together
There’s a complex interplay between livestock production and processing, Sparby notes; each sector influences the vitality of the other. In California, for instance, big dairy farms and processing plants have grown up together, making California number one in milk production and number two in cheese.
In the turkey industry, where Minnesota leads the nation, most poultry farms are within 60 miles of a processing plant. Companies such as Jennie-O Foods, based in Willmar, have helped push up Minnesota turkey production 45 percent since 1990. What’s the multiplier effect of this expansion?
Currently, Jennie-O Foods’ six Minnesota turkey plants employ about 5,300 workers, producing annual sales of $750 million and total economic activity of more than $2 billion. Another 25 percent increase in sales would boost the economic impact of these plants by more than $500 million a year, the report says. Employment would jump by 1,300 and Minnesota turkey production would rise by $94 million.
Steep closing costs
Locally, the Fergus Falls cheese plant illustrates the downside of that interplay. The plant closed just a year after Dairy Farmers of America invested $1 million in the 1970s-era facility, says Stanislawski, who lives in the community and used to take visitors to the cheese plant whenever he wanted to show off “the might of Otter Tail County.”
A contributing factor to the closing was an insufficient local milk supply, says Todd Johnson, who owns a 60-cow dairy farm near Fergus Falls. “There wasn’t enough milk to run the plant at 100-percent capacity.” Johnson now ships his milk to Melrose, 75 miles southeast.
As the state strives to fashion wise animal agriculture policies, Stanislawski hopes the AURI-MDA study will clarify the economic stakes for rural Minnesota: “People don’t understand the magnitude of the opportunity to grow this industry, or the magnitude of the crisis if it declines,” he says. “There’s no replacement for this kind of commerce in rural areas.”
The new report, “Economic Impact of Selected Livestock Processing Plants in Minnesota,” is available here at www.auri.org.