Journal of the NACAA
ISSN 2158-9429
Volume 2, Issue 1 - September, 2009

Editor: Lee Stivers

Evaluating Structural Changes in Farm Cash Receipts: Lessons from Mississippi and the Mid-South

Albert E. Myles, Mississippi State University Extension Service

ABSTRACT

Mississippi agriculture has undergone some major changes during the last 30 years or so. The industry’s old identity of being the state’s most important and stable sector is disappearing and gradually being replace by retail and service and automotive manufacturing. However, there appears to be no new agricultural enterprises emerging to prevent this freefall from continuing in the state. Thus, most enterprises in agriculture have lost cash receipts (or gross income) since 1990, due industry restructuring and foreign competition for our products (Figure 1). Changes in farm cash receipts will be use to identify and compare with averages in the Mid-South Region to identify farm enterprises with higher or lower growth rates in Mississippi. These statistics will help determine how much regional agriculture in the Mid-South effect and thus identify which farm enterprises have a competitive advantage in the region. The results and conclusions in this paper will be based on secondary-time series data taken from the Bureau of Economic Analysis: Regional Economic Accounts for the period 1990 -2007. The analysis will provide a focus on changes in farm cash receipts rather than farm output or number of acres in the farms.

 Introduction

Mississippi’s agricultural industry has undergone some major changes during the last 30 to 35 years. Agriculture, once the state’s most important and stable industry, is declining and gradually being replace by retail, service and automotive manufacturing. No new agricultural enterprises appear to be emerging to prevent this freefall from continuing in the state. Some farm enterprises have lost cash receipts since 1990 because of rising production costs, industry restructuring, and foreign competition.
Changes in farm cash receipts were used to identify and compare with farm enterprises in the Mid-South Region to determine higher or lower growth rates in Mississippi. These statistics will help determine the degree to which regional agriculture in the Mid-South affects Mississippi agriculture and will identify which farm enterprises have a competitive advantage in the region. The results and conclusions in this paper are based on secondary-time series data taken from the Bureau of Economic Analysis: Regional Economic Accounts1 for the period 1990 -2007. The analysis focuses on changes in farm cash receipts rather than farm output or number of acres in the farms.
 
Purpose
 
This study analyzes the relationship between farm cash receipts and the agricultural economy of Mississippi. Characteristics of farm cash receipts in the state were calculated using shift share analysis2, an economic base technique.
 
Trends in Farm Cash Receipts
 
Farm cash receipts3 peaked at almost $4.5 billion in 2007, boosted mainly by a surge in poultry and poultry products receipts (Figure 1). Corn receipts were up significantly, from $126 million

in 1997 to $340 million in 2007. Meanwhile, soybeans receipts were down from almost $426 million in 1997 to $345 million in 2007.
 
Figure 1. Farm Cash Receipts in Mississippi, 1977-2007 ($000)
 
 
1986. Total cash receipts were up 20.83 percent from 1997. Cash receipts from crop sales exceeded $1.6 billion in 2007. This was up 29.83 percent from 2006 and 26.46 percent higher than the previous five-year average. Cash receipts for corn, soybeans, and other grains were the driving forces behind these increases.
Livestock receipts grew 12 percent, from $2.57 billion in 2006 to almost $2.9 billion in 2007. The results of this increase were higher poultry and poultry products receipts, rising from $1.84 billion in 2006 to $2.16 billion in 2007. Cattle receipts declined about 3 percent, from almost $296 million in 2006 to about $287 million in 2007, while hogs and pigs receipts rose 5.4 percent in 2007. Dairy receipts rose 32.44 percent, from about $49.6 million in 2006 to $65.69 million in 2007. Livestock receipts in 2007 were 12 percent higher than the previous year and 12.87 percent higher than the previous five-year average.
In 2007 farm cash receipts rose in most sectors except sheep and other livestock, fruits and nuts, forest and maple products, and cotton. Losses4 ranged from 7.35 percent in sheep and other livestock receipts to 12.82 percent in cotton receipts during this period. Gains in farm receipts ranged from 5.4 percent in hogs and pigs to almost 783 percent for sorghum in 2007.

Methods and Data
 
The data used in the study was compiled by the Regional Economic Information System, Bureau of Economic Analysis, U.S. Department of Commerce (Table, SA25N)3.
 
Shift share gives a dynamic, broad view of changes in an economy over time. The mathematical operations for calculating the coefficient in shift share components for this study were performed by a spreadsheet program.
 
A dynamic shift-share model was developed to derive the shift-share components for each time period in the study. The shift-share model is spreadsheet based and can easily simulate changes in farm receipts for any year since 1969. The model is capable of performing shift share analysis on a number of local and reference economies in the United States.
 
Dynamic shift-share analysis 6calculates the national growth effect, the industrial mix effect,and the competitive effect annually and then averages the results for the study periods, providing an analysis of farm receipts changes for the three shift-share components. This approach is useful for identifying unusual years and years of economic transition. Dynamic shift-share is used in this article to analyze Mississippi farm cash receipts from 1977 to 2007. The analysis relies on U.S. Bureau of Labor Statistics data.
 
This approach is especially useful when the study period includes either large changes in regional industrial mix or major differences between state and regional growth rates. Shift share indexes the local economy to a reference economy (in this case, the Mid-South). The technique examines change over time in three categories: national growth, industrial mix and competitive share7.
 
The regional growth component is the increase in farm cash receipts that would have occurred if the local industry had grown at the same rate as regional farm cash receipts grew across all industries. The industrial mix component shows the change in farm cash receipts in an industry that occurred because of the difference between the growth rate for this enterprise and regional growth rate for all enterprises. In other words, this component shows whether the growth of the enterprise is faster or slower than the regional average growth component. The competitive share component indicates whether Mississippi attracted a larger share of an enterprise or lost a portion of its share to other enterprises in the Mid-South region.
Results
 
Structural Shifts. Figure 1 suggests a steady trend of farm cash receipts in Mississippi since1977. However, breaking this 30-year trend into three periods shows how agriculture has changed in terms of farm cash receipts in Mississippi.
 
Figures 2 through 4 demonstrate both the composition of and changes in agriculture as they relate to farm cash receipts in Mississippi since 1977. Figure 2 shows cash receipts derived from crop sales and livestock sales in the state between 1977 and 1986. For much of this period, crop receipts outpaced livestock receipts in the state. However, this trend changed between 1984 and 1986 as livestock receipts outpaced crop receipts in Mississippi.
 
Figure 3 provides another view of the changing agricultural economy in Mississippi. Livestock sales replaced crop sales as the dominant source of farm cash receipts in the state, and the gap has widened significantly since 1992. By 1998, cash receipts from livestock enterprises exceeded cash receipts from crops by almost $1 billion (Figure 4). Although the difference narrowed in 2003, the gap between crop and livestock sales continued in the state. Nowhere was this more evident than from 2004 to 2007, when livestock receipts exceeded crop receipts by an average of $1.4 billion. The significant rise in livestock receipts after 1996 served notice that crops were no longer the mainstay of agriculture in Mississippi.
 
Net Shifts.Enterprises that drew a greater increase in cash farm receipts than the average increase for the Mid-South are said to have experienced positive net shift8 in cash receipts. Those that drew less than the average increase are said to have had negative net shifts. These shifts in farm cash receipts were then separated according to sources of divergence: industry mix effect, regional effect, and competitive effect (or interactive effect). These categories reveal further information about Mississippi’s farm cash receipts. Competitive effect measures that portion of the net shift due to the difference in mix of farm cash receipts to the various enterprises interacting with the difference in regional growth of farm cash receipts to these enterprises.
 
Table 1 shows the “net shift effect” was positive in all three study periods. This fact suggests that, on the average, most of Mississippi’s farm enterprises grew at or above the regional rate between 1977 and 2007.
 
Table 1. Summary of Dynamic Shift Share Analysis of Farm Cash Receipts in Mississippi
Component ($ 000)
1987-1996
1997-2007
1997-2007
Regional growth effect(RGE)
$68,929
$115,363
$82,430
Industry mix effect (IME)
5,282
3,733
(9,605)
Competitive effect (CE)
-24,089
34,337
4,422
Net shift
50,122
153,433
77,247
Source: Summarized from Appendix Tables 1 – 3
 
 
 
3    Farm cash receipts measure the gross revenue of farm businesses in current dollars. They include sales of crops and livestock products (except sales between farms in the same province) and program payments. Receipts are recorded when the money is paid to farmers before paying any expenses.

Regional growth Effect
 
Appendix Table 1 shows annual growth effects in farm cash receipts relative to the Mid-South region. These data show that most of the farm enterprises performed well compared to the Mid-South region. These results indicate that, if overall growth of Mississippi agriculture had matched the growth of the referenced economy (Mid-South), more than $82.43 million in farm receipts would have been added to the state’s farm economy between 1997 and 2007.
 
Industrial Mix Effect
 
If the composition of the state’s farm receipts were identical to that of the Mid-South, its IME would equal zero. If Mississippi had a favorable (unfavorable) mix of farm receipts, that is, if it had high (low) concentrations of its receipts in enterprises experiencing rapid regional growth in farm receipts during the 1977-2007 period, its IME would be greater (less) than zero. The size of IME indicates how much higher or lower the state’s receipts were in a given period than they would have been if the state’s receipts composition were identical to the Mid-South. This value is expressed in dollars of each period’s total state receipts that would have resulted if they had grown at the regional rate between 1977 and 2007.
 
The IME values listed in Appendix Table 2 range from a -$8,000 for fruits and nuts to $23.10 million for poultry and poultry products receipts between 1997 and 2007. Thus, the industrial mix effect, ceteris par/bus, resulted in about a $8,000 loss in fruits and nuts receipts relative to what they would had been otherwise, while contributing to about $23.10 million in poultry and poultry products receipts in Mississippi.
 
Mississippi’s overall cash receipts were higher than the regional average. The state has an unfavorable mix of enterprises, as reflected in its negative IME’s. Between 1997 and 2007, this mix was characterized by modest farm receipts in poultry and poultry products, corn, and other grains, and low concentrations in the dairy products, cotton, cattle and calves, hogs and pigs, hay and silage, soybeans and other crops compared to the Mid-South.
 
Despite this industrial mix, farm receipts in some Mississippi enterprises grew faster than the Mid-South’s average because, as the positive RGE shows, Mississippi farm receipts grew relatively rapidly in most sectors between 1997 and 2007. Farm receipts in Mississippi’s poultry industry, for example, grew at a rate of 5.69 percent annually between 1997 and 2007; in contrast, receipts in the Mid-South grew a slow 2.26 percent during this period.
 
Competitive Effect
 
The CE figures listed in Appendix Table 3 show the influence of the relative cash receipts growth of Mississippi’s farm industry, assuming its industry mix of receipts is identical to the Mid-South. A positive CE indicates how much higher Mississippi’s farm receipts were than the Mid-South, while a negative CE indicates how much lower Mississippi’s farm receipts were than the Mid-South. In dollars, Mississippi’s soybean receipts were $397,000 higher than the Mid-South region between 1997 and 2007. The state’s poultry and poultry products receipts were about $17.6 million higher than the Mid-South’s during the 1997- 2007 period. Mississippi’s corn receipts were about $9.12 million higher than the regional average during this period.

 
Table 2. Summary of Percent Shift in Farm Cash Receipts in Mississippi
Component ($ 000)
1977-1986
1987-1996    1997-2007
Regional growth effect(RGE)
70.12%
75.19%
85.46%
Industry mix effect (IME)
5.38%
2.43%
-9.96%
Competitive effect (CE)
-24.50%
22.38%
4.58%
Net shift
75.5%
100.00%
80.08%
 
In addition, the numbers for each shift-share component have been converted into percentages (Morales and Stallmann, 2000). To do this, the absolute values of all three components (RGE, IME, CE) were added together. Each component was then divided by this sum and multiplied by 100 to get the percentage contribution of each component to the change in structure. The absolute values may not always total 100 because of rounding. The larger the absolute value of the component, the larger is the impact of that component on a specific sector of the farm economy in Mississippi. Table 2 suggests that the regional effect may have contributed between 70.12 and 85.46 percent to the overall growth in Mississippi’s farm cash receipts between 1977 and 2007. This finding is consistent with an earlier observation that Mississippi farmers benefited from agricultural growth in the Mid-South region of the U.S (Allen, et al, 2009).
 
Conclusions
 
The aggregate data in the study suggests that most of the farm enterprises in Mississippi benefited from regional growth in farm cash receipts between 1997 and 2007. However, some enterprises suffered significant declines because of competitive factors, which eliminated the benefits from regional growth in the area. Most of the growth in Mississippi agriculture was a reflection of trends in regional farm receipts, although a negative industrial effect was detected for most of the study period.

The analysis highlights enterprises of particular importance to Mississippi agriculture. Agricultural scientists and rural development practitioners can use this knowledge to identify the relevant local firms critical to the future of each farm enterprise in the state. They could then work with the owners of these enterprises to develop local strategies to build on the strengths and mitigate the areas of weakness in Mississippi agriculture. The first use of this information may serve as a guide to areas where local intervention could focus on improving the agricultural economy of the state.
As previously noted, each farm enterprise in Mississippi has unique economic strengths that may be promoted within a statewide strategy, without impacting other farm enterprises. Further, it may highlight farm sectors where complementary development could occur. For example, poultry could focus on increasing its output, while corn growers could increase production to supply grain to the poultry industry and develop alternative fuels in Mississippi. In this way, growth opportunities can be shared among all farm enterprises without generating competition and harming the overall industry. 
 
Figure 2. Farm Cash Receipts in Mississippi, 1977-1986 ($000)
 
 
Figure 3. Farm Cash Receipts in Mississippi, 1987-1996 ($000)
 
 
Figure 4. Farm Cash Receipts in Mississippi, 1997-2007 ($000)

References
 
Bureau of Economic Analysis. “Regional Economic Information System.” U.S. Department of Commerce, Washington, D.C.2007. Website:http//www.bea.gov/regional/spi/sa25Nfn.cfm
 
Hustedde, Ronald J., Ron Shaffer, and Glen Pulver.1994. North Central Regional Center for Rural Development. “Community Economic Analysis: A How-To Manual.” Ames, Iowa: Iowa State University.
 
Selting, Anne C. and Scott Loveridge. “Testing Dynamic Shift Share.” Website:http://www.jrap-journal.org/pastvolumes/1990/v24/24-1-2.pdf
 
Morales, J. Daniel and Judith I. Stallman, ‘NAFTA and the Lower Rio Grande Valley of Texas: Measuring Impacts”, Faculty Paper Series, Faculty Paper 00-11, Department of AgriculturalEconomics, Texas A&M University, College Station, Texas, July 2000.
 
Allen, Albert J., Albert E. Myles, Saleem Shaik, and Osei-Agyeman Yeboah. “Structural Changes in the Fleet of the General Aviation (GA) Industry in the United States,” Paper selectedfor presentation at the 2009 Academy of Economics and Finance, Pensacola, Florida.
 
 
Appendix

 
Table 1. Shift Share Regional Growth Component of Farm Cash Receipts in Mississippi
Descriptor
1977-1986
1987-1996
1997-2007
Cash receipts from marketing ($000)
68,935
115,363
82,430
Cattle and calves
12,457
12,055
7,178
Hogs and pigs
1,618
1,725
1,699
Sheep and other livestock
2,302
10,290
6,653
Dairy products
3,536
4,388
838
Poultry and poultry products
14,682
35,636
37,615
Corn
96
1,813
3,510
Oats
-
-
-
Sorghum
19
579
412
Wheat
(204)
1,436
511
Soybeans
15,210
13,394
6,405
Other grains
1,855
4,143
2,155
Hay, silage, etc
234
817
607
Vegetables
560
1,154
629
Fruits and nuts
261
443
256
Greenhouse, nursery and mushroom products
370
1,259
1,245
Forest and maple products
4,082
-
-
Tobacco
-
-
-
Cotton
15,311
25,640
11,175
Other crops
213
592
1,542
Sub-total
68,929
115,363
82,430

 
Table 2. Shift Share Industrial Mix Component of Farm Cash Receipts in Mississippi
Descriptor
1977-1986
1987-1996
1997-2007
Cash receipts from marketing ($000)
-
-
-
Cattle and calves
(3,519)
(14,772)
692
Hogs and pigs
(917)
(1,219)
(2,230)
Sheep and other livestock
10,811
3,268
738
Dairy products
(1,491)
(5,973)
(3,336)
Poultry and poultry products
9,857
21,631
23,105
Corn
(56)
4,250
8,817
Oats
(77)
-
-
Sorghum
1,335
(1,432)
320
Wheat
(1,301)
(1,073)
154
Soybeans
(31,463)
486
(17,517)
Other grains
(4,139)
4,081
5,302
Hay, silage, etc
868
721
187
Vegetables
715
(1,355)
(249)
Fruits and nuts
(400)
(170)
(8)
Greenhouse, nursery and mushroom products
1,796
118
111
Forest and maple products
(23,082)
-
-
Tobacco
-
-
-
Cotton
25,081
(4,647)
(25,119)
Other crops
423
(172)
(572)
Sub-total
5,282
3,743
(9,605)

 
Table 3. Shift Share Competitive Effect Component of Farm Cash Receipts in Mississippi
Descriptor
1977- 1986
1987-1996
1997-2007
Cash receipts from marketing ($000)
 
 
 
Cattle and calves
(16,845)
2,246
(5,037)
Hogs and pigs
243
2,691
2,909
Sheep and other livestock
1,530
(3,752)
(9,360)
Dairy products
313
(276)
(6)
Poultry and poultry products
(9,397)
31,008
17,604
Corn
1,174
5,314
9,117
Oats
(256)
-
-
Sorghum
125
(76)
1,440
Wheat
3,669
(397)
4,882
Soybeans
4,103
6,646
397
Other grains
5,844
(1,970)
(5,874)
Hay, silage, etc
(781)
345
(67)
Vegetables
(327)
(540)
186
Fruits and nuts
489
(403)
1,140
Greenhouse, nursery and mushroom products
(879)
1,870
(2,055)
Forest and maple products
-
-
-
Tobacco
-
-
-
Cotton
(12,888)
(9,345)
(15,085)
Other crops
(437)
978
4,230
Sub-total
(24,089)
34,337
4,422
 
1    Website: http://www.bea.gov/regional/spi/SA25Nfn.cfm
 
2    The reader should consult the handbook Community Economic Analysis, published by the North Central Regional Center for Rural Development, for a detail discussion on this technique.
 
3   Tables containing the basic data used in this study for Mississippi and in the Mid-South region5 are available upon request.
 
4 Farm cash receipts among greenhouse, nursery and mushroom products decline one-tenth of one percent between 2006 and 2007.
 
5 In this study, the Mid-South region includes the states of Alabama, Arkansas, Louisiana, Mississippi, and Tennessee.
 
6    Selting and Loveridge suggest that dynamic shift share analysis is more accurate than static shift share analysis because there is less change in the industrial structure from year to year.
 
7    With the local economy, the size of the components reveal the influence each has in affecting growth in the area.

8   Net effects were calculated as the sum of the regional growth effect, industrial mix effect and the competitive effect.