The Economic Impact of Apple Growing and Processing on the West V

ANDPROCESSINGONTHE WESTVIRGINIAECONOMY ispublishedby: BureauofBusiness&EconomicResearch WestVirginiaUniversityCollegeofBusinessandEconomics 304293Ͳ7831 bebureau@mail.wvu.edu bber.wvu.ed

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

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



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

DirectImpact:

$24Ͳ$31Million TotalImpact:

$44Ͳ$56Million

1 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.

2 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.

Theseindirectandinducedimpactstogetherformwhatisknownasthe“multipliereffect.”Theoriginal stimulustotheeconomyfromtheplant’sexpendituresisreͲspentmultipletimesthroughtherestofthe economy.Ateachstage,someoftheexpenditures“leak”outofWestVirginiaastheyarespentoutside ofthestate.Thecombineddirectimpactandsecondaryimpactstogetherconstitutethetotaleconomic impactoftheappleprocessingactivities.

3 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

EmployeeCompensation

StateandLocalTaxRevenue

Notes:Output,EmployeeCompensation,andTaxRevenuearemeasuredin2018dollars.TaxRevenueimpact

includessales,personalincome,property,andcorporationnetincometaxes.Individualcomponentsmaynot

sumtototalduetorounding.



3.2 EconomicImpactofAppleGrowingandProcessingOperation

Inthissubsectionweestimatetheeconomicimpactoftheongoingapplegrowingandprocessing operation.ThedatausedinthissectionwereprovidedbyWestVirginiaeconomicdevelopmentofficials andwerenotindependentlyauditbytheauthors.Specifically,WestVirginiaeconomicdevelopment officialsmadeavailabledataontheexpectednumberofworkersandtheirwageandsalary

compensation.Twoscenarioswereintroduced.FirstisthelowerͲboundscenariowheretheplantwill employ100workers,andsecondistheupperͲboundscenariowheretheplantemploys130workers. Combiningthisinformationwithasetofotherrelevantinformationontheappleprocessingindustry, wedevelopseveralguidelinesbelow.Weusethemasthebasistoestimatethedirectimpactofthe plant’soperation.

x Theappleprocessingplantwillemployeebetween100to130workers.

x 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.

EmployeeCompensation

StateandLocalTaxRevenue

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

EmployeeCompensation

StateandLocalTaxRevenue

Notes:Output,EmployeeCompensation,andTaxRevenuearemeasuredin2018dollars.Taximpactincludes

sales,personalincome,property,andcorporationnetincometaxes.Individualcomponentsmaynotsumto

totalduetorounding.





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