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PRELIMINARY ASSESSMENT OF THE ECONOMIC LOSSES TO THE COTTON GINNING INDUSTRY AND REGIONAL ECONOMIC DUE TO THE 2022 DROUGHT ON THE TEXAS HIGH PLAINS

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A preliminary assessment of the losses to the cotton gin sector due to the drought on the Texas High Plains.
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PRELIMINARY ASSESSMENT OF THE ECONOMIC LOSSES TO THE COTTON
GINNING INDUSTRY AND REGIONAL ECONOMIC DUE TO THE 2022 DROUGHT
ON THE TEXAS HIGH PLAINS
Darren Hudson and Rachel Wade
Combest Endowed Chair and Research Assistant
Department of Agricultural and Applied Economics
Texas Tech University
International Center for Agricultural Competitiveness
Briefing Paper BP-04-22
August 2022
This research is supported by the Office of the Chief Economist, USDA through a cooperative
agreement with Texas A&M University, the Combest Endowed Chair, and Cotton, Inc. All
errors belong to the authors. Copyright 2022 by Hudson and Wade
Introduction
The drought on the Texas High Plains has had a serious negative impact on the cotton
production of the region. A previous paper (Wade and Hudson) has examined the regional
economic impact on cotton producers as well as the impacts that crop insurance has on
preserving economic output and revenue to the farm sector. However, cotton gins depend on
flow of cotton through gins for revenue, and while crop insurance helps protect farm revenue it
does not protect revenue for cotton gins. The paper by Wade and Hudson does include overall
impact on ginning but does not delineate specifically the impacts on the gin sector. The purpose
of this short briefing paper is to define those impacts specifically and provide estimates of the
regional economic impact of the drought through changing in the gin sector.
Methods and Results
For this analysis, we gathered a small sample of gin revenues per bale (including sales of
motes, burrs/hulls, and other sales except for revenue from cotton seed which was included in the
Wade and Hudson paper). That sample indicated a range in revenue per bale of between $80 and
$90 depending on revenues from other sales (actual per bale ginning charge was a much tighter
range).
Then, we used the program IMPLAN to generate an estimate of the regional economic
impacts of changes in gin revenue on the regional economy. This process is a bit complicated
because cotton ginning is treated as part of the farm “cost of production” in IMPLAN and is
lumped together in the “farm services and supplies” category within the program. To derive an
estimate for the ginning portion of this category, we first determined the baseline value of that
category in 2019 (the latest year of data within IMPLAN) which was $471.6 million for the
Texas High Plains (study area shown in Figure 1). During 2019 there were 3,045,000 bales
produced in this region implying that at an assumed gin revenue of $85 per bale, the regional gin
revenue was $258.8 million or about 55% of the total value of the farm service category (this
category does not include equipment, building, etc., or other “large” capital purchases but simply
services like chemical applications, ginning, custom harvesting, etc.).
Figure 1. Study Area (Shaded Counties) of the Texas High Plains Corresponding to the Northern
and Southern High Plains USDA-NASS Reporting Districts.
Consistent with the Wade and Hudson overall cotton analysis, we assumed a 65% decline
in expected bales produced for the region. Based on a regional average production (2012-2019)
of 3,644,894 bales, the anticipated bales produced are 1,275,713. Again, at assumed gin revenue
per bale of $85, this implies gin revenue of $108.4 million.
1
Thus, the drought-induced drop in
1
This assumes that the per bale revenue will remain fixed as bales produced decline. This is likely not the case
though there is little data to make adjustments. On one hand, per bale gin charges are likely to rise because the cost
total bales produced is expected to decrease regional gin revenue by approximately $150.4
million.
But the direct loss of $150 million is not the total impact. Rather, lower gin revenue leads
to lower employee compensation and employment both at the gin level (direct) as well as related
industries (gin equipment, repairs, energy, etc.) which are indirect effects and finally the impact
that has on other sectors such as restaurants, car dealerships, etc. (induced effects). To estimate
this effect, we first estimated a baseline economic impact of the farm service sector on the
overall economy. Second, using the reduced revenue to ginning, we estimated a regional
economic impact of the farm service sector under the lower cotton output. Finally, we subtracted
the two to estimate the overall impact of the lost gin revenue on the economy.
2
Table 1 provides an estimate of the regional economic impacts of the changes in the gin
sector revenue. Under the baseline scenario, the farm service sector generates approximately
$471.6 million in revenue resulting in $741.6 million in total regional economic activity.
Additionally, the sector is associated with about 10,000 direct jobs with total regional
employment about 11,647. Assuming all else constant, if we remove the anticipated loss in gin
revenue of $105.4 million from the service sector revenue, this results in a total economic
activity for the region of $505 million and 7,933 jobs. Therefore, the anticipated impacts in lost
of operations per bale will risk. On the other, per bale revenue from motes and burrs may actually increase as
quantities of those goods decline their per unit value may increase. We assumed a fixed per bale revenue here to
avoid making further assumptions about proper adjustment values.
2
Readers should note the limitations of this approach. First, it assumes that all other elements of the farm service
sector are held constant. We know that in a drought those sectors will be impacted as well. But by holding those
constant we are generating an estimate of the gin sector impacts alone. Second, if those we are holding other sectors
constant, the nature of IMPLAN is to estimate economic linkages such that by changing only one element of the
farm service sector we are assuming that the other linkages remain intact. These are limiting assumption but
necessary given the construction of the program. So, these estimates should be viewed only as approximations, not
exact calculation and hence why we often qualify with “approximately.”
gin revenue for the region are a reduction of 3,714 jobs and $236.5 million in lost total economic
output (direct, indirect, and induced).
Table 1. Baseline Impacts of the Farm Service Sector and Estimates of the Impact of a 65% Loss
in Cotton Production on the Gin Sector Using IMPLAN.
Effect
Employment
Labor Income
Value Added
Output
Baseline Based on 2019 Data
Direct
9,978
$417,025,353
$383,687,619
$471,630,139
Indirect
198
$13,681,246
$23,304,205
$50,188,810
Induced
1,471
$67,180,069
$121,418,074
$219,748,399
Total
11,647
$497,886,658
$528,409,899
$741,567,349
65% Loss in Cotton Production Impact on Gins
Direct
6,796
$284,047,853
$261,340,578
$321,240,736
Indirect
135
$9,318,687
$15,873,159
$34,185,030
Induced
1,002
$45,758,260
$82,701,313
$149,676,901
Total
7,933
$339,124,800
$359,915,050
$505,102,667
Reductions in Regional Economic Activity Due to Gin Changes
Direct
3,182
$132,977,500
$122,347,041
$150,389,403
Indirect
63
$4,362,559
$7,431,046
$16,003,780
Induced
469
$21,421,809
$38,716,761
$70,071,498
Total
3,714
$158,761,858
$168,494,849
$236,464,682
Conclusions
The key result of this analysis is an approximation of the impact of the drought on the
cotton-ginning sector. Overall, we expect to see a decrease in revenue of approximately $150.4
million directly to the gin sector. This revenue, of course, is the basis for employment income,
supplies, energy, and profits (or returned dividends in the case of cooperatives). But the regional
economic impact is larger due to the indirect and induced effects, resulting in a total regional
economic loss of $236.5 million. Readers are cautioned not to combine these losses with those
found in Wade and Hudson for the cotton industry as a whole. Rather, these are the detailed
impacts on the gin sector (and their indirect and induced effects), which were included in the
larger cotton estimates in the previous publication.
References
Wade, R. and D. Hudson. 2022. “The Regional Economic Benefits of Crop Insurance During
Drought: Cotton on the Texas High Plains.” International Center for Agricultural
Competitiveness, Briefing Paper BP-03-22,
https://www.depts.ttu.edu/aaec/icac/pubs/cotton/other_research_publications/econ_impact_droug
ht_2022.pdf
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Technical Report
Full-text available
A preliminary analysis of the regional economic impacts of the drought on cotton on the Texas High Plains. In the analysis, we provide an overview of the potential impacts of crop insurance on the regional economy.