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6

News & Views Magazine

Edition 1, 2015

The Economic Impact of Food and

Beverage Processing in California

BY Richard J. Sexton, Josué Medellín-Azuara, and Tina L. Saitone

California’s role as the nation’s leading producer of

agricultural products is well known. Most people,

however, are probably less familiar with the state’s

vitally important food and beverage processing sector,

which is responsible for acquiring the bounty produced

on California’s farms and ranches and converting it

to the food, beverage and fiber products demanded

by consumers worldwide. Our study quantifies

the economic impact of this integral component of

California’s economy.

Food and beverage processing is California’s third

largest manufacturing sector, and California’s total of

3,421 food manufacturing establishments is the largest

in the nation. In 2012, the most recent year for which

complete data is available, California’s food and beverage

processors accounted for $82 billion of value added and

760,000 full and part-time jobs. Value added is the value

of the products produced by the food and beverage

sector, less the cost of non labor inputs used in producing

those products, including costs for acquiring the farm

product. This avoids double counting and enables our

analysis to focus solely on the benefits added by the

processing sector.

Multiplier Impacts

A key part of our study was estimating the secondary or

multiplier impacts from food and beverage processing.

These impacts occur as the value added from the

primary economic activity reverberates through the

local and regional economies, creating additional income

and employment for the businesses that supply inputs

to the primary activity, and for commercial enterprises

generally, as income earned is spent on a multitude of

products and services in the local or regional economy.

We estimated these impacts using the popular IMPLAN

input-output model. Input-output models provide a

snapshot of a state or regional economy by tracing

relationships among commercial sectors, as well as

government households and the rest of the world.

Multiplier effects are broken down into two main

categories: indirect and induced effects. Indirect effects

are changes in local inter-industry spending transmitted

through economic linkages among the different sectors

of the economy. For example, a food processor that

contracts with local businesses to provide containers and

packing materials or to ship farm products to the plant

and finished products to markets creates income and

value added for those enterprises.

Induced effects are the result of spending household

incomes generated from the sectors directly and

indirectly affected by the primary economic activity.

Thus businesses, such as retail shops and services, that

may seem quite disconnected to food and beverage

processing, benefit from the presence of these

enterprises in the local economy through the income

they generate that is then spent in these establishments.

The magnitudes of both indirect and induced impacts are

determined by the degree to which income “leaks” from

the local economy by being spent outside its boundary.

The larger and more economically developed the area of

consideration, the smaller the rate at which economic

activity leaks beyond its boundary. Thus, multiplier

impacts will be greater when we consider California as a

whole than when we examine individual counties.

Results

In 2012 the food and beverage processing sector directly

accounted for nearly $25.2 billion in value-added activity

and a total value added of $82 billion once indirect and

induced impacts are included. The sector was responsible

for over 760,000 jobs, over 198,000 of thembeing directly

in food and beverage processing and another nearly

563,000 through indirect and induced employment

impacts. Food and beverage processing is the third

largest manufacturing sector in California, comprising

9.2% of the state’s manufacturing value added, and

trailing only electronic and computer equipment (34.5%)

and chemical manufacturing (15.8%).

Figures 1 and 2 (on page nine) summarize the economic

impacts for California’s 10 leading food and beverage

processing sectors for 2012. Dairy is the state’s leading

food processing industry, directly accounting for $3.37

billion in value added. Once the multiplier impacts are

included, the total economic impact of dairy processing

in California is $15.6 billion. The dairy processing sector

directly accounts for 18,000 jobs, and another nearly

122,000 jobs are generated from the indirect and

induced impacts, resulting in over 139,000 California

jobs that can be traced directly or indirectly to the dairy-

processing sector.

Wineries represent California’s second-leading food and

beverage processing sector, accounting for $3.65 billion

in direct value added in 2012. The multiplier for wineries

is estimated to be 3.05, meaning indirect and induced

impacts accounted for an additional $7.4 billion in value

added in 2012. California wineries were directly or