Small cotton harvest translates into economic losses

A new Texas Tech University Cotton Economics Research Institute study indicates that the economic impact of the cotton crop on the Texas High Plains economy will be sharply down this year.

Current estimates suggest a cotton harvest that is potentially 28 percent below average. With this reduction in the cotton harvest, economic losses between $302 and $517 million are expected in the region.

“Early-season high winds and late-season cool temperatures have worked together to limit the size of the High Plains cotton crop,” said Darren Hudson, the Larry Combest Endowed Chair in Agricultural Competitiveness and institute director.

Since 1997, the High Plains has averaged 4.4 million bales produced each year. This year, Plains Cotton Growers, which serves a 41-county region, estimates the size the 2008 crop will be around 3.2 million bales.

“If these production numbers materialize, the 28 percent drop in production will have significant impacts on the regional economy, especially in terms of a reduction of sales tax revenues,” Hudson said.

Texas Tech researchers used a regional economic impact model known as IMPLAN to examine the crop’s impacts, as well as provide estimates of the effects of the smaller-than-average crop. The model accounts for the direct impacts of lost gross income, and how these losses cause indirect and induced effects from decreased expenditures.

According to their results, the total economic impact of a 3.2 million-bale harvest is estimated to be $1.5 billion. A normal harvest of 4.4 million bales would have an economic impact of about $2.1 billion.

So what does these mean for you? The agricultural economists say the potential impacts of a smaller cotton harvest can be explained in either a “worst case” or “best case” scenario.

In the “worst case” scenario, there’s a reduction in High Plains’ economic activity of approximately $571 million for the region, with approximately $228 million of that falling on Lubbock County. The “best case” scenario calls for an aggregate loss of $302 million in economic activity, with $120.8 million for Lubbock County.

“Based on those same scenarios, a reduction of sales tax revenue of between $25 and $46 million is expected, with between $10 and $18 million of that loss falling on Lubbock County,” Hudson said. “To keep these impacts in perspective, the loss in economic activity is between 0.4 percent and 0.7 percent of the total regional economic activity.”

However, he pointed out that while lower than average, this year’s harvest was certainly not the smallest cotton crop in recent history.

CONTACT: Darren Hudson, Larry Combest Endowed Chair in Agricultural Competitiveness Professor, Department of Agricultural and Applied Economics, Texas Tech University, (806) 742-2821 or [email protected].

TAGS: Cotton
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