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The state of Texas agriculture.

The mention of Texas conjures images of sprawling ranches and endless plains to the average American. While this image by no means conveys a complete picture of the state, agriculture is an important sector in the Texas economy. In fact, Texas agriculture has a substantial impact not only on the state but also on the national economy.

Texas is second in the union in agricultural cash receipts, trading only California. In 1989 agricultural cash receipts exceeded $10.6 billion. This figure includes $6.9 billion from livestock and $3.8 billion from crops, yielding a state ranking of number one and number five respectively. In addition, Texas producers received approximately $1.2 billion in federal payments.

A leading producer of several agricultural commodities, Texas claimed over 11 percent of the nation's receipts for cattle and calves and 13.5 percent of cattle inventories in 1989. During the same year, the state slaughtered 17 percent of the nation's beef, or approximately 6 million head. Texas also leads the nation in cotton production, accounting for approximately 30 percent of the total U.S. output, and is the nation's top producer of wool and mohair and the third largest producer of vegetables.

Agriculture contributes about 2 percent, or $7.6 billion, to the gross state product and directly employs 0.5 percent of the state's labor force. Upon closer review, these figures appear to understate the industry's impact. From 1980 to 1987, agricultural employment grew 44.6 percent and the total agricultural payroll climbed 95 percent. Agricultural spending added $32.2 billion to the state economy in 1988. Approximately 37 percent of agricultural production is exported from Texas, bringing new currency to our economy. More importantly, it is estimated that 20 to 25 percent of the entire labor force is involved in agricultural supplies, services, processing, and sales.

It is an understandable and common oversight to view the role of agriculture in the state's economy as minor. A more thorough analysis, however, reveals the extent of the industry's impact. Fluctuations in the health of agriculture have a ripple effect throughout many of the state's major industries and perhaps surprising repercussions on overall economic well-being.

Cattle have historically been the mainstay of Texas agriculture. Cattle cash receipts, which have been growing at a modest annual rate of 2.7 percent since 1984, totaled over $5 billion in 1989. The average value per head of Texas cattle rose 33 percent from the beginning of 1988 until 1990, resulting in an average price of $625. Current national inventories of 99.3 million head should support the present record high beef prices through 1991. In the last fifteen years, the nation's supply of cattle has decreased nearly 25 percent, and herd buildup will be a gradual process.

Cotton is the other major component of Texas agriculture, with 1989 receipts of $1.5 billion. Cotton receipts rose at an annual rate of 10.25 percent from 1984 to 1989. It is estimated that Texas cotton makes up two-thirds of U.S. cotton exports. In 1989, U.S. domestic and export use of cotton reached 16.5 million bales, the highest volume since 1956.

Weather is, of course, the great variable in all agricultural production. The Texas Agricultural Extension Service has predicted that the unfavorable weather conditions of 1989 will ultimately cost the state up to $3.5 billion in lost sales, excluding the consequences of last December's disastrous freezes.


Perhaps the greatest opportunity for agriculture rests with the current Uruguay round of the General Agreement on Tariffs and Trade (GATT) negotiations. Unrestricted, American agriculture could be highly competitive, especially at high demand levels where capital intensity and infrastructure boost American efficiency over competitors with low costs such as South America. The United States is seeking aggressive, across-the-board reductions and ultimate removal of agricultural tariffs, subsidies, and market restrictions. The American agricultural proposals are proving a major stumbling block, however, meeting strong resistance from the European Community. If current indications are correct, the agricultural issue may block the overall agreement, therefore imposing serious repercussions well beyond the agricultural arena.

Aside from the future of the GATT, agriculture is quickly becoming more market driven. The proposed 1990 U.S. farm bill allocates $40 billion to farm subsidies for the next five years, compared to $83 billion in the 1985 bill. The decline of government support dictates increased business risk and pressure on management to make correct decisions. Farmers must learn to fully use current managerial tools and strategies such as futures and option contracts and product differentiation techniques. Those who can adapt will survive on tight margins; those who cannot will be forced to leave the industry.

David L. Huff

Director of Research


Lewis Brazelton

Research Assistant

Bureau of Business Research
COPYRIGHT 1990 University of Texas at Austin, Bureau of Business Research
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Author:Huff, David L.; Brazelton, Lewis
Publication:Texas Business Review
Date:Dec 1, 1990
Previous Article:The Texas economy: lessons for economic diversification.
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