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Economic Input-Output Model Application Channels of Distribution of Chilean Salmon in the U.S. Market Estimated Markup for Retailing Operations Indirect (Supporting Industry) Economic Impact Total Direct and Indirect Economic Impacts Biases in the Estimated Impacts Notes to Calculations Data Sources
The fresh Atlantic salmon marketing industries are increasingly significant sectors of Dade County’s, Florida’s, and the nation’s economy. Manufacturing, retailing, and service sectors have expanded significantly as U.S. consumption of farm-raised fresh Atlantic salmon from Chile has increased. This study quantifies the economic significance of the Chilean salmon marketing and distribution sectors in the U.S., based upon published information from federal and state agencies and public universities. The report describes the economic impact of fresh, Chilean, farm-raised Atlantic Salmon entering the U.S. through Dade County, Florida, by estimating retail sales, employment, value added and industry output associated with the consumer’s purchase of fresh Atlantic salmon in retail and foodservice establishments.
This report is performed on behalf of the Assocation of Chilean Salmon and Trout Farmers. This study assesses the significance of the marketing of fresh Chilean Atlantic salmon products in the United States by measuring net contributions to gross output, value added, income and employment. Published information from federal and state agencies and public universities has been utilized to provide the estimates. The estimates are made at three levels:
Growth in U.S. consumption of fresh Atlantic salmon has been dramatic, particularly in view of the stable consumption pattern of seafood in general. U.S. trade figures document the rise in consumption and the associated increase in salmon imports. In 1993, imports of all Chilean Atlantic salmon in the United States were reported to be 29.5 million lb., valued at $61.5 million. In 1996, $161.6 million worth of Chilean salmon products entered the U.S. market. (2) The U.S. International Trade Commission (ITC) defined "subject salmon" as: "...fresh, farmed Atlantic salmon (species Salmo salar), whether imported dressed or in cut form. Dressed Atlantic salmon is fresh Atlantic salmon that has been killed, bled, gutted and cleaned, and may be produced with the head on or off, and with the gills in or out. Examples of cuts include but are not limited to: crosswise cuts (steaks), lengthwise cuts (fillets), lengthwise cuts attached by skin (butterfly cuts), combinations of crosswise and lengthwise cuts (combination packages), and Atlantic salmon that is minced, shredded, or ground. Cuts may be subjected to various degrees of trimming and may be produced with the skin on or off and the pin bones in or out. Fresh Atlantic salmon is seafood destined for human consumption." According to 1996 National Marine Fisheries Service (NMFS) data, Chilean farm-raised fresh Atlantic salmon products constituted 55% by volume (70.3 million lb.) and 47% by value ($134.5 million) of the total supply (127.5 million lb. and $287.9 million, respectively) of fresh Atlantic salmon into the United States, during 1996. Of the total imports of Chilean salmon, 93% arrived in the U.S. through the customs port of Miami. (1) (2) Note: For purposes of this analysis, HTS Codes 302120003 and 304104091 were used to remain consistent with the ITC. See Notes to Calculations, page 24. Import values are reported as the customs value, generally defined as the price actually paid, or payable, for merchandise when sold for exportation to the United States, excluding U.S. import duties, freight, insurance and other charges incurred in bringing the merchandise to the United States. (This value approximates "f.a.s." value.) Importers and exporters submit their transaction reports to the U.S. Customs Service using the international "Harmonized Commodity Description and Coding System" (HS). HS classifies goods in international trade and has been developed under the auspices of the World Customs Organization (WCO), located in Brussels. The WCO is an international organization consisting of representatives from about 150 countries. The U.S. is represented in the WCO by the U.S. Customs Service. The International Trade Commission (ITC) maintains the Harmonized Tariff Schedule of the United States used by importers to classify their goods. (2) According to statistics gathered by NMFS, per capita consumption of fresh, frozen and cured seafood in 1996 was 14.8 pounds, down 0.2 pounds from 1995. Of the total consumption, 3.161 billion pounds of edible seafood, valued at $6.7 billion, was imported in 1996 for domestic consumption, an increase of 103.1 million pounds over 1995 imports. (2) According to NMFS, only about one-third of all seafood consumed in the United States originates from U.S. waters. However, since much of the eventual product transformation and value added occurs domestically, about two-thirds of the final retail price of seafood consumed in the U.S. are values added by U.S. businesses. (2) Seafood Business magazine documented in its September/October 1997 "Retail Report" that salmon was the fastest-growing seafood item; and salmon is second only to shrimp in the category of "top selling species." Furthermore, 59% of all retailers reported that the sales of such value added items were increasing. (3) According to the ITC, while the overall demand for fresh Atlantic salmon increased significantly in recent years, the growth in consumption of steaks and fillets of salmon was greater than for whole fish. Consumers’ desire for a healthy diet, coupled with the convenience, increased availability and relative low cost of farmed salmon, permitted expanded utilization of steaks and fillets in the grocery store and food service sectors. (1) Economic impact analysis begins with introducing a change in the output of goods and using the multiplier model to analyze the effects on a region’s economic base. The standard input-output model estimates the direct, indirect, and induced economic implications of some basic economic activity. The secondary effects (the indirect and induced impacts), along with the basic economic activity estimates, provide an estimate of the "multiplier" effects from the basic activity (direct impact). In the standard input-output model, measures of aggregate economic activity are used as a basis for estimating the total economic impact of the subject activity. For example, measures of direct employment or total sales in an industry are obtained, and these are then used as a basis for evaluating the total impact. As in this report, and in the case of seafood industry studies to date, estimates of the primary imported sales by customs category were typically obtained and used as the base measure of the "direct impact" of the industry. Given this measure of the direct purchases of the domestic seafood industry, an estimate is made of the indirect impacts using information on the interactions between these industry sectors and other economic sectors which are, to varying extents, dependent upon the seafood-related industry. For example, suppliers of materials for salmon product transportation, storage, processing and distribution are also dependent upon the provision of salmon in the import sector. These impacts are referred to as the "indirect impacts." Such "indirectly" dependent sectors include other types of manufacturing such as "Paperboard and Containers," for necessary packaging materials; and, "Motor Freight and Transportation" for necessary hauling. Ultimately, the direct import activity, and the resulting indirect activity, generate some increases in the general level of employment and income in the study area. The extra income generated in this way leads to a tertiary level of economic impact through the higher level of household expenditures on goods and services, much of which, again, will be spent within the study area. These effects are referred to as the "induced impacts" of the industry. Such economic impact measurements of seafood industries have been approached and completed in certain counties and throughout Florida during the past 20 years. Economic Input-Output Model Application Most regional input-output studies attempt to characterize either the economic impacts of specified changes in final demand for a given set of products, services, and industries or the economic significance of specific industries in a regional and national economy. The research described herein accomplishes the latter task. It assesses the economic significance of the processing and marketing of Chilean salmon to Dade County, the state of Florida, and the United States. Because of the interrelationships among the many sectors of an economy, any new or induced basic economic activity will generate additional waves of economic impact. For example, the marketing of fresh Atlantic salmon from Chile generates additional activity among suppliers of inputs, transportation industies, warehouses, and retailers. The sale of a pound of salmon to a consumer generates activity not only for the retail market or restaurant, but also indirectly generates economic activity for cleaners, suppliers, and accountants whose employment supports the operation of the retail enterprise. Thus, the activities of salmon marketers and consumers will generate multiple rounds of economic activity. As mentioned above, economic impact analysis is an attempt to provide an estimate of the total impact of any economic activity in any region, including not only the primary economic impact, but also the secondary and, in some analyses, tertiary impacts. To perform the impact analysis, initial information on the level of primary, or "basic," economic activity for the industry studied is needed. For example, measuring the total impact of any product, good, or service first requires an estimate of the volume of production of the goods. Secondly, it is necessary to gather information on the interrelationships among the sectors of the regional economy in order to estimate the value of the inter-industry "multipliers." It is also necessary to have some understanding of which industries the subject sector buys its production inputs from, and to which sectors its final products are sold. Understanding both the purchases of inputs and sale of goods and services by the subject sector allows the "forward" and "backward" linking of the sector’s economic activity. This permits the tracing of expenditures as they "multiply" throughout directly and indirectly impacted sectors. To summarize, in addition to direct impacts, two other types of impacts may be estimated: (1) indirect impacts which measure the change in output production in backward linked industries caused by the changing input needs of directly effected industries, and (2) induced impacts which measure the change in regional household expenditure patterns caused by changes in household income. These impacts introduce the concept of multipliers which are in turn subdivided into two types: Type I and Type II multipliers. Type I multipliers measure the direct and indirect effects per dollar of direct effects: Type I multipliers sum the results of several rounds of expenditures until, through "leaks" in the economy, no further expenditures occur. Type II multipliers, on the other hand, measure the overall effects, including the induced impacts per dollar of direct effects: Type I and Type II multipliers can be expressed in terms of an array of economic indicators such as gross sales, gross industrial output, income, value added, and employment. The principal distinction between the two types of multipliers is how the "household sector" is treated. The Type II model treats households as another industrial sector that has induced impacts on the economy. The Type I model ("closed model"), on the other hand, treats households as a final market sector, and the resulting multipliers sum the direct and indirect impacts only. Many economic impact studies use information from the Department of Agriculture’s Regional Inter-industry Impact Model (IMPLAN). This model was developed using a combination of direct survey data obtained through national surveys of inter-industry interaction, and by "sharing down" the inter-industry relationships to the local or regional level, based upon the structure or employment structure of industries in the state or region. The IMPLAN model used herein includes industry linkages specific to Dade County, the state of Florida, and the United States. From these government derived regional inter-industry relationships, output, income and employment multipliers are estimated. An alternative approach to estimating these multipliers is to perform detailed surveys of individual firms in each region to directly assess the extent of the inter-region, inter-industry interaction. This approach can be time-consuming and is typically very costly. Thus, in terms of simple analysis of the aggregate impacts of activity on the regional economy, published government estimates of the multiplier are used. The use of the "IMPLAN" multipliers for the present analysis is considered reasonable and the best available. Channels of Distribution of Chilean Salmon in the U.S. Market Generally, domestic sales of imported Chilean salmon are made first to regional distributors and wholesalers. In certain cases, the distributors and wholesalers are also the direct importer. In marketing seafood products, the first receivers/primary wholesalers add value to the imported products by sorting shipments into marketable quantities. Often the product is inventoried in cold storage facilities at the primary wholesaler’s enterprise or in a local cold storage facility. (8) In the case of Chilean salmon, the imported products are offloaded and transshipped mainly through Miami. (2) Sources within the seafood marketing industry suggest that virtually all of the salmon retailed and marketed through restaurants and foodservice enterprises are purchased from distributors. These distributors are also importers of the product or purchase the product secondarily from the primary wholesaler. (1) Subsequent secondary wholesale of salmon consists of distribution activities that link wholesale markets, primary wholesalers, and processors. Ultimately, these secondary receivers further distribute the products to other local and regional distributors, grocery stores, restaurants, specialty seafood stores, and institutional food services such as airlines, cruise ship lines, caterers, etc. It should be noted that in many instances, retail markets and restaurants maintain in-house buyers who perform such "secondary" wholesale functions. Large retail supermarket chains, for example, have their own buyers, distribution centers, and transportation systems. Also, larger regional and national restaurant chains, institutional foodservice companies and others, may own or contract sole-source suppliers store and distribute predetermined quantities of product to member retail establishments. Irrespective of whether the final distribution activities are conducted by vertically integrated warehouse operations, independent wholesalers, brokers, etc., additional economic activity is generated during the process of salmon distribution to the point of consumer sale. For example, larger importer/distributors often conduct the "airport activity" as a unique profit center, charging its costs for adding value to the larger corporate entity — supermarket, restaurant, or other foodservice company. It was assumed that the salmon product path to consumers is similar to that detailed by the ITC in its simplified market analysis. For the purpose of this analysis, this basic model of distribution is sufficient. It should be recognized, however, that not all salmon products follow such a simple distribution pattern.(1) Estimated Markup for Retailing Operations Consumers utilize salmon, as all food products, either at home, or in a restaurant or institutional feeding program. Salmon consumed at home is, for the most part, obtained either in grocery stores or specialty seafood markets. A wide range of marketing margins are associated with different types of retailers and restaurants. For example, the retail price of Chilean salmon fillets at one regional supermarket chain in the Southeast maintained a 20-30% margin over a leading competitor throughout 1996, despite the same cost basis for the fillets. Such examples serve to explain the difficulty in assessing margins across the board, particularly at the retail level where different philosophies on seafood marketing and advertising campaigns impact cost structures. (6) (8) (9) In view of this, the estimates of markup used in these impact assessments have been obtained from the U.S. Department of Commerce — NMFS. The most current information on margins is found in NMFS’s "Fisheries of the United States, 1996." The information is updated annually along with other fisheries and seafood related statistics. (2) (See Table I and II.) As seen in Table II, the final estimated purchases of $124.5 million of fresh Atlantic salmon from Dade County by supermarkets, $20.8 million by seafood markets and $62.3 million by restaurants and institutions, resulted in final total purchases by U.S. consumers of an estimated $363.8 million worth of fresh Atlantic salmon from Chile in the year studied. To summarize each, $1 of the final consumer expenditure for fresh Atlantic salmon from Chile represented approximately $0.66 of sales activity to U.S. marketers, from the Miami airport to final consumers nationwide. Viewed another way, an estimated two-thirds ($238.7 million) of the value added to the Chilean Atlantic salmon retail value was created by thousands of directly related and indirectly related businesses located in the United States. The value added along the chain of markets for the Chilean Atlantic salmon reflects this interdependency between market sectors, and generates the various economic impacts along the chain from first receipt to ultimate consumers. In conjunction with the national data, specific information provided by importers, wholesalers, processors, retail and foodservice operators and other relevant sources has been evaluated to study the case of farm-raised fresh Atlantic salmon from Chile. In general, the margins utilized herein are considered to be conservative for the industry sectors as a whole. However the great variability among marketers, at both the wholesale and retail levels, in mark-up and value added, suggest that the aggregate data for the nation are the most dependable for the use in the IMPLAN modeling. Therefore, the published government estimates are used.
Rather than using the beginning gross sales amounts for Chilean salmon (imported value + first wholesale/importer margin), this analysis views the first direct impacts as the gross output of the imports. That is, the direct impact begins with the infusion of $76.5 million dollars in net sales ("output"), rather than the $187.5 million of gross sales at the first domestic marketing level. By viewing only the net marginal impacts on the Dade County, Florida, and U.S. economies, a reasonable impact is estimated. The fresh Atlantic salmon from Chile represented 18% of all seafood products imported through the Miami Customs District in 1996. (2) The initial value added in Dade County begins the chain of economic impact throughout the U.S. economy. The model translates value added and margins associated with successive sales of Chilean salmon into employment, spending and personal income estimates. It should be noted that the U.S. employment depicted is defined as full-time equivalents (FTE). For example, 12 part-time employees working an average of four weeks per year would constitute just one FTE. Because Chilean salmon is typically part of a seafood wholesaler’s, distributor’s or retail operator’s activities, the number of full and part-time individuals impacted by the use of salmon is significantly greater than the numbers of FTE represented in the IMPLAN impact model. The IMPLAN-generated summary tables herein aggregate the model’s 528 sector input-output table into terms of nine general industrial classifications. For example, the Manufacturing Non-Durable industrial classification contains the basic direct (fresh fish) sector in this analysis. The input-output model utilizes a transactions table ("inverse coefficient table") which may be pictured as a table containing the 528 sectors along both the rows and columns. The table shows the direct and indirect relations among the various producing sectors of the economy. (This analysis uses the model’s specific coefficient tables for Dade County, Florida and the U.S.) Each of columns of the matrix lists the increases in the total output of the various sectors of the economy that would be required to deliver to final users an additional unit of the output of the sector (row) associated with that column, in this case, one dollar’s worth of salmon products. The interdependence of all the sectors of a developed economy, such as the United States, is so great that each sector contributes, if not directly, then indirectly, to the production of every commodity delivered to final users. In summary, one sector’s sales are another sector’s purchases, and so on. Direct Economic Impacts (Table III) The $125 million in Chilean Atlantic salmon imports into Miami resulted in a chain of the following value added activities in the United States: Importers, primary wholesalers, processors, and distributors, principally located in Dade County and regional marketing centers in Florida, derived an estimated $62.4 million of value added by handling and further marketing the products. Secondary distributors further stored, handled, distributed, etc. an estimated 63% of the Chilean salmon products — further adding value of $12.7 in the region. This provided the initial or direct impacts of $76.5 million on industrial output in Dade County. In a similar way, the direct impacts are measured by new "total income" in Dade County of $20.3 million, additional value added of $21.4 million, and full-time employment of 819. The direct impacts of Chilean Atlantic salmon businesses are felt also outside of Dade County, Florida. When added to Dade County’s direct impacts, further direct impacts on the state of Florida occur. These are estimated to total $103.3 million of new output, an added $32.1 million in total incomes, $34.3 million in value added and 1,430 full-time employment. These increases are directly related to the continued marketing of Chilean salmon.
Because much of the growth is attributed to impacts all along the marketing channel, direct impacts are felt in many industrial sectors nationwide, and when the indirect (supporting industry) impacts are measured, many of the 528 industrial sectors detailed in the IMPLAN model are impacted positively. Indirect (Supporting Industry) Economic Impact (Table IV) While the final consumers are creating the demand for services of businesses directly involved in fresh Atlantic salmon marketing, those directly impacted businesses are creating a "derived demand" for inputs into their operations from their support industries. As discussed above, the "backward" linking of the direct sector by its purchases of productive inputs generates the economic multiplier effects. The IMPLAN model has specifically quantified these indirect or multiplier coefficients for the same regions studied here, thus generating the impact measures used for this analysis. In Dade County in 1996, the direct businesses generated multiple spending for other local businesses. These indirect impacts were an estimated additional $13.9 million in output locally, an additional $7.2 million in income, $8.2 million in value added by support businesses and another 197 full-time employment. Additional indirect impacts in Florida in 1996 were $24.8 million in output, $10.3 million in income, $11.4 in value added, and 648 full-time employment. As the economic base multipliers expand the local and state economies, they also broaden the impacts nationally. For 1996, indirect impacts nationwide were $153.4 million in output, $66.3 million in income, $71.8 million in value added and additional domestic full-time employment of 1,572.
Direct impacts are added to the indirect impacts to arrive at the total economic impacts in Dade County related to the marketing and distribution of fresh Atlantic salmon from Chile. Combining the direct and indirect impacts the product’s industry generated
a total economic impact on the U.S. of $390 million in output, $176 million
in income, $194 million in value added, and 7,627 full time employment.
Biases in the Estimated Impacts Any estimate of economic impacts is only as good as the basic information which is fed into the input-output model. In performing this research, the best available information was used to attempt to fully characterize the level and mix of spending and employment generated in conjunction with the marketing and consumption of fresh, Chilean Atlantic salmon products in the local, regional and national economies. The investigators have remained cautious not to artificially bias the estimated economic activity upward with unrealistic or unfounded assumptions. To maintain the integrity of this study, we have been careful to impart a downward bias to the estimated activity arising from the use of Chilean salmon products in the U.S. Several examples of the caution we have taken in generating our estimates of the economic impact are given here:
Direct employment is the number of employees producing the total output in each sector. Direct Impacts are measured in terms of employments, the wages, rents and other income in all stages of production within the industry. Direct Income is the wages and salaries earned by employees within the sector. Impact multiplier is a measure of the direct and indirect impacts resulting from purchases of raw materials and labor due to changes in final demand for a sector’s products. In general the greater a sector’s dependence upon other state industries for raw materials and services, the larger the impact multiplier. Indirect impacts are created through the sale of materials and services to the industry by other state industries. Induced impacts arise from the spending by employees in a primary (direct) or support (indirect) industry. The employee spending takes place throughout the studied region’s economy through retail purchases, financing, and sales of added goods and services. Total economic activity for a sector is the sum of total output and the output generated in other sectors of the state economy due to the indirect and induced impacts. Total employment is the sum of direct, indirect and induced employment. It is expressed in "full-time employment" (FTE). An FTE could be made up of, for example, 12 people working one month each. Total income is the sum of direct income earned by employees in each sector and the income generated in other sectors due to indirect and induced effects. Total output for a sector is the sum of in-state sales and exports. This is measured in terms of dollar value of each sector’s sales to final demand. Value added provides a measure of the wages, interest, rent, and profit earned by employees and owners of firms within each sector.
The quantity and value of imported "subject salmon" ( as defined by HTS Codes: 302120003, 304104091 Federal Register/ Vol. 62. No. 131`/ Wednesday July 9, 1997 page 36773 Scope of Investigation) were obtained from two primary sources:
The USDOC’s NMFS "Annual TRADE By Product Group and Country: (http://remora.sspnmfs.gov/ows-bintest/trade_cntry_prdct.sh)(2) reported imports of subject salmon into the Miami Customs District in 1996 of $102,993,572 compared to the U.S. total of $111,047,395 (93%) similar comparison of the quantity of subject product imports shows the same relationship i.e. imported lb. Miami = 54,496,594/imported lb. U.S. = 58,499,415 (93%). Modeling consideration was given the direct impacts in Dade County, Florida and for the state of Florida to address the relative consumption of seafoods and finfish in Florida. Florida’s consumption of seafood is 2.46 times greater per capita than the U.S. average. (10) Dade Counties seafood sales are 2.0 times greater per capita than the Florida average. (7) Based upon these facts salmon consumption portions of the U.S. retail sector were "shared down" through Florida and Dade County based upon a "location quotients" approach relating the consumption rates to percapita consumption nationwide, and the seafood sales rates percapita in Dade County relative to the State of Florida.
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