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Courtesy of National Hog Farmer

Prestage plant net gain for Iowa

Value-added agriculture fuels economic growth locally and statewide

Cheryl Day 2 | Mar 28, 2017

 Prestage Farm truck

Iowa is becoming more globally dependent, especially as it welcomes new business like Prestage Foods pork processing plant to the northern part of the state. That’s a strategic move that Creighton University economics professor Ernie Goss says is smart for Iowa’s future.For economists, “it is always exciting to see actual production – something that people eat, wear or use,” notes Goss.

The Prestage plant is a net gain of $13 million in annual state and local tax collections for the surrounding ten counties and the state overall, according to a comprehensive report conducted by Goss. He presented the results of economic analysis for the plant being built south of Eagle Grove, Iowa, at several forums last week. The ten counties considered in the report are Calhoun, Franklin, Hamilton, Hardin, Humboldt, Kossuth, Palo Alto, Pocahontas, Webster and Wright.

Goss explains the region’s shrinking population and dense livestock population are clear economic signals that greater development is needed for the area. These counties have seen a significant decrease in population and employment compared to the rest of Iowa and the entire United States. While the number of farms has grown in the area, the non-agriculture and manufacturer enterprises have not. Regarding livestock production, this region almost 30 times the concentration of the United States and even higher than the rest of Iowa without the presence of a processing facility.

Examining the regional economic impact from construction through one year of operation, overall sales in the region would increase by $1.7 billion in the first 36 months. Between construction of the plant and the first year of operation, a total of approximately $46 million will be collected in state and local taxes alone.

A true boost for the area is the substantial increase in new jobs. “Direct jobs, you’re talking about at least on the first shift, 900 to 1,000 jobs at the facility itself. When you take into account the spillover jobs in the 10-county area, you’re in the neighborhood of 3,072 total jobs, so that’s quite significant.  (That does not even include the plant construction jobs),” states Goss.

Still, new business development does translate to an increase in $32.7 million annual costs for the local communities. New jobs bring new families to the region which increases the number of children in schools, requiring more teachers. The cost was calculated at $21 million for the period.

Moreover, an increase in government dollars will be necessary for the additional police and fire protection. According to the study, the cost is penciled at $1.3 million for the first 36 months. More trucks on the highway will mean an additional $8 billion spent on roads and other infrastructure.

Benefitting hog producers

The largest surprise to Goss in completing the all-inclusive study was the lack of processing plants in the region. In terms of pork production, the region produces 25 times more than the rest of the United States with one-fifth the processing capacity. Basically, the pigs are being shipped many miles and across state lines to be processed.

For the 811 hog farms in the 10-county area, local access to new global market opportunities may compute to increased revenue streams. According to the Prestage family, in the first year of production 40% of the hogs will be purchased from independent hog farmers with the goal to market the pork products worldwide.

According to the report, hog prices are estimated to grow by 3.5% with $724 per farm boost annually for the operations in the region. The true cost saver is the reduction in transportation costs, projected at $16,000 per farm.

Nationwide, packing capacity is extremely tight as America’s pig farmers send a record number of hogs to market. Last year’s commercial hog slaughter reached 118.2 million head, surpassing the old record set in 2008. Market analysts forecast this year’s hog slaughter total will easily exceed 121 million hogs and may exceed 123 million head. As a result, there will be more hogs than shackle space.

The Iowa Prestage plant is one of five new processing facilities coming on line by 2018, increasing the U.S. packing capacity by 8%.

Construction is set to begin this spring and will take 18 to 21 months to complete. Once the plant is open for business, it will process 50,000 pigs a week. At first, Prestage Farms will supply 30,000 of the pigs to the plant, and the remainder will be purchased from independent producers. If the plant goes to a second shift, then the additional pigs will also be purchased from independent producers in the Upper Midwest.

Value-added agriculture fuels economic growth locally and statewide. That is a real value of the Prestage pork plant to Iowa. “The future looks very bright. Although farm income is down for the fourth year in a row, looking long-term value-added agriculture and agriculture is the place to be,” concludes Goss.

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