Inter-sectoral relationships in the Texas cotton industry

The Texas cotton industry consists of producers, gins, merchants, warehouses, cottonseed oil mills, textile mills, and a host of other agribusinesses that supply these sectors with inputs. These individual sectors provide different services, but are linked together because they all depend on cotton (in one form or another) for their existence. Cotton production uncertainties, stemming from production variability and the changing structure of farm programs, raise the question of identifying the effects of changes in the production sector on agribusinesses that depend on cotton for their operations and also analyzing how changes in these agribusinesses may affect the cotton production sector of Texas. The general objective of this research was to identify and quantify the economic interrelationships between the production and agribusiness sectors of the Texas cotton industry.

A multi-sectoral econometric model was developed that represented each sector of the Texas cotton industry and their interrelationships. This study further quantified the economic interdependence between the production and agribusiness sectors. Results of the research suggested that the total revenue and marketing margin of each agribusiness sector is affected by changes in the production sector. Further, the total revenue of the production sector is also considerably affected by changes in these agribusiness sectors.

Results further indicated that an increase in either the ginning or the merchant/shipper marketing margins decreased the production sector's total revenues. An increase in the price paid by domestic textile mills and/or ports and Canada was found to increase the production sector's total revenue and the ginning sector's marketing margin and total revenue. However, the merchant/shipper sector was not affected by a change in the price paid by domestic textile mills and/or ports and Canada.

Many previous research concerning agricultural commodities have typically taken the approach of addressing an individual sector independent of the other sectors of the industry. Results of this study clearly demonstrate the efficacy of multi-sectoral or a systems approach in agricultural research. It further suggests that consideration of the far reaching effects of changes in one sector on another sector of an industry should be taken into consideration when governmental policies are evaluated and implemented.