Agriculture’s Contribution to Hawaii’s Economy—An Update

This publication updates and refines a previous study on the same subject (Agriculture’s Contribution to Hawaii’s Economy, CTAHR Economic Issues publica­ tion EI-2, February 2000). That publication emphasized that estimates of agriculture’s contributions vary depend­ ing on what is defined as agriculture and on the method­ ology used to develop the estimates. As we define it here, agriculture includes farm production, forestry, fisheries, agricultural services, and food processing (Table 1). Related distribution margins (transportation, wholesale, and retail) involved in delivering these agricultural prod­ ucts and services to the final consumers are also in­ cluded. As in the previous analysis, three measures of con­ tribution by an industry are used—industry sales, value added (industry’s gross state product), and employment. In the present analysis, we also include labor income. Industry sales value is the most common measure of economic activities. For example, the Hawaii Depart­ ment of Agriculture routinely reports the farmgate val­ ues of production agriculture. However, sales value does not provide a comprehensive measure of the contribu­ tion of an industry to the economy due to double count­ ing. Despite its double-counting problem, sales value measures the size of economic transactions of an indus­ try based on which sales taxes generally are collected. To avoid double counting, economists use the value­ added concept to measure the contribution of an indus­ try. An industry’s gross state product (GSP) is the value added in production by the labor and property utilized in the industry. It is equivalent to the value of produc­ tion minus the value of intermediate goods that produc­ ers buy from other producers. Alternately, it can be de­ fined as the sum of employees’ compensation, property­ type income (proprietors’ income, net interest, rental income, profits, and depreciation), and indirect business tax and nontax liability. Summing the value-added by all the industries in an economy, within a given time period (usually a year), gives the gross state product (GSP), a commonly accepted measure of the size of a state economy. GSP is often considered the state coun­ terpart of the nation’s gross domestic product (GDP).