Establishing a new industry

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    jenny
    I-O analysis looks at backward linkages only, so increased demand for locally produced forest products will have the same local effect regardless of who demands those products – the forestry industry will have to increase its production by the same amount, regardless of where the increased demand came from. So there is no need to edit the forestry sector or create a special biomass sector unless you have detailed information on the production function of the biomass sector and how that might differ from the more general forestry sector. In order to avoid double-counting the impact on the forestry sector when capturing the forward linkages on the processing sector, you will need to adjust the spending pattern for the processing sector so that it does not purchase anything from the forestry sector (the increased demand for forestry products has already been accounted for in your separate impact on the forestry sector. To do this, you will run this as an analysis-by-parts: 1. Go to Activity Options > Import > Industry Spending Pattern and select the processing sector. 2. Write down the coefficient for forest products, then set it to 0. Add the coefficient that you just took out of forest products and add it to the coefficient for non-comparable imports. This way, the Sum of Event Values remains the same – the industry is still purchasing the same amount of inputs, its just that the forestry part of those inputs is now coming from imports. 3. Click Edit Activity and set the Activity Level to the entire Output of the processing sector/firm. 4. You will then need to run a Labor Income Change activity to capture the payroll portion of the impact. There are tutorials for analysis-by-parts in our online Knowledge Base and many forum discussions on the topic. When editing the study area data for a sector, there is no need to zero out the industry data first before putting in your project data. If you know how much will be spent in each year, it would be preferable to run each year’s events separately. If you only have total expenditure/employment values, it is fine to run the entire amount in one year - you would just want to be sure to note in your report that the results are not annual impacts, but rather would be spread across the life of the project.
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    acarlson
    Thank you very much for the response. A few follow up questions based on your response: Regarding the biomass production, you indicated that there is no need to edit the forestry sector or create a special biomass sector unless I have detailed information on the production function of the biomass sector. We do have a detailed production and financial model for the biomass production component. Can you please elaborate on the input components that would be needed. Further, this would be a new investment made and managed independently from any existing forestry in the state. Will the labor, output, and other impacts be captured appropriately if we just increase demand for locally produced forest products? Regarding the analysis by parts, I understand that we do not want to double count and have duplicate impacts on the forestry sector, but I am unclear as to why the forestry part of those inputs and the associated co-efficient is "non-comparable imports". Can you please elaborate as to why the biomass feedstock produced in-state would be considered an import? Thank you again and I look forward to hearing from you.
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    jenny
    An industry’s production function is the list and expenditure amount of all inputs (goods and services) required to produce its output. When you say you have a detailed production and financial model, does this include input purchases? If so, you can create your own sector or modify the existing sector to reflect your purchasing data. The reason you do not want the processing sector to purchase anything from the forestry sector is because you are already modeling those purchases separately (in your impact on the forestry sector). You don’t want that impact to be in there twice. The reason for adding the coefficient into Non-comparable Imports after zeroing it out from Forestry is so that the “Sum of Event Values” (at the bottom of the Event Set-up screen) remains the same. Otherwise, the Sum of Event Values would decrease (by the amount of the Forestry coefficient). However, this really only matters if you are changing the underlying study area data for the sector – in which case a smaller Sum of Event Values would cause more money to be spent on Value-Added, which we wouldn’t want. When using an imported Industry Spending Pattern, it doesn’t really matter, since Value-Added is modeled separately. So you can skip that step if you’d like.
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    acarlson
    Thank you. I am approaching this by Building/Using an Industry's Spending Pattern. The guidance for this approach which uses a biodiesel plant as an example states that one should use the annual operating budget. I am working to model the impacts of feedstock establishment and growth over several years; the operating budget for each of the years varies (in some cases substantially) due to changing operational requirements year-to-year. Further, the project has additional capex for equipment leases, etc, which also varies by year. How would you recommend approaching the modeling considering to account for (varying) capex and the varying annual operating budget? Thanks again.
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    jenny
    You can run each year's operating budget as a separate event with a different Event Year for each (note, you must change the Event Year before entering a value). Capital expenditures must be modeled separately. As with the operating budget, you can model a separate amount for each year, first specifying the year with the Event Year property. This forum discussion should be helpful: http://implan.com/V4/index.php?option=com_kunena&func=view&catid=84&id=11237&Itemid=35 Please let us know if you have additional questions.
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    acarlson
    Thank you for the assistance. I am moving forward building and using an industry spending pattern. Regarding the operational budget, how would one account for property tax, agricultural overhead, and G&A? Thanks again.
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    jenny
    With regards to Overhead, the ERS describes it as consisting of items such as farm supplies, marketing containers, hand tools, power equipment, maintenance and repair of farm buildings, farm utilities, and general business expenses that cannot be directly attributed to a single farm enterprise. According to an economist from Colorado State University Extension, overhead costs could be looked at as a safety factor to make sure all costs are accounted for. For their “representative enterprise budgets” they will typically use a fixed dollar per acre or a percentage of the other direct operating costs to represent overhead costs. So unless you have more detail as to what the Overhead consists of, you may want to simply add it to the other operating costs you are running through the Industry Spending Pattern. G&A appears to consist of: General: general operating expenses and taxes that are directly related to the general operation of the company. Administration: Executive salaries and general support and all associated taxes related to the overall administration of the company When you use an Industry Spending Pattern, the results will not include the payroll or taxes paid by the company. If you can separate the salaries from the taxes in the G&A category, then you can: 1. Add the taxes component to your property tax value. These are part of the direct taxes paid by the firm. If you know the payroll taxes paid by the firm, those would also be included in the direct taxes. These direct taxes do not need to be run as a separate impact but can be included in the report as the direct tax impact. 2. Add the salaries component to your other known payroll values to be run through a Labor Income Change activity to get the induced impacts (the effects of the spending of those salaries). The total payroll amount could then be reported as the direct Employee Compensation impact.
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    acarlson
    Thank you. I am attempting to input each of the operational expenses - for example, land preparation, which I have found to be Industry Code/NAICS 319/423820 and have calculated the various coefficients. Can you please advise how to input each of the unique operational expenses as a Commodity Event? - as the Industry/NAICS codes do not seem to be available as options. Thank you.
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    jenny
    I'm not entirely sure what you mean when you say "the Industry/NAICS codes do not seem to be available as options", so please let me know if this response does not address your concerns. You can run these as a separate Commodity Change activity, with an event for each of the purchases. To create the new activity, click New Activity > Commodity Change, then give the Activity a name (e.g., "G&A"). Click on the new activity to highlight it, then click New Event and select the commodity of interest from the drop-down menu in the Sector column (e.g., 3319, Wholesale Trade). Note: When you use the Commodity Change activity type, a portion of these commodity purchases may be made from institutions (e.g., government, inventory). These purchases are treated as a leakage - i.e., they do not get applied to the multipliers because insitutions do not have multipliers associated with them. These purchases will show up in the "Direct Institution Change" box on the left-hand side in the Scenario Results screen. If you do not want to allow purchases from institutions, then you will want to use an Industry Change activity rather than a Commodity Change activity for these purchases.
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    acarlson
    Thank you. That is helpful. I am working to input all of the separate events (attempting to model it as a Commodity Change activity and then an Industry Change activity to see the degree of leakages). When I do a Sector Search for each of the items that I want to use as events through the Help function, I go to the screen that provides both the Industry Code and the NAICS code for that particular item. I was able to find codes for all of the events that I needed as the listings were quite precise. However, they do not appear to be the same codes used in the drop-down event menu under Sector. For example, when I search for fertilizer in the Sector Search the codes are 319/424910 respectively. However, when I scroll down the event drop-down menu fertilizer has a Sector code of 3130. Can you please explain the difference and if there is a way to efficiently search for / identify the appropriate sector codes in the drop down menu? If there is an item that has a code in Sector Search, but is not listed in the event drop-down menu (e.g. Land Preparation), what code should be used? Thank you again.
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    jenny
    The first thing to note is that the commoditiy codes match the sector code of the sector that is the primary producer of that commodity, plus 3000. E.g., the primary product of sector 56-Cheese manufacturing is Commodity 3056-Cheese. The next thing to note is that sector 319 is the Wholesale Trade sector - so it will contain a multitude of commodities. You will want to use the fertilizer commodity - commodity 3130. After entering the purchase value, you will want to apply margins (Event Options > Edit Event Properties > Margins > Yes) and set the LPP to the SAM Model Value (Event Options > Edit Event Properties > Local Purchase Percentage > Set to SAM Model Value). Then go to Event Options > Edit Event Properties > Margins > Edit and change the Margin for retail (3323) to 0 and click Re-Balance. Finally, set the % Local for wholesale (3319) to 1.00, put a checkmark in the "Fix Flow" box and then click Save. This way, you are purchasing the fertilizer from a local wholesaler, even if the fertilizer is not produced locally. Of course, if you're not sure where the fertilizer is purchased from, you can leave % Local for wholesale as-is. As for land preparation, the closest NAICS code would probably be 238910, Earth Moving. However, IMPLAN's construction sectors are based on census structure types rather than NAICS codes. Earth moving is involved in all of them. My suggestion would be to use the spending pattern for sector 35-[i]Construction of new non-residential manufacturing structures[/i], editing the spending pattern to pull out everything but equipment rental, refined petroleum, finance, and any other item you feel might be related to this part of the project.
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    acarlson
    Thank you. Is it the best approach to apply margins to all commodities. Also, would land rent be appropriately categorized under "Real estate buying, leasing, management"? Thank you.
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    jenny
    Yes - unless the purchase was made directly from the manufacturer (which is unlikely), any commodity that can be margined should be, using the approach outlined in post 11299. We recommend leaving the land rent out of the analysis, as land rental payments typically go straight to the landowner and it is typically not known where the landowner lives.
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    acarlson
    Thank you. I have modeled two commodity commodity change activities to represent the cultivation of two separate types of biomass. I am now proceeding with the modeling for two separate Labor Income Activities, one for each type of biomass. Can you please provide guidance regarding the proper steps to accurately model this and capture the impacts. (I have reviewed the biodiesel industry example, which used an Industry Spending Pattern Change Activity rather than a Commodity Change Activity, and am uncertain if the guidance there regarding the level of 0.50 etc applies in this case as well.) Also, any guidance you may have on proprietor income would also be appreciated. I understand that capital expenses need to be modeled separately as well. Understanding that these vary year on year as well, I would appreciate your guidance on the best way to account for changes in capital expenditure and working capital. Thank you again for your assistance.
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    jenny
    You want to set the value of the Labor Income Change to the loaded payroll (wages + benefits) of the biomass producers. If you don't have this information, you can use ratios from the study area data for that sector. Go to Customize > Study Area Data and select the appropriate biomass sector. Then calculate the Employee Compensation per Output. Finally, multiply this ratio by your known Sales value to get an estimate of the Employee Compensation associated with those sales. This will be the value you enter for the "Employee Compensation" Event of your Labor Income Change Activity. If you know that the processing plant will be making the biomass purchase from corporations, you do not need to have an accompanying "Proprietor Income" Event. If, however, you believe that some of the biomass purchases will come from proprietors (independent growers), then you will also want to have a "Proprietor Income" Event in your Labor Income Change Activity. The value for this Event can be calculated as above, but using a Proprietor Income per Output ratio.
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    acarlson
    Thank you. Under the Set Up Activity > Labor Income Change, do I set the Level to 1, 0.50 (as referenced in the biodiesel example), or the total value of the employee compensation? Further, would you recommend doing one Labor Income Change to include employee compensation for the production of both biomass types or doing two separate Labor Income Changes, one of each type? Also, how would you recommend accounting for varying capital expenditures and working capital? I will be duplicating biomass production in another county. The biomass from these two separate counties will be fed into a conversion facility in a third county. Would you recommend modeling each biomass production site and the conversion facility separately and then linking the models to analyze the impacts? If so, could you please provide guidance on the appropriate steps to do so? Thank you again.
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    jenny
    The Level for the Labor Income Activity in the biodiesel was set to 0.5 because in that example, the entire spending amount ($719,157,755), rather than just eh Employee Compensation portion of that spending, was entered into the Activity. You could do the same if instead of multiplying your sales figure by the calculated EC/Output ratio you instead just put in the entire sales figure as your Event value, then you would set the Level to your calculated EC/Output ratio. Either method would yield the same results. For "varying capital expenditures" you could use the ag sector investment pattern (Go to Options > Import > From Another Model, then navigate to the Utilities folder on your appliance and select the "Investment_Patterns_for_BEAIndustriy_MIG_Lib440" file, then select the sector of choice). I'm not sure exactly what is meant by "working capital" - it sounds like it could be unspent profits, in which case it would produce no impact. Yes - I would build 6 models. One of each county and then one of each 2-county combination. Then, run each individual county's impact as an MRIO linked to the appropriate 2-county model. However, you will want to use the Industry Spending Pattern + LI Change approach for the processing sector, editing the spending pattern so that it does not purchase biomass and specifying the Spending Pattern Level as the amount spent on non-biomass goods and services only (remember, you are already capturing the biomass expenditures with your two other activities).
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    acarlson
    Thank you. For labor, I do have total compensation. Therefore, is it correct to place the Activity Level at 1 for the Labor Income Change Activity? Regarding the capital expenditures, per your guidance, I have imported the Investment Spending Pattern. In this case, I have selected Agriculture, Construction and Mining equipment, rather than Crop Production. Please let me know which is the more appropriate choice in this case. The data year is from 2007. Is it possible to change that to 2010? Finally, do I then set the Activity Level to 1 or to the dollar amount of capital investment? Thank you, again.
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    jenny
    Your Investment Spending Pattern choice seems reasonable. Yes - you can change the Event Year for all the events by going to Event Options > Change All > Event Year. So long as your known dollar values represent 2010 dollars, then 2010 is the appropriate Event Year. In this case, you want to set the Activity Level to the investment dollar amount since the Event Values are in coefficient form (i.e., proportions of a dollar).
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    acarlson
    Thank you. Once I have a model constructed with all of the inputs, is it possible to switch the county and maintain all of the same parameters and save it as a separate model? Or, does one need to construct a new model completely from scratch?
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    jenny
    You can use File > Save As to save a copy of the entire model - impacts and all. Or, if you are just wanting to run the same impacts in other models, all you need to do is build the new model, then in the Setup Activities screen of the new model, go to Activity Options > Import > From Another Model. Navigate to your model that has the activities you wish to import and import the activities into the new model.
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    acarlson
    Following on our discussion, I have developed several separate models to allow for varying combinations of biomass production and conversion in different counties. I have developed three models including 1) biomass production based on annual operating costs, 2) biomass processing / conversion facility based on annual operating costs, and 3) CAPEX investment for the conversion facility using an industry spending pattern. (In this case, they are all occurring in the same county.) Can you please provide guidance on the best way to link the models in order to analyze the impacts and how to best assess the CAPEX impacts, understanding that these are initial investments that will not recur annually? Should they even be linked with the annual operating expenses for biomass production and the conversion facility or considered completely separate? Thank you.
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    jenny
    If county A is where the biomass production occurs and county B is where the processing and capex investment occurs, this is how I would handle it: 1. Build a model of county A and run the production as an MRIO impact linked to county B. 2. Build a model of county B and a. Run the processing as an MRIO impact linked to county A. b. Run the capex as an MRIO impact linked to county A. 3. Sum the impacts from 1 and 2a and report as recurring annual impacts 4. Report the impacts from 2b as a one-time impact Note that when viewing the scenario results of an MRIO analysis, the results that are automatically shown to you are for the directly-impacted region only. To see the results on the linked region, click on that region's model's name in the "Models Included" box on the left-hand side of the Scenario Results screen. There is no report for the combined impacts (i.e., you will need to sum them in Excel or wherever if you'd like to see the combined impacts).
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    acarlson
    Thank you. I presume the process of linking the separate models would be the same in a scenario where the biomass production, processing and capex investment all occur in the same county. Is that correct?
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    jenny
    Well, in that case you could still link any other study area to the original county to see the impacts on that other area (and to capture and feedback effects back to the original county) but you wouldn't need to build a second pair of linked models for running another impact. If county A is where all the action occurs but you would like to see the impacts that this activity has on county B, the steps would be as follows: 1. Build a model of county A a. Run the production and processing as an MRIO impact linked to county B. b. Run the capex as an MRIO impact linked to county B. 2. Report the impacts from 1a as annually recurring 3. Report the impacts from 1b as a one-time impact
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    acarlson
    Thank you. If all the action is happening in one county, would I simply add the impacts from the three separate models or do I need to incorporate the 3 components into one model for that county? Would the impacts be the same? (In this case, I am interested in the county and state impacts. I have incorporated the relevant county and state data sets into each of the three models.) Thanks again.
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    jenny
    When you say "three separate models" do you mean the three separate impacts (production, processing, and capex) or do you have three separate study areas, with all the activity taking place in one of those three study areas? No matter which other study area you link to county A, the direct impacts will be the same because they will still be occuring just in county A (the direct impacts would also be the same if you ran the analysis without linking any other study areas to county A). What will change will be the indirect and induced, depending on which other study area you link to county A and how much feedback there is between the two regions. You can report the results separately (i.e., here is the impact in county A and here is the impact in the rest of the state) or together (i.e., here is the impact in the entire state of this activity that takes place in county A). Note: you cannot link an entire state to a county that lies within that state, but you can link all the [i]other[/i] counties in that state to the one county. This of course requires you to have data for all the counties in a state.
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    acarlson
    The three models include 1) biomass production (including biomass production modeled as a commodity change/ labor modeled as a labor income change / and crop production capex as an industry spending pattern change), 2) conversion facility capex (modeled as a industry change), conversion facility opex + labor (with opex modeled as an industry spending pattern change and labor modeled as a labor income change). I want to analyze the impacts at both the county and state level. Thank you.
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    jenny
    1. To me, it seems that you have 2 models: one for the county and one for the state - please correct me if I am wrong. Do you mean that you have 3 impacts, all of which occur in one county? Or are you running each of these impacts in different copies of the same county model? Note that running impacts does not change the underlying data for the study area. 2. You do not need a separate Labor Income Change Activity unless you zero out the Employee Compensation and Proprietor Income fields when setting up the Commodity Change Activity - otherwise you are double-counting labor income. 3. In the case of conversion facility opex + labor, it is okay to have the separate Labor Income Change Activity since in this case you are using an Industry Spending Pattern rather than a Commodity Change Activity (an Industry Spending Pattern does not include expenditures on direct labor, while a Commodity Change Activity does). 4. If you'd like to run the impact at the state level, you will first want to edit the state model's study area data (Customize > Study Area Data) for the directly impacted sectors so that they have the same relationships (not values) as the county model - e.g., output per worker, income per worker. Otherwise, you would essentially be impacting a different sector. 5. Just to confirm, you are using the approach described in post 11180 to avoid double-counting of the biomass production? Since you are modeling the biomass production separately, you do not want to have the processing facility also increasing their purchases of biomass.
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    acarlson
    To the points below: 1. I have three models, each contain one country and the state data sets in the study area. Do I need to separate the two and just have the county data set incorporated? If so, what is the best way to remove the state data set from the existing model? 2. What is the best way to verify if Employee Compensation and Proprietor income have been zeroed out? If I eliminate the Labor income change activity here, would I then just add the total value of that labor to the level of the commodity change? 3. Okay; thank you. 4. This relates to point 1 above, but if I create new models with just the state data, can I just import the constructed activities and events into the new state models? 5. Yes. Thanks again.
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