The Economic Impact of the Horse Industry Essay Example for Free

The Economic Impact of the Horse Industry Essay People often view the equine industry as nothing more than simply an expensive hobby. However, in actuality it is far more than just that. The horse industry has an enormous impact on the United States economy and covers a vast horizon of different areas. From top-notch Thoroughbred racing to the simplicity of a backyard companion horse, the industry provides about 460,000 full-time equivalent jobs and has a direct economic effect on the United States of about 39 billion dollars annually. After taking into account the money multiplier effect of spending by suppliers and employees in the industry, this number grows even larger to create about 1. 4 million full-time equivalent jobs nationally with a 102 billion dollar annual impact on the United States economy (â€Å"National Economic Impact†). Studies show that the equine industry has a direct effect on gross domestic product (GDP) in the United States. Between the different areas of the horse business, including but not limited to racing, showing, and leisurely riding, about 38.8 billion dollars of goods and services are produced, leaving an impact of 101.5 billion dollars on US GDP. Taxes paid by the equine industry also affect the economy in the United States, with approximately 1.9 billion dollars total in taxes coming from this industry. Federal taxes amount to 588 million dollars, state taxes are 1,017 million dollars, and last but not least, local taxes are equal to 275 million dollars (â€Å"National Economic Impact†). Many studies have been done in different states to determine the economic impact of the horse industry, including a study from the Rutgers Equine Science Center (â€Å"New Jersey Equine†), a study from Alabama AM and Auburn Universities (McCall, Molnar, Pendergrass, and Broadway), and a study conducted by the University of Virginia Weldon Cooper Center for Public Service (â€Å"Virginia Horse Industry†). The state of Arizona even went as far as to hold an event regarding the equine economic impact. The event, titled â€Å"the Economic Impact of the Equine Industry in Arizona†, was held in February of 2012 and government officials from all over the country attended. The Arizona horse industry amounts to a 1.8 billion dollar industry and provides the opportunity to bring in many new equine-related companies into the state. There were many different topics covered at the event, including the WestWorld Equidome expansion project and ways to carry more rodeo locations into the state. There was also discussion of an equine property tax bill that was recently passed by the state. The bill relieves equine businesses from extreme property taxes by categorizing them under agricultural businesses. The great impact of the Quarter Horse, Arabian, and Thoroughbred associations was also discussed at the event, determining that their effects on the US economy are approximately 4.5 million dollars, 52 million dollars, and 134 million dollars respectively (â€Å"Arizona State Officials†). Other states have also taken measures and actions to determine the effect of the equine industry on each state. Rutgers University conducted a study in 2007 determining the economic effect of horses in the state of New Jersey. They determined that the industry had a total economic impact of 1.1 billion dollars each year, taking into account racing-related operations not including racetracks, non-racing operations, equine owners without operations, and New Jersey racetracks. The industry creates 13,000 jobs in the US, between jobs generated by racetracks and jobs not generated by racetracks. About 160 million dollars is paid annual in taxes by the New Jersey equine industry (â€Å"New Jersey Equine† 1). It is definitely evident that New Jersey racing operations have the most economic impact on the state, accounting for a total economic impact of 278.2 million dollars out of the 647 million dollar total economic impact from all equine operations and owners. Non-racing operations come in a close second with an impact of 262.4 million dollars and horse owners falls in last with an impact of 117.8 million dollars. Annually, New Jersey race tracks impact the economy of the state by 502.3 million dollars (â€Å"New Jersey Equine† 2). The expenses of horses are numerous, including but not limited to equipment purchase and depreciation, capital improvements, health, training fees, boarding fees, feed, taxes, farrier, etc. These expenses total around 376.8 million dollars a year in the state of New Jersey (â€Å"New Jersey Equine† 3). Rutgers University was not the only university to complete a study on the impact of the equine industry in a specific state. Alabama AM and Auburn Universities also partook in their own study in 1993 with the intention of pointing out the importance of the equine industry in Alabama. There are quite a few different horse-based activities in Alabama, categorized by locality (horse clubs and groups not based on breed), sport (groups generally open to any breed formed by riders with a common interest in a specific horse sport), and breed (groups open to one specific breed for many different horse sports) (McCall, Molnar, Pendergrass, and Broadway 1). To determine the economic impact of the horse industry in Alabama, the study uses the direct impact, which is the actual dollars spent, and the aggregate impact, which is the direct impact multiplied by an income multiplier (which for this study, was 2.9). In laymen’s terms, for every one dollar of direct impact, there would be 2.90 dollars of aggregate impact. An employment multiplier was also used, concluding that for every job created in the equine industry, 1.74 jobs are created through the economy. Expenses for horses are one way that the industry affects the economy. Expenses for showing horses totaled 11,005 dollars per horse, for racing horses totaled 15,390 dollars per horse, and for recreational horses totaled 3,140 dollars per horse. The expenses calculated are the chief ways that equines impact the economy (McCall, Molnar, Pendergrass, and Broadway 2). The horse industry also generates a great deal of tourism in Alabama. Owners of show horses spend approximately 1,500 dollars for every horse when travelling to shows. The direct impact of equine tourism equals 9.7 million dollars. Spectators at equine events, such as rodeos, shows, and horse races also generate money and impact the economy by about 4.2 million dollars. The race tracks in Alabama generate about 42.6 million dollars, with about one quarter of the money won from races going to horse owners and trainers in the state (McCall, Molnar, Pendergrass, and Broadway 3). According to the study, four percent of the â€Å"pari-mutuel handle† is paid in taxes (McCall, Molnar, Penderg rass, and Broadway 4). In addition to the tourism brought into Alabama, the horse industry also impacts Alabama employment, creating a great number of jobs. Racing stables, showing stables, breeding stables, and recreational horse owners all contribute available employment positions to the state. Around 2,000 to 2,800 full-time job equivalent positions are created on account of the horse industry and the aggregate employment is equal to around 3,480 to 4,872 jobs in the state. In total, the aggregate impact of the horse industry on Alabama’s economy is estimated to be 1.6 billion dollars. It is evident, as stated in this study, that the horse industry is extremely important to the economy and that it should not be disregarded when determining key parts of the economy (McCall, Molnar, Pendergrass, and Broadway 4). The University of Virginia Weldon Cooper Center for Public Service is yet another university that conducted a study on the economic impact of the horse industry. It was determined that the yearly economic impact of the horse industry in the state of Virginia was equal to 1.2 billion dollars. Economist Dr. Terance Rephann gave his opinion on the economic importance of the horse industry, stating that the industry creates â€Å"a very positive effect on jobs, recreation, tourism, retail sales and state and local taxation†. Just as in New Jersey and Alabama, the Virginia horse industry creates a great deal of employment within the state and brings in about 65.3 million dollars in state and local taxes. In 2010, over 16,000 jobs were created in Virginia due to the equine industry. Horse shows are a large part of the industry, bringing in about 25 million dollars in revenue in 2010 (â€Å"Virginia Horse Industry†). The substantial amount of revenue, tax money, employment opportunities, and the total aggregate impact of equines in the three different states mentioned above clearly show that the horse industry is quite an important par t of our country’s economy. The industry greatly affects the United States economy in so many different ways. From the 13,000 jobs created by the industry in New Jersey (â€Å"New Jersey Equine† 1), to the 9.7 million dollars generated from tourism created by the industry in Alabama (McCall, Molnar, Pendergrass, and Broadway), to the 1.2 billion dollar economic impact that the industry has on Virginia’s economy annually, it is obvious to see that though many people view equestrian sports as nothing but a hobby, it is far more than just that. In the wise words of Matthew J. Lohr, The Virginia Department of Agriculture and Consumer Services’ commissioner: â€Å"Horses add so much to our lives on a personal level, but when I look at the big picture, I see just how much they contribute to our state’s economic well-being, as well† (â€Å"Virginia Horse Industry†). Breeding is a large part of the equine industry and the rules and regulations of the breeding process vary with the price elasticity of demand for foals. Artificial insemination, which is the act of artificially placing semen into a mare to impregnate her, is a popular breeding technology that has suffered through great debate of whether or not it should be accepted in certain breeds or horses. Regulation for the use of artificial insemination technologies is an example of a breeding process that varies with the price elasticity demand for foals. In breeds with a price inelastic demand for foals, it is probable that the practice of artificial insemination will be regulated. Oftentimes, with certain circumstances, cartel agreements may arise between industry members for an intervention of government regulation in the breeding industry. The act of this government regulation raises prices and incomes in the industry (Ray 1). Breed registries are an example of cartels that limit the supply of horses. Horse owners of horses of a specific breed may choose to register their animals with that breed’s registry. These breed registries gi ve owners an economic advantage over other owners whose horses are not registered with any breed. Part of the money made from memberships is spent on promoting a specific breed and advertising the breed registry (Ray 3). Oftentimes stallion owners partake in price and non-price competition. Breeding farms are extremely big on advertising and price for studs range from hundreds to millions of dollars. Because of this, the equine breeding industry can be categorized under the monopolistically competitive industries (Ray 3). In the past, most breed associations have shunned the idea of artificial insemination. Breed registries can tend to be extremely strict on their regulation of breeding techniques, and many times registries will have rules against artificial insemination. Horses that have been artificially inseminated are often banned from competition in certain breed events, which prevents them from ever having any improvement economically. Though many breed registries do not allow the use of artificial insemination, there are a few that are far more tolerant to it (Ray 2). Generally, the breed registries that forbid the use of artificial insemination feel that the practice of it could be a thread to the quality and pureness of the breed. However, there are many economic costs and benefits that contribute to each breed registry’s decision on the regulation of artificial insemination (Ray 4). There are quite a few economic advantages to the use of artificial insemination technology for breeding. While live cover breeding methods can only impregnate one mare for every one ejaculation from a stallion, the use of artificial insemination makes it possible to impregnate fifteen to eighteen mares for every one ejaculation. This means that one stallion can be used to impregnate more mares through the use of this technology, which reduces the risk of overworking a stallion throughout the breeding season. Using artificial insemination also allows a breeder to more efficiently use semen to inseminate a mare during her ovulation period. This reduces the amount of veterinary and breeder labor required to impregnate a mare. In addition to this, naturally breeding can be a very dangerous process for the horses. Artificial insemination provides a much safer way of breeding. Finally, it is far simpler, less expensive, and much less dangerous to ship out frozen semen rather than to transport the mares to the stallions (Ray 4). In short, this all means that the use of artificial insemination technologies reduces the costs of production and transportation of breeding. From an economic standpoint, the cost of breeding decreases due to the use of artificial insemination, and so the supply of foals increases. This causes market prices to decrease and the number of horses produced and sold to increase. As a result of this, total revenue will increase, decrease, or remain the same, depending on the price elasticity of demand for new foals. If the demand for a specific breed is inelastic, artificial insemination will cause breeders’ total revenue to decrease. However, if the demand for a specific breed is elastic, artificial insemination will cause breeders’ total revenue to increase. Elasticity of a breed can be determined by the task the breed is used for. The more specific the task, the less substitutability there is for the breed, causing the breed to have a more price inelastic demand. An example of this is the Thoroughbred registry. Artificial insemination is banned by this registry because the demand for Thoroughbreds is very price inelastic, since this breed is the only one to run in races such as the Kentucky Derby (Ray 5). The decision of a breed registry to regulate or not regulate the use of artificial insemination is dependent on the costs and benefits of the use of the technology. When the costs of artificial insemination exceed the benefits, the registry will regulate the use of the technology. Regulation can be determined by the theory of cartels. This theory helps to determine supply and demand curves and indicates that the regulation of artificial insemination is dependent upon multiple different aspects of a monopolistically competitive market, including but not limited to price elasticity of demand and the number of people that will possibly benefit from regulation. Generally speaking, the size of the breed registry determines the amount of the benefits of regulation of artificial insemination. If the breed industry is large, there will be less benefits of regulating artificial insemination, which causes regulation to decrease. In summation, the regulation of artificial insemination breeding technologies is primarily determined by the price elasticity of demand for foals of the specific breed and by the costs and benefits of regulating the technology. (Ray 6). Horse race gambling greatly contributes to the United States economy. In 1997, purse awards in California totaled 136 million dollars and the total pari-mutuel handle was equal to around three billion dollars. California race tracks receive large sums of money each year as breeding incentives. This money comes from the pari-mutuel handle (Smith 1756). It is believed that both the quantity and quality of race horses affects the demand for gambling on race horses (Smith 1755). Breeding incentives given to race tracks have a huge effect on the product that comes out of the race track. Attendance at the race track and the pari-mutuel handle are the two factors that determine demand. The quality and quantity of the horses racing affect both of these factors, and so affect the demand for horse race gambling (Smith 1758). Not only does horse racing affect gambling, gambling also affects horse racing. Many race tracks are going out of business as a result of local casinos (Zengerle 20). The argument at hand now is whether or not to introduce slot machines to race tracks, creating â€Å"racinos†. It is argued that adding slot machines to the track will bring in more business because it will give customers at the track a variety. The Kentucky horse racing industry has been fighting hard for the introduction of slot machines in race tracks. The industry has lobbied legislators and spent one million dollars in support of slot machines. The lobbying and money spent has paid off. The public is now in support of slot machines being added to race tracks and, on the legislative side, a slots bill was passed for the first time (Zengerle 21). One of the main reasons that Kentucky is fighting so hard for slot machines in their race tracks is because of their 500 million dollar budget deficit. Slot machines would create 300 million dollars in tax revenue each year, which would greatly help the budget deficit being faced by the state. Introducing slot machines to the tracks would bring about many fiscal benefits; however, they may not be great for the horse industry. According to Arthur Hancock, slots will make lots of money for people in the short term, â€Å"but in the long term†¦they’ll be bad for the horse business† (Zengerle 21). However, the introduction of alternate gambling games has been proven to save race tracks. In example, Mountaineer race track was on the brink of going out of business, but the introduction of video gaming at racetracks has caused the company to rank seventh on Forbes list of the best small businesses in America (Zengerle 23). Though introducing slot machines to Kentucky’s race tracks could be bad for the horse industry in the long run, it could greatly help to rid the state of its large budget deficit. Though for many people, horse racing is simply nothing but a fun sport to watch, for Kenny A. Troutt, co-owner of WinStar Farm and Thoroughbred breeder, it is an economic investment that has helped to escalate him to a billionaire (Lee 1). Many people involved in the race horse industry do not believe that you can make much money off it and are just in it for fun and for the thrill of a day at the races. However, Troutt is a completely different case. His primary goal with WinStar Farm is to make money. He has created business plans and budget projects and holds mont hly meetings to discuss the costs of breeding and to determine any ways to lower costs and become more efficient. By using a database, Troutt determines the price returns of each and every horse by taking into account all money and time spent on the horse (Lee 2). Troutt has spent over 70 million dollars on his farm. He has set aside a select number of mares whose foals are automatically sold. One of these foals was Funny Cide, out of a stallion named Distorted Humor, who is owned by WinStar Farm. Funny Cide was a contender for the Triple Crown, and though he did not win, simply the fact that he came close was enough to double Distorted Humor’s stud fee, which was already 20,000 dollars. Though most Thoroughbred farms generate about a five to ten percent return each year after ten years, Troutt believes that he will make profits in only five years. In the past, horse racing was never about making a profit. However, in the words of Kenny A. Troutt: â€Å"I am convinced you can make a lot of money doing this†. Taking into account some simple ideas of economics and business, he may pr ove this to be true as he claims that his farm has become â€Å"cash flow positive† after only being open for two years (Lee 3). Not only does the horse industry have a great impact on the United States economy, but the economy also has a great impact on the horse industry. There has recently been a large increase in the number of unwanted horses in the United States, and one of the reasons for this problem is the current economic recession. Horses are extremely expensive to keep, averaging around 1500 to 2000 dollars a year per horse and with the economy in the poor state that it is currently in, many horse owners can no longer afford to care for their horses (Lewis). Prices of hay and fuel are extremely high and with the current recession, many horses are being succumbed to starvation and neglect. Many abandoned horses are eventually euthanized because horse rescues cannot afford to continue to feed them and medically care for them. Sick horses at the rescue are the first to be euthanized, because it comes down to a choice between feeding a healthy horse and feeding a sick horse (â€Å"More Horses Starve†). Horses are extremely expensive to keep, between the costs of feed, veterinary care, farrier and dental services. In this bad economy, it is hard to keep up with the costs of horse ownerships, and this causes the sale of horses to also be difficult (â€Å"Economy, Weather, and Law†). The Texas horse industry is such a large business that it is close to equal to the Texas cotton industry. Unfortunately, the Texas horse industry is in a severe catastrophe due to the state of the economy. Owners are finding it difficult to feed and water their horses, for â€Å"forage and even water are in short supply†, according to Dr. Dennis Sigler. Large round bales of hay are selling for over 145 dollars and in this struggling economy, horse owners are having a very hard time coming up with the money to supply food to their horses. State assistance could potentially help this problem, however state budgets have been frozen and there is a large burden for states to cut back on spending. The current economic recession has a huge effect on the horse industry and is accountable for the growing number of starving and unwanted horses in the United States (Hawkes). The equine industry in the United States clearly has a great impact on the economy, and likewise the economy on the equine industry. Breeding businesses, breeding technologies, race tracks, gambling, and unwanted horse issues all affect the economy and are affected by the economy. The industry provides so much revenue and a large number of jobs in the United States. The national horse industry has a 7 billion dollar impact on the California economy, a 5.1 billion dollar impact on the Florida economy, a 3.5 billion dollar impact on the Kentucky economy, and a 5.2 billion dollar impact on the Texas economy. The California horse industry creates 54,200 full time equivalent jobs. The Florida horse industry creates 38,300 full time equivalent jobs. The Kentucky horse industry creates 51,900 full time equivalent jobs. The Texas horse industry creates 32,200 full time equivalent jobs (â€Å"State Breakout Studies†). All in all, the horse industry has a 39 billion dollar yearly economic effect on the United States and creates 460,000 full time equivalent jobs (â€Å"National Economic Impact†). This industry is far more than just a hobby and is extremely important to the United States economy. Works Cited Arizona State Officials Join Arizona Horse Council (AzHC) at Equine Economic Impact Event PR.com. PR.com: Directory of Businesses Jobs Press Releases Products Services Articles Find Companies. N.p., n.d. Web. 22 Mar. 2012. http://www.pr.com/press-release/390430. â€Å"Economy, Weather the Law Contribute to Starving Horse Cases.† KSEE 24 News. Web. 22 Mar. 2012. http://www.ksee24.com/news/local/HorsesJWI-139755153.html. Hawkes, Logan. Texas Horse Industry Crisis Looms. Southwest Farm Press 38.23 (2011): 18. Academic Search Premier. Web. 26 Mar. 2012. Lee, Josephine. â€Å"Arriviste†. 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