Manufacturing Site Location Preferences of Small Agribusiness Firms

This study examined the perceived importance of site location characteristics identified in a 1999 survey of 198 small Tennessee agribusinesses. Responding firms ranked proximity to buyers/customers, labor and raw materials above other factors. However, the relative importance of all factors varied by industry subsector. For example, compared to food processing firms, textile milling and lumber/wood products firms perceived community incentives as less important. Projected firm growth and current location also affected the perceived importance of site location factors. The diversity of perceived factor importance across agribusiness subsectors supports the idea that incentives and promotion of site location factors to attract small agribusiness may need to be tailored to meet specific firms' needs. Background and Justification In Tennessee, as in many other states in the U.S., rural areas tend to experience higher unemployment rates and lower incomes than more urban areas. For example, in Tennessee, on average most rural counties have unemployment rates that are about twice that of urban counties (Tennessee Department of Labor and Workforce Development 2001). Lack of needed infrastructure or sufficiently large labor force may hamper industrial recruiting efforts into rural areas. States and communities may focus a portion of their industrial development and recruiting efforts on providing an attractive business environment to draw agribusiness, in some cases offering state or community incentive packages. In many cases, recruitment may focus on these industries because they offer the dual opportunities to enhance rural employment and to provide local outlets for raw commodities, enhancing the incomes of farmers or local resource owners. Value-added agribusiness firms also constitute a study area of special interest because, in many states, they may be the focus of industrial recruiting efforts by either departments of agriculture, departments of economic and community development, or both agencies. Furthermore, federal agencies, both through the Small Business Administration and USDA's Rural Development program, allocate program funds to provide services that aim at assisting small agribusiness firms. Factors that are important to value-added agribusiness in selecting site location can provide information that is useful to local and state economic and agribusiness development professionals, both in targeting industries for recruitment and in developing local resources necessary to attract value-added agribusiness. This study examines how small agribusiness firms select the site locations for processing or manufacturing facilities and also examines differences in these preferences across industry subsectors and firm characteristics. This study includes information from a 1999 survey of 198 small agribusiness firms located in Tennessee. Studies of Manufacturing Site Location Bartik (1989) examined the business location decisions of U.S. firms. Using secondary data on plant openings, closings, acquisitions, and divestitures, the study analyzed the effects of unionization, taxes, and other state characteristics. The study also examined the effects of workers' compensation insurance rates, road miles, existing manufacturing activity, wage rates, education level of the population, construction costs, population density, energy prices, and work stoppages. Findings from Bartik's (1985) study suggest that differences in unionization across states has a major impact on industrial location in the U.S. Findings also indicate that state and local taxes and public services have an influence on business location patterns. Bartik (1989) also examined influences on small business starts. Findings from this study suggest that small business starts depend on entrepreneurial opportunities created by high market demand relative to industry supply Bartik found that tax cuts have a modest influence on small business starts. …