Today’s Arizona encompasses lots of Cs

While Arizona’s legendary 5 Cs together claim a smaller piece of the state’s economic pie, their historical significance remains.

It’s true that four of the five — copper, cotton, cattle and citrus — have slipped in revenue-producing importance as the overall economy has evolved. The fifth, over which no one has any control — climate — continues to be a magnet, drawing tourists, businesses and new residents to the desert Southwest.

What’s more, experts say climate directly benefits cotton and citrus by guaranteeing longer growing seasons. Toss in such farm products as lettuce and lemons and you could include crops as another C.

In addition, the predictable climate, with the unlikelihood of hurricanes and earthquakes, is considered a factor in the growth of call and data centers that depend on having a reliable and uninterrupted energy source.

Even the worst aspect of climate, the insufferable heat, provides the soaring temperatures considered ideal for several automobile proving grounds. Maybe cars could be another C.

Robert Mittelstaedt, dean and professor of management at the W. P. Carey School of Business at ASU, and research Professor Lee McPheters, director of the JPMorgan Chase Economic Outlook Center at the ASU business school, agree that the 5 Cs represent an important part of Arizona’s history.

“They may be a smaller piece of the economy, but certainly it explains how we got to where we are,” Mittelstaedt says. “Look at the economies of the oldest cities in the East. For example, their economies were shaped by seaports and the textile industry that are not necessarily a big part of their lives any longer. I think the 5 Cs are important from a historic perspective. But, we also have to focus on where we go in the future and whether we build on those 5 Cs or whether it has to be something else.”

Because the 5 Cs are depicted in the state seal, they’re not likely to fade away. “I believe that knowledge of the 5 Cs is important to understanding Arizona’s history and previous stages of economic development,” McPheters says. “They were important from the earliest time of statehood. All are still important today, but their relative role has changed as the economy has evolved.”

Copper

From a historical perspective, McPheters says, copper exploration came first, dating back to the early territorial days when it is claimed that one in four people in the state was a miner. Employment in copper mining has declined over the years to about 10,000 as the industry has become more mechanized, thus requiring a better-educated workforce.

“Copper mining continues to be important to the state, as Arizona accounts for about 65 percent of national copper production,” McPheters says. “Copper is growing in importance as a component of electronic products, international demand is strong, particularly from China, and the outlook remains very favorable since copper is used across a range of technology-based products.”

But, copper accounts for just less than 2 percent of Arizona’s Gross State Product (GSP) and about half of 1 percent of Arizona employment.

“These are not large proportions, but the share has been stable and copper is important as an export that brings in outside dollars to the state,” McPheters says. “The value of copper produced in Arizona in 2010 was about $6 billion.

Mittelstaedt sees copper being more attractive — after having gone through a significant decline — now that world prices have risen. “Some mines are opening up again,” Mittelstaedt says, “so there is plenty of that natural resource here. But as is the case with any area or country that depends on extraction, there is not a lot of good evidence that depending on extraction is the way to bet on your future. Because of the size of the deposits, however, copper will be a part of our economy for a long time.”

Cotton/citrus

Cotton production in Arizona ramped up in the early 1900s and peaked in the mid-1950s at about 1 million bales.

“There is an interesting relationship between cotton and residential housing,” McPheters says. “As cotton producing land, with water rights, became higher valued for housing development, land and water were converted to residential housing, providing for strong population growth. Nonetheless, Arizona is still among the top 10 cotton-producing states.”

McPheters concludes that cotton remains a viable product, but its position in the overall Arizona economy, and relative to other farm products, has declined. As a result, cotton’s role in the $250 billion Arizona economy is relatively small.

Like cotton, citrus has been affected by urban development. There were fewer than 15,000 acres in citrus production in the state as of 2010. McPheters says Arizona still ranks among the top two or three states for lemon production, but the value of receipts is a relatively small $35 million. Revenues from lettuce are much greater, at $600 million. Arizona produces about 25 percent of the nation’s lettuce crop.

All combined agricultural products contribute about 0.8 percent to Arizona Gross State Product, a share that has been stable for some time.

Cattle

Cattle raised for beef also was a large source of revenue in the early 1900s, with about 1.5 million head. But the No. 1 source of farm revenue in Arizona is dairy products, linked to population growth.

“As population grows,” McPheters says, “there is a need to increase cattle, and it may eventually get back to levels of 100 years ago.”

Beef cattle production is second in importance in the state’s agricultural revenue stream. Dairy and beef yield about $650 million per year, while cotton is fifth at about $200 million.

Climate

Even before Arizona became a tourism mecca, climate was initially important because year-round sunshine made agriculture and cattle raising feasible. Starting in the 1920s, the state gained a reputation as a winter visitor destination.

According to the Arizona Office of Tourism, travel spending added about $7.3 billion to the GSP in 2011 and supported 157,700 direct jobs, plus an additional 135,300 secondary jobs for total employment impact of 293,000. The $7.3 billion is nearly 3 percent of the state GSP.

“Tourism is an important part of the Arizona economy,” McPheters says, “and as the national economy recovers, tourism should continue to improve.”

Mittelstaedt has a different take on the impact of the weather.

“People think of climate in terms of tourism,” Mittelstaedt says. “I think climate plays into another part of our economy, and that’s the growth of all the call centers and data centers that depend on a lack of tornados, hurricanes, and earthquakes, so that you get reliability of electrical and network infrastructure.”

Connections

He adds another C to the list — connections. “All data centers located here are connecting the world electronically,” he says.  “Look at all warehouses in the West Valley. We have become a logistics hub for a lot of things that flow through here from various other parts of the Southwest. Air transport is one of the big hubs in the Southwest.”

Other members of the connections family include TGen, the Translational Genomics Research Institute, and medical research institutions of the University of Arizona, Mayo Clinic and ASU.

“They are connecting science with applications,” Mittelstaedt says.

He adds Intel, which is manufacturing equipment that creates global electronic connections.

Certainly, computers would qualify as a C.

Curriculum

Yet another C, tied to the importance of education, is curriculum, Mittelstaedt says. He mentions ASU, one of the largest universities in the nation, and somewhat reluctantly, the University of Phoenix among the state’s higher education resources.

“We have a young, growing population, but not quite enough education resources,” Mittelstaedt says. “Look at the data centers, air transportation, genomics — that’s pretty high-tech. There are low-end jobs in there, too. Regardless, you need to have a better educated workforce, even for the original Cs of cotton, copper, cattle and citrus. In copper, those jobs originally didn’t require a lot of higher education. But the economy continues to evolve with more and more automation.

Even in growing crops, they’re using GPS (global positioning system) –mounted vehicles so they can drop fertilizer in the right places.”

Construction

McPheters says if he were to add another C to the list it would be construction. “Many observers believe Arizona should not rely on population expansion and construction to fuel growth,” McPheters says. “The state simply cannot grow without additions to infrastructure, commercial buildings, including office, medical and warehouses, and, of course, residential housing.”

Combined, construction and real estate account for 20 percent of the Arizona GSP, the largest contribution of any broadly specified industry. In addition, finance accounts for

8.8 percent; health care, 8.5 percent; and manufacturing, 8.1 percent.

“All of these industries have wages higher than average, so as they grow overall Arizona prosperity increases,” McPheters says. “Also, copper mining has higher than average wages as well, which is important in those local areas with mining activity.”

It would seem that cotton and citrus are two Cs that most people around the country would not associate with the Arizona desert, yet they are linked to the climate.

Mittelstaedt recalls driving with visitors north along the 101 Freeway as they passed verdant fields: “They ask, ‘What’s that?’ and I tell them, cotton. They’re growing Pima cotton. And their response is: ‘Wow. I didn’t know they grow cotton in Arizona.’ I think it adds interest and intrigue to the state. Because of the weather, we have these longer growing seasons.”

ASU has an executive MBA program in Shanghai and a staff person with the Arizona Commerce Authority working to see if agricultural ties with China are possible, the dean says.

“Agriculture may have another upside if it can be thought of as an export crop,” Mittelstaedt says. “If you grow more than you need, that benefits the economy. An Arizona grower is said to be one of the largest suppliers of lettuce for McDonald’s. There are opportunities to attract people to buy more land to develop and utilize for a variety of reasons, even with some of older Cs.”

Despite some slippage, McPheters says he doesn’t regard any of the Cs as particularly weak. Copper, cattle, cotton and citrus combined make up about 3 percent of the Arizona economy based on GSP, and climate/tourism adds another 3 percent.

“The major issue here is that, compared to the economy of the early 1900s, copper, cattle, cotton and citrus are less important since the economy has changed, as evidenced by the fact that 88 percent of Arizona jobs now are in service industries,” he says. “Nevertheless, Arizona’s production is among the leading states on each of the four resource-based Cs, and climate/tourism accounts for a large number of jobs and attracts outside dollars to the state.”

When someone mentions the 5 Cs to Mittelstaedt, what comes to mind is: “They’re more symbolic of history, but some aspects are still very relevant.”