South West Food & Drink An Economic Assessment of the Food and Drink Sector in the South West Autumn 2011

South West Food & DrinkSouth West Food & Drink

An Economic Assessment of the Food and Drink Sector in the South West

Autumn 2011

Supply Chain Toolkit ©SWFD 2011

ContentsContents

Introduction Sector Context Employment in F&D sectors Detailed Sector Breakdown

1. Primary Producers & Processors2. Food Machinery Manufacturers/F&D

Wholesalers3. F&D Retail4. F&D Related Services/Summary

Employment Trends GVA Trends

1. F&D Share of SW GVA2. SW F&D Share of UK F&D Output3. Current Prices4. Agricultural Output – Current vs Constant

Modelled GVA F&D Exports Projections, Forecasts & Aspirations

Introduction Sector Context Employment in F&D sectors Detailed Sector Breakdown

1. Primary Producers & Processors2. Food Machinery Manufacturers/F&D

Wholesalers3. F&D Retail4. F&D Related Services/Summary

Employment Trends GVA Trends

1. F&D Share of SW GVA2. SW F&D Share of UK F&D Output3. Current Prices4. Agricultural Output – Current vs Constant

Modelled GVA F&D Exports Projections, Forecasts & Aspirations

The original report from which this presentation has been put together was compiled for SWFD by Nigel Jump and Donald Barr, formerly of the South West of England Regional Development Agency (SWRDA) Economics and Evidence Team.

It is presented here as an element of the Developing Sustainable Food Chains Toolkit in order to provide context for economic development activity in the food and drink sector in the SW of England.

The original report from which this presentation has been put together was compiled for SWFD by Nigel Jump and Donald Barr, formerly of the South West of England Regional Development Agency (SWRDA) Economics and Evidence Team.

It is presented here as an element of the Developing Sustainable Food Chains Toolkit in order to provide context for economic development activity in the food and drink sector in the SW of England.


IntroductionIntroduction

F&D includes land based activities relating to agriculture and fishing, the process sectors in food and drink manufacturing, and the services industries, largely in distribution (wholesale and retail) and the broad area of leisure services

The SW F&D sectors reflect many of the broad strengths and weaknesses of the SW economy as a whole

There are many natural and human advantages to sector development in this part of the world that should make for a highly competitive F&D offer to markets at home and abroad

Across the various aspects of local and regional branding, from fresh to processed products of high quality, and from retail, business and visitor services, F&D has the potential to be a centre of SW activity that is nationally and internationally renowned

F&D includes land based activities relating to agriculture and fishing, the process sectors in food and drink manufacturing, and the services industries, largely in distribution (wholesale and retail) and the broad area of leisure services

The SW F&D sectors reflect many of the broad strengths and weaknesses of the SW economy as a whole

There are many natural and human advantages to sector development in this part of the world that should make for a highly competitive F&D offer to markets at home and abroad

Across the various aspects of local and regional branding, from fresh to processed products of high quality, and from retail, business and visitor services, F&D has the potential to be a centre of SW activity that is nationally and internationally renowned

The sector has made good progress in recent years and there is further capacity to continue this trend

The sector has made good progress in recent years and there is further capacity to continue this trend

In strategic terms, the F&D industries have a potentially powerful range of products,services and value to sell. It is important that SW businesses are able to develop these competitive and comparative advantages in a synchronised way within each sector supply chain: seeking to “co-operate to compete” in order to benefit from the economic reshaping that is now, of necessity, underway

In strategic terms, the F&D industries have a potentially powerful range of products,services and value to sell. It is important that SW businesses are able to develop these competitive and comparative advantages in a synchronised way within each sector supply chain: seeking to “co-operate to compete” in order to benefit from the economic reshaping that is now, of necessity, underway


Sector Context

Food & Drink is an important component of the SW Economy

In terms of output and employment it represents a significant part of the physical & industrial landscape

There are significant supply chain linkages to other industries, especially tourism and leisure, but also almost all aspects of production and services

Nearly 17% of all businesses in the SW are directly involved in growing, processing or distributing food & drink

A total of 282 000 people are employed in specialist food and drink companies – and 441 000 in food and drink related businesses

Food & Drink is an important component of the SW Economy

In terms of output and employment it represents a significant part of the physical & industrial landscape

There are significant supply chain linkages to other industries, especially tourism and leisure, but also almost all aspects of production and services

Nearly 17% of all businesses in the SW are directly involved in growing, processing or distributing food & drink

A total of 282 000 people are employed in specialist food and drink companies – and 441 000 in food and drink related businesses


Employment in Food & Drink SectorsEmployment in Food & Drink Sectors

11.5% of the SW’s employment is in specialist F&D sector activities (UK 9.9%)

4.4% of the SW’s employment is in supermarkets (UK 3.7%)

2.2% of the SW’s employment is in accommodation (UK 1.4%)

Total of 17.9% of the SW’s employment is in related F&D sector activities

11.5% of the SW’s employment is in specialist F&D sector activities (UK 9.9%)

4.4% of the SW’s employment is in supermarkets (UK 3.7%)

2.2% of the SW’s employment is in accommodation (UK 1.4%)

Total of 17.9% of the SW’s employment is in related F&D sector activities

Source: Business Register and Employment Survey, 2009


Detailed Sector BreakdownPrimary Producers & Processors

Detailed Sector BreakdownPrimary Producers & Processors

Agriculture, fishing & aquaculture – 70 500 employees (15% of UK total)

Food and drink processing – 33 800 employees (9% of UK total)

Location Quotient indicates how strongly the activity is represented in the SW compared to UK average (100 being average)

Manufacture of dairy products is heavily represented in the SW and accounts for 28% of the UK total

Agriculture, fishing & aquaculture – 70 500 employees (15% of UK total)

Food and drink processing – 33 800 employees (9% of UK total)

Location Quotient indicates how strongly the activity is represented in the SW compared to UK average (100 being average)

Manufacture of dairy products is heavily represented in the SW and accounts for 28% of the UK total Source: Business Register and Employment Survey, 2009


Detailed Sector BreakdownFood Machinery Manufacture and Food & Drink Wholesalers

Detailed Sector BreakdownFood Machinery Manufacture and Food & Drink Wholesalers

Manufacture of machinery for F&D processing is low in the SW (8% of UK total)

Manufacturing in general employs 235 000 in SW (9% of UK total)

F&D wholesale in the SW employs 22 800 (10% of UK total)

F&D wholesale represents 24% of total employees in wholesale trade in the SW

Manufacture of machinery for F&D processing is low in the SW (8% of UK total)

Manufacturing in general employs 235 000 in SW (9% of UK total)

F&D wholesale in the SW employs 22 800 (10% of UK total)

F&D wholesale represents 24% of total employees in wholesale trade in the SW



Detailed Sector BreakdownFood and Drink Retail

Detailed Sector BreakdownFood and Drink Retail

Non-specialised stores with F&D predominating (eg supermarkets) employ a total of 104 600 in the SW (10% of UK total)

This figure represents 37% of the total employment in all retail in the SW

Specialist F&D retailers employ 15 200 in the SW (9% of UK total)

Delicatessens, grocers, butchers and fishmongers are well represented in the SW compared to the UK average

Non-specialised stores with F&D predominating (eg supermarkets) employ a total of 104 600 in the SW (10% of UK total)

This figure represents 37% of the total employment in all retail in the SW

Specialist F&D retailers employ 15 200 in the SW (9% of UK total)

Delicatessens, grocers, butchers and fishmongers are well represented in the SW compared to the UK average



Detailed Sector BreakdownFood and Drink Related Services and Summary

Detailed Sector BreakdownFood and Drink Related Services and Summary

Restaurants and caterers are slightly under represented in the SW in terms of employment (9% & 7% of UK total respectively)

Accommodation providers serving food are well represented, employing 54 400 in the SW (14% of UK total)

Overall, F&D (specialised and related sectors) employs 441 000 in the SW (10% of UK total)

Restaurants and caterers are slightly under represented in the SW in terms of employment (9% & 7% of UK total respectively)

Accommodation providers serving food are well represented, employing 54 400 in the SW (14% of UK total)

Overall, F&D (specialised and related sectors) employs 441 000 in the SW (10% of UK total)



Employment TrendsEmployment Trends

F&D share of region’s labour input (FTE or Full Time Equivalent) has fallen steadily since 1998

Majority of this is due to declining shares of primary producers and processors

This has been partly offset by the growth in employment in F&D services (42% growth since 1998, more than double that of the SW economy as a whole)

Strong internal UK labour migration into the SW

F&D share of region’s labour input (FTE or Full Time Equivalent) has fallen steadily since 1998

Majority of this is due to declining shares of primary producers and processors

This has been partly offset by the growth in employment in F&D services (42% growth since 1998, more than double that of the SW economy as a whole)

Strong internal UK labour migration into the SW


Gross Value Added (GVA) TrendsF&D Share of SW GVA

Gross Value Added (GVA) TrendsF&D Share of SW GVA

GVA is the main measure of economic output or income in a given period at a sub-national level

It captures the total addition to output/income from an economy, sector or business by subtracting the cost of bought-in inputs from the market price

Estimates the total value added along the supply chain by, at each stage in the chain, avoiding any double counting of value added at the previous stage

Over time, the GVA of the F&D sectors in the SW has been declining

In 2008, agricultural output stood at £1.2 billion (1.3% of SW total)

Fishing and fisheries output was £67 million (0.1% of SW total)

F&D manufacturing output was £1.7 billion (1.8% of SW total)

GVA is the main measure of economic output or income in a given period at a sub-national level

It captures the total addition to output/income from an economy, sector or business by subtracting the cost of bought-in inputs from the market price

Estimates the total value added along the supply chain by, at each stage in the chain, avoiding any double counting of value added at the previous stage

Over time, the GVA of the F&D sectors in the SW has been declining

In 2008, agricultural output stood at £1.2 billion (1.3% of SW total)

Fishing and fisheries output was £67 million (0.1% of SW total)

F&D manufacturing output was £1.7 billion (1.8% of SW total)


GVA Trends (continued)SW F&D Share of UK F&D OutputGVA Trends (continued)

SW F&D Share of UK F&D Output

The SW primary production sectors account for a significant proportion of the UK’s primary production

Agriculture has risen to over 14% in recent years from a previous average of around 12%

Fishing has risen dramatically from 7% to 13% over the same 20 year period – probably due to a sustained increase in SW prices and volumes over the period

F&D manufacturing share has remained fairly constant at 8% for the past 2 decades

The SW primary production sectors account for a significant proportion of the UK’s primary production

Agriculture has risen to over 14% in recent years from a previous average of around 12%

Fishing has risen dramatically from 7% to 13% over the same 20 year period – probably due to a sustained increase in SW prices and volumes over the period

F&D manufacturing share has remained fairly constant at 8% for the past 2 decades

Source: Defra Production and income accounts – regions 1989 - 2008


GVA Trends (continued)Current Prices

GVA Trends (continued)Current Prices

The volatile nature of primary commodity prices is reflected in the unusually erratic path of the Agricultural output line

The sharp drop in 2005 is due to the change in accounting practice with the introduction of the decoupled single farm payment scheme (EU crop area and livestock headage payments were no longer treated as production subsidies

The rise in output of the Hotel & Restaurant sector reflects the broader economic shift to services

The volatile nature of primary commodity prices is reflected in the unusually erratic path of the Agricultural output line

The sharp drop in 2005 is due to the change in accounting practice with the introduction of the decoupled single farm payment scheme (EU crop area and livestock headage payments were no longer treated as production subsidies

The rise in output of the Hotel & Restaurant sector reflects the broader economic shift to services



GVA Trends (continued)Agricultural Output – Current vs Constant

GVA Trends (continued)Agricultural Output – Current vs Constant

This chart compares Agricultural output ‘deflated’ to show changes in volume rather than variations in commodity prices

There has been some growth in volume output since 2004, after a long period of static output

We are currently witnessing both volume and price increases driven by the rising world prices of arable and livestock commodities

This chart compares Agricultural output ‘deflated’ to show changes in volume rather than variations in commodity prices

There has been some growth in volume output since 2004, after a long period of static output

We are currently witnessing both volume and price increases driven by the rising world prices of arable and livestock commodities



Modelled GVAModelled GVA

SW Primary production has increased its share of UK GVA from 12.8% to 14.4% in a decade, with values rising from £1.04 billion to £1.2 billion in the same period

F&D services and specialist F&D retail have also increased both their value and share of the GB total in the same period

The share from processing, wholesale, hospitality and supermarket sales has seen a decrease

SW Primary production has increased its share of UK GVA from 12.8% to 14.4% in a decade, with values rising from £1.04 billion to £1.2 billion in the same period

F&D services and specialist F&D retail have also increased both their value and share of the GB total in the same period

The share from processing, wholesale, hospitality and supermarket sales has seen a decrease


F&D ExportsF&D Exports

Devaluation of sterling in 2008 has boosted UK export competitiveness, especially in primary products

There has been strong export growth in meat, dairy, beverages and fruit & vegetables

Overall, though, F&D exports from the SW remain weak and are an area of vulnerability for the sector

Devaluation of sterling in 2008 has boosted UK export competitiveness, especially in primary products

There has been strong export growth in meat, dairy, beverages and fruit & vegetables

Overall, though, F&D exports from the SW remain weak and are an area of vulnerability for the sector


F&D Exports (continued)F&D Exports (continued)

Around ¾ of the region’s F&D exports in 2010 went to the EU, including almost all of the fresh meat, fish, fruit and vegetables

Notable non-EU markets are dairy produce to North America and Miscellaneous edible products to the Middle East

Within the EU, most exports go to France, the Irish Republic and the Netherlands

Spain accounts for 25% of fish exports and Germany for 33% of sweet products

Around ¾ of the region’s F&D exports in 2010 went to the EU, including almost all of the fresh meat, fish, fruit and vegetables

Notable non-EU markets are dairy produce to North America and Miscellaneous edible products to the Middle East

Within the EU, most exports go to France, the Irish Republic and the Netherlands

Spain accounts for 25% of fish exports and Germany for 33% of sweet products


ProjectionsProjections

SW projections reveal that, given consensus forecasts for the United Kingdom as a whole, continued output growth in manufacturing and other production sectors, construction and private services, means that total output expands despite contraction in the public sector

The impact of the downturn and the policies adopted to address its effects mean that output growth remains weaker than in the prerecession period over the next five years (Table 1)

Specific F&D estimates are shown in Table 2

These results reflect the strong influence of the recent economic malaise and the historical modest performance of the F&D industries in the extrapolation

SW projections reveal that, given consensus forecasts for the United Kingdom as a whole, continued output growth in manufacturing and other production sectors, construction and private services, means that total output expands despite contraction in the public sector

The impact of the downturn and the policies adopted to address its effects mean that output growth remains weaker than in the prerecession period over the next five years (Table 1)

Specific F&D estimates are shown in Table 2

These results reflect the strong influence of the recent economic malaise and the historical modest performance of the F&D industries in the extrapolation

Table 1

Table 2


ForecastsForecasts

Relative prices will shift as income distribution and discretionary spending patterns change in home and overseas markets in response to population ageing and weather

For the region as a whole, expect a trend growth rate of about 2.5% per annum over the next ten-to-twenty years. This is made up of productivity growth averaging about 1.75% per annum and employment growth of 0.75% per annum

Table 3 summarises current views for growth planning in SW England – the different scenarios incorporate a number of factors for demographics, incomes, policy and technology in the years ahead

There is a real opportunity for SW F&D manufacturers and its supply chain to raise its game in terms of productivity-led value creation in the years ahead

Relative prices will shift as income distribution and discretionary spending patterns change in home and overseas markets in response to population ageing and weather

For the region as a whole, expect a trend growth rate of about 2.5% per annum over the next ten-to-twenty years. This is made up of productivity growth averaging about 1.75% per annum and employment growth of 0.75% per annum

Table 3 summarises current views for growth planning in SW England – the different scenarios incorporate a number of factors for demographics, incomes, policy and technology in the years ahead

There is a real opportunity for SW F&D manufacturers and its supply chain to raise its game in terms of productivity-led value creation in the years ahead

Table 3

The different scenarios incorporate a number of factors for demographics, incomes, policy and technology in the years ahead For example, the contingency view reflects, amongst other things, more negative effects of demographic ageing and environmental costs than the central view whereas the aspiration view incorporates more positive elements for incomes, technology, investment and exports

The different scenarios incorporate a number of factors for demographics, incomes, policy and technology in the years ahead For example, the contingency view reflects, amongst other things, more negative effects of demographic ageing and environmental costs than the central view whereas the aspiration view incorporates more positive elements for incomes, technology, investment and exports


AspirationAspiration

Can the SW economy outperform its current potential by the judicious use of investment in its various capabilities and capacity?

Is the SW F&D industry likely to respond positively to the call for economic rebalancing and engage in more investment (in people, plant, process and product) and international trade?

Will the sector become more innovative and skilled, entrepreneurial and competitive in a way that boosts both productivity and employment prospects, value added and profitability?

Will the sector seek to capture a growing market share in growing markets?

Can the SW economy outperform its current potential by the judicious use of investment in its various capabilities and capacity?

Is the SW F&D industry likely to respond positively to the call for economic rebalancing and engage in more investment (in people, plant, process and product) and international trade?

Will the sector become more innovative and skilled, entrepreneurial and competitive in a way that boosts both productivity and employment prospects, value added and profitability?

Will the sector seek to capture a growing market share in growing markets?

We believe these aspirations are achievable – if you would like to discuss any aspect of this report with SWFD, please contact us.

We believe these aspirations are achievable – if you would like to discuss any aspect of this report with SWFD, please contact us.


Contact DetailsContact Details

South West Food & DrinkCOMMUNITY INTEREST COMPANY

For further information, or to discuss any aspect of this report, please contact:

Nick Cork

Email :– [email protected] Tel – 01392 458309

Mob – 07796 308722

South West Food & DrinkCOMMUNITY INTEREST COMPANY

For further information, or to discuss any aspect of this report, please contact:

Nick Cork

Email :– [email protected] Tel – 01392 458309

Mob – 07796 308722


2 SEAS Fish & Chips Project2 SEAS Fish & Chips Project

• Elements of the Supply Chain Toolkit are also being developed as part of the 2 SEAS Fish and Chips project, as a contribution to the work being undertaken by Somerset County Council.

Documents

South West Food & Drink An Economic Assessment of the Food and Drink Sector in the South West Autumn 2011