The Scottish Government

« Previous | Contents | Next »

Listen

1. Overview

1.1 Context: Current Issues

1. There are a number of issues currently affecting the food and drink key sector in Scotland, some of which are external such as: the current global economic slowdown; energy use and the effects of climate change; and issues with SMEs and access to finance. Other issues are specific to the performance of the key sector, namely: low rates of research and development; productivity issues; and skills in the sector.

2. The Scottish food and drink key sector can contribute to sustainable economic growth but there are constraints. The supply of agricultural land is more or less fixed (now that the EU have effectively abolished set-aside). Ploughing up grassland for arable crops releases carbon, so may not satisfy the "sustainable" test. We are exploring over the next year or so how rural land use can best be managed in terms of climate change, and there will be some tensions between food production and carbon sequestration. Our aim is to sustainably optimise our natural resource productivity i.e. make the best use of our natural resources to deliver maximum economic and public benefit now and for future generations. Changes in land use are possible, though some take a long time to effect and expansion of primary production of one commodity implies a reduction in another unless yields can be increased. Changes in production would need to concentrate on areas where value can be added.

1.2 Description of scope and performance of the sector

3. The food and drink 'key sector' is defined as agriculture, fishing, and food and drink manufacturing and are described in this paper as the core activities of the food and drink industry in Scotland. However, it is recognised that the food and drink industry in Scotland encompasses a large supply chain including food and drink wholesaling, retailing and the food service sector. These are defined at Annex A.

4. Key statistics on the food and drink key sector (including agriculture and fisheries) for Scotland are provided at Table 1 below. Data in the table is taken from the Annual Business Inquiry ( ABI) 2007 unless stated otherwise ^,1,2.

Table 1: Key Statistics

a Own calculation based on 2007 GVA and employment;
b Gross output at basic prices;
c Employees: Full-time, Part-time, Casual/Seasonal at June 2007 (Economic Report on Scottish Agriculture 2008);
d Number of holdings at June 2007 (Economic Report on Scottish Agriculture 2008)

5. The individual contribution of the food manufacturing and drink manufacturing sectors to the Scottish economy are shown below. The target is to grow sales of the food and drink manufacturing sector to £10bn by 2017 - sales were £7.5bn for 2007.

6. The spirits sector within drinks manufacturing, especially whisky, is very important to the Scottish economy in terms of value added and export potential as well as productivity.

• In 2007, turnover for the Scottish spirits sector was £2,710m, generating £1,712m of GVA with 8,700 employees.
• The sector accounts for 77% of turnover and 81% of GVA of total UK output of the industry. This compares with the whole of manufacturing, where Scotland accounts for only around 8% of total UK output.
• The spirits sector accounts for over one third of 'Scottish food and drink manufacturing' total turnover and over half of its total GVA.
• Average GVA per employee (£195,874) is over 3 times greater than that found in the manufacturing sector as a whole (£61,252). Whilst average labour costs per employee (£46,600) are 60% higher in spirits sector compared to manufacturing as a whole (£28,866).
• The whisky industry, along with other spirits, accounted for approximately 85% of all food and drink exports outside the UK in 2007.

1.3 Productivity

7. There are different ways to measure productivity, this paper uses labour productivity i.e.GVA per employee. Productivity of the food and drink sector varies greatly between the various sub-sectors. The chart at Annex B shows how GVA per employee compares across the sub-sectors since 1998. Data for agriculture and fisheries has not been included. Agriculture data are not comparable with the ABI data and the structure of employment in agriculture and fisheries is different from the food and drink manufacturing sector where self employment is less evident.

8. Chart 1 at Annex B shows that productivity of the drink manufacturing sector was almost 5 times greater than that of food manufacturing for 2007. Over the period 1998 to 2007:

• Productivity of the drinks manufacturing sector more than doubled - rapidly rising between 2002 and 2007, from £78,020 to £171,429.
• Food manufacturing GVA per employee increased by over 30% between 2003 and 2006.
• Overall food and drink manufacturing productivity increased by 85%.

9. There are various factors driving productivity including ownership. Productivity in food and drink manufacturing Scottish-owned companies (£43,217) is around 40% of productivity for abroad-owned companies (£109,005). 85% of food and drink manufacturing companies are Scottish owned, and these account for 50% of turnover.

10. Company size also drives productivity in the food and drink manufacturing sector. GVA per employee for large firms (250+ employees) is double that of small (0-49 employees) sized enterprises and around 90% higher for medium (50-249) sized enterprises. Large enterprises account for 63% of employees, 71% of turnover and 77% of GVA, this is in comparison to small companies (0-49 employees) which account for 15% of employees, 11% of turnover and 9% of GVA.

1.4 Rationale for Key Sector Status

11. Three criteria are relevant for identifying the key sectors that have the potential to make a significant contribution to increasing Scotland's growth. These are:

• Scotland has distinctive capabilities and businesses with the potential to be internationally successful in areas of global demand;
• they currently account for a significant part of the Scottish economy and reflect the contribution of all areas of Scotland; and
• government intervention can make a significant difference to future success by facilitating or accelerating development in areas where the market alone cannot deliver the best outcome.

12. The food and drink key sector in Scotland meets the above criteria, in particular with regard to the first two points. The Scottish food and drink sector has a strong international reputation at the luxury end of the market, driven by whisky, salmon, seafood and Scotch Beef, and enhanced by strong brands. Scotland's food and drink sector has distinct advantages in terms of the quality of its raw materials, high animal welfare standards and production systems and real strengths in crop, animal husbandry and human nutrition research.

13. Scotland's is renowned for the quality of its produce, the environment and its world class regulatory regime.

14. The food and drink sector accounts for a significant part of the Scottish economy and reflects the contribution of all areas of Scotland. It is not only important to the economy but it cuts across many other areas of life in Scotland for example health, education and the environment. Food and drink was Scotland top exporting industry in 2007. Also, the spirits sector, especially whisky, is very important in terms of value added and export potential. The sector accounts for over 30% of 'Scottish food and drink' total turnover and over half of its total GVA.

15. Scotland has taken a strong market-led focus in the health, nutrition and wellbeing marketplace - where the global market has grown by 29% since 2002 and is forecast to grow further, by 26% to £282.5bn by 2011 ⁶ - where there are existing natural products with intrinsic health value e.g. oats, berries and fish rich in omega-3 oils. Scotland is now home to one of the world's largest and best equipped research centres in nutrition and health - The Rowett Research Institute and Aberdeen University have joined to create the Rowett Institute of Nutrition and Health - and this, along with strengths in food science and life-science research can give Scotland a real expertise in the functionality of food and its health giving properties.

16. There are opportunities for government intervention to make a significant difference in the key sector and the purpose of the paper is to explore these.

« Previous | Contents | Next »