Feature Article Food and the Economy in Wales Peter Midmore, Professor of Economics, School of Management and Business, Aberystwyth University 1. Summary into account the (admittedly difficult to rather than undertaken by it) is to Primary food production has, quantify) indirect subsidisation effects of improve the entire food system, through historically, been a relatively important tariffs on imports, it made no market development with an emphasis part of the Welsh economy, especially contribution at all. 3 Publication of this on stronger branding and promotion, beyond the industrial conurbations of opinion attracted considerable criticism improved consumer information and the South and North-East. However, at the time but, neglecting any risk of awareness, more ecologically efficient with successive changes in the further controversy, it is probably safe production and supply chains, innovation supporting policy framework and fast- to assume that, measured in these and niche product development, higher moving changes in both consumer terms, a decade later the contribution of skill levels in the workforce, and tastes and retailing, agriculture in Wales farming is probably negative. integrated policy development, especially has suffered a worse decline than in any with regard to regulation. other region of the UK between 1997 Nevertheless, the non-farm element of and 2007. As far back as 2000, Christine the EU’s Rural Development Programme This ambition appears more courageous Gwyther’s written answer to an (RDP) is based on the idea that, now that the full extent of reductions in Assembly Question suggested that together with the jobs associated with UK public expenditure has become agriculture contributed 1.4% of Welsh agriculture in marketing, processing and apparent. To some extent, support for GVA but, if subsidies were excluded, its distribution of food products, the agri- the whole agri-food complex is insulated contribution was “close to zero.” food complex contributes substantially from these funding pressures because However, this ignores the fact that to rural economies. Because food the main resource comes from the EU agriculture acts as the base of an manufacturing can take advantage of budget, together with domestic co- increasingly closed supply chain the proximity of sources of primary funding which is pre-committed. embracing processing, distribution and inputs, the multiplier effect is strong: in However, the majority of RDP resources retailing, and as an agri-food sector the four European rural regions, Mattas and – themselves rather less generous than contribution made is substantially Tsakiridou (2010) found employment elsewhere in the EU, for historical greater. This paper reviews the analytic multipliers in the food sector ranging reasons – are devoted to aids to the tools which can be used to demonstrate from 2.0 to almost 3.5. These linkages farming sector itself. Although there is the strength of interconnections derive from the employment supported the intention to leverage private between the components of this supply in other sectors that supply food contributions, only 8% of the overall chain and indicates the relative manufacturing, and spending out of the €993 million of public spending contributions of different commodities wages they generate on local goods and component of the programme supports to employment and value-added in the services, in turn supporting more jobs. either the Processing and Marketing economy of Wales. It concludes by Grant Scheme or the Supply Chain challenging the conventional wisdom Moreover, the food sector is one part of Efficiency Scheme, which are the main underpinning the strategy for the food the manufacturing economy that is to an means of accomplishing the Food and drink sectors which emphasises extent recession-proof, as spending on Strategy objectives. It is unlikely that export-led growth. food is resilient even when economies much additional funding will come from stop growing. The contribution that the the Assembly Government’s own Agriculture, often described as the food sector can make in Wales is reduced budget, and even European backbone of Welsh rural areas, makes a important, especially when, according to sources may contract after 2013 as the contribution that goes bey ond its own ONS data, W elsh manufacturing Commission’ s competitiv eness and internal economic functioning. It is a employment has shrunk from 19.6% of employment aspirations clash with provider of public goods, which include the total workforce in 1999 to 12.7% in member states’ desire to restrict its stew ardship of the landscape and agro- 2009. In absolute terms, W ales has spending to half of what has been biodiv ersit y (both important for a more than a quarter of its proposed. growing rural tourist industry), and now manufacturing labour force in the more especially the role of upland previous decade. As currently structured, the draft Food farming in managing and developing the Strategy envisages a coordinating role carbon sink provided by peat lands. Development of a new Strategy for the for updating all of the action plans that These are emerging as k ey dimensions Food and Drink sector in Wales takes currently exist: for local sourcing, food in the discussion about the future of EU this centrally into account: without a tourism, red meat, dairy, horticulture subsidies after the current budgetary financially sustainable industry at its and organic foods, as well as a new progr amming period expires in 2013. core, the wider aims relating to nutrition initiativ e for fish. Whilst some The fortunes of farming in W ales ha ve and health, cutting food miles and overarching activity is necessary for all always been volatile, and although at consequently also reducing greenhouse food and drink produced in Wales, present farm gate prices are relativ ely gas emissions, and dev eloping thriving dev oting limited and perhaps declining high due to the combined effect of a local economies throughout the territory resources across all food sectors risks world food price spike and sterling’s of Wales, will all be frustrated. In its giving too little attention to any. This weakness, the long term trends in draft consultation form, Food for Wales, uncomfortable trade-off implies that employment, incomes and contribution Food from Wales ,4 encapsulates the prioritisation must occur, and one of the to national Gross Value Added (GVA) are twin aims of increasing the consumption criteria that will help to distinguish all down wards. Indeed, of all regions in of fresh local produce b y enhancing between options is the strength of the the UK, the decline of farming in W ales resident food culture, while at the same emplo yment multiplier effect (another has been the most pronounced over the time raising the value of export sales by could be the potential for future growth, past decade. 2 In 1998, the contribution dr awing on impro ved div ersit y, range, which of course would also need to tak e of agriculture to Welsh GVA was 1.4%, quality and distinctiveness. To achieve any multiplier effect into account in although if direct subsidies were netted this, the ambitious intention (facilitated order to gain an overall perspective). off this declined to 0.6%, and taking and led by the Assembly Government, 29 Feature Article The most popular way of estimating industry is relatively labour-extensive, are fewer slaughterhouses and multipliers is to use an input-output or vice-versa, so the second column creameries in Wales now than in 2003, model. This model is based on detailed shows an alternative based on jobs and those that remain are more labour- representation of purchases and sales within or dependent on food processing efficient. Equally, the sources of inputs between different productive sectors as sectors per unit of turnover; here, the for expanding food industry a means of constructing, understanding largest multiplier effect is in other food employment will often be generated and reconciling different means of products (including animal feed outside, rather than within, Wales, calculating GVA. It also possesses the production, but also incorporating a reducing backward local linkages. It is virtue of being able to discriminate small amount of employment in not uncommon, for example, for between the income and employment producing other minor products). livestock from the North and East of multiplier effect exerted by each England to be processed in Welsh individual sector. Less well-known, Finally, to account for the fact that the facilities. Hence, the historic multipliers however, are the model’s limitations. overall workforce size varies between only poorly correspond to how different Firstly, because the underlying data processing sectors, the third column sectors will respond to expansion and required is so detailed and complex, by shows total employment directly and contraction. More recent data provided the time accurate input-output accounts indirectly created within Wales by the by the forthcoming Input-Output Tables become available they represent a dated various commodity activities. Directly, for Wales in 2007 will go some way to snapshot of how an economy has the food sector employs about 2% of overcoming this drawback. worked historically, and intervening the overall workforce, whereas if the structural changes often substantially indirect jobs are also taken into account The critical issue, however, is that these affect their accuracy. Secondly, the this rises to about