The Food Chain
This briefing is sponsored by Yara UK Ltd, supporting UK Farming - http://www.yara.co.uk
Briefing 636
The Food Chain Summary Food inflation reached 6% in December 2007. The price of butter and eggs rose by 30% and bread and milk rose by about 15%. The agri-food sector accounted for 6.9% of the total economy. 20% of total consumers’ expenditure was on food, drink and catering. Farmgate share of a basket of food staples was 36%, hardly changed since 2006. The agri-food sector provided a total of just over 3.6 million jobs, 14% of all employees in Great Britain. Self sufficiency in food continues to decline. It is 74% for indigenous type food.
This is the fourth of a series of papers summarised from ‘Agriculture in the United Kingdom 2007’ which is the government’s annual summary of statistics. The full report can be downloaded from http://statistics.defra.gov.uk/esg/publications/auk/default.asp
Contribution of the agri-food sector to the national economy Food manufacturing, non residential catering and food retailing are all about the same size in terms of gross value added. Food and drink wholesaling and agriculture are the smallest sub-sectors, accounting for 11% and 6.8% respectively.
1
Food chain employees and self–employed farmers The agri-food sector provided a total of just over 3.6 million jobs in the third quarter of 2007, 14% of all employees in Great Britain. Of these less than half a million were employed in agriculture.
Self-sufficiency Self-sufficiency is calculated as the farm-gate value of raw food production divided by the value of raw food for human consumption. It is estimated to be 61% for all food in 2007 and 74% for indigenous type food. Self-sufficiency has followed a downward trend since 1995 following a peak in the 1980s. Over the last 50 years self-sufficiency has been significantly and consistently below 100% and the growth towards a peak in the 1980s reflected the influence of the Common Agricultural Policy The commodities which contributed most to the decline since 1995 were beef, pork and milk products: o
For beef the fall was due to a combination of the BSE export ban and Over Thirty Month Scheme which reduced domestic production.
o
For pork the fall was due to Netherlands and Denmark displacing domestic production as a result of the impact of currency movements and disease on the competitiveness of production in the United Kingdom.
o
The fall in self-sufficiency for milk products was mainly due to a rise in cheese and butter imports from the EU (primarily from France, Irish Republic, Denmark and Netherlands), where the impact of currency movements on relative UK competitiveness would have been a factor.
Distinction between competitiveness and food security The self-sufficiency ratio provides a very broad indicator of agriculture’s ability to meet consumer demands, i.e. competitiveness. The ratio is not an appropriate measure of “food security” since it fails to 1 account for many dimensions of this complex issue. The key points on self-sufficiency and food security are: o
Diversity enhances security. The United Kingdom sources foods from diverse stable countries, mainly European countries, and imports can make up for domestic supply shortages
1 A detailed discussion and analysis is given in the Defra publication ‘Food Security and the UK: An Evidence and Analysis Paper’ available at http://statistics.defra.gov.uk/esg/reports/foodsecurity/default.asp .
2
o
Self-sufficiency fails to insulate a country against many possible disruptions to its supply chain.
o
Production potential is more relevant at EU level, and the EU as a whole is over 90% selfsufficient.
o
Further trade liberalisation is unlikely to materially affect food security within the EU.
Consumers’ expenditure on food, drink and catering In the third quarter of 2007 38% of consumers’ expenditure was spent on food, 32% on catering and 30% on drink (including non-alcoholic drink).
Farmers’ share of consumers’ expenditure In 2007 the farmgate share of the price of a basket of items covering staples of agricultural production was 36%. This is 11 percentage points less than the farmgate share in 1988. Table 7.2 shows the items in the basket and how the farmers’ share has changed for each. The table shows thatt farmgate prices are not keeping up with retail food prices. This can be explained partly by retail price rises accounted for by greater processing and packaging beyond the farmgate. Also a factor is additional regulation beyond the farmgate to ensure food safety, notably in meat processing. Changes in exchange rates have a significant impact on farmgate prices. Farm gate prices increased up to 1995 but then reduced when sterling strengthened against the euro. CAP reform over the last 15 years, which cut commodity support prices and compensated with direct payments to farmers, has also played a role. Retail food prices were less affected by these factors as the food chain contains a large cost component that reflects overall conditions in the economy.
Changes in retail price indices Food inflation reached 6.0% in December 2007, the highest rate since 1991 when general inflation went into double figures. The prices of both butter and eggs rose by 30% during 2007 and the prices of both bread and milk rose by about 15%. Food retail price rises were driven by the rise in the agricultural commodity price of cereals.
3
Food prices rose faster than general inflation in 2007. General inflation as measured by the all items retail price index was 4.0% in December 2007. However since 1998 food prices have risen by only 20% while prices of all items have risen by 32%.
Alan Spedding, 28 May 2008 RuSource briefings provide concise information on current farming and rural issues for rural professionals. They are circulated weekly by email and produced by Alan Spedding in association with the Arthur Rank Centre, the national focus for the rural church. Previous briefings can be accessed on the Arthur Rank Centre website at http://www.arthurrankcentre.org.uk/projects/rusource_briefings/index.html RuSource is a voluntary project partly supported by donations and sponsorship. © Alan Spedding 2008. This briefing may be reproduced or transmitted in its entirety free of charge. Where extracts are used, their source must be acknowledged. RuSource briefings may not be reproduced in any publication or offered for sale without the prior permission of the copyright holder. If you would like to be put on the list for regular briefings or have any other queries about the service contact [email protected].
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Briefing 636
The Food Chain Summary Food inflation reached 6% in December 2007. The price of butter and eggs rose by 30% and bread and milk rose by about 15%. The agri-food sector accounted for 6.9% of the total economy. 20% of total consumers’ expenditure was on food, drink and catering. Farmgate share of a basket of food staples was 36%, hardly changed since 2006. The agri-food sector provided a total of just over 3.6 million jobs, 14% of all employees in Great Britain. Self sufficiency in food continues to decline. It is 74% for indigenous type food.
This is the fourth of a series of papers summarised from ‘Agriculture in the United Kingdom 2007’ which is the government’s annual summary of statistics. The full report can be downloaded from http://statistics.defra.gov.uk/esg/publications/auk/default.asp
Contribution of the agri-food sector to the national economy Food manufacturing, non residential catering and food retailing are all about the same size in terms of gross value added. Food and drink wholesaling and agriculture are the smallest sub-sectors, accounting for 11% and 6.8% respectively.
1
Food chain employees and self–employed farmers The agri-food sector provided a total of just over 3.6 million jobs in the third quarter of 2007, 14% of all employees in Great Britain. Of these less than half a million were employed in agriculture.
Self-sufficiency Self-sufficiency is calculated as the farm-gate value of raw food production divided by the value of raw food for human consumption. It is estimated to be 61% for all food in 2007 and 74% for indigenous type food. Self-sufficiency has followed a downward trend since 1995 following a peak in the 1980s. Over the last 50 years self-sufficiency has been significantly and consistently below 100% and the growth towards a peak in the 1980s reflected the influence of the Common Agricultural Policy The commodities which contributed most to the decline since 1995 were beef, pork and milk products: o
For beef the fall was due to a combination of the BSE export ban and Over Thirty Month Scheme which reduced domestic production.
o
For pork the fall was due to Netherlands and Denmark displacing domestic production as a result of the impact of currency movements and disease on the competitiveness of production in the United Kingdom.
o
The fall in self-sufficiency for milk products was mainly due to a rise in cheese and butter imports from the EU (primarily from France, Irish Republic, Denmark and Netherlands), where the impact of currency movements on relative UK competitiveness would have been a factor.
Distinction between competitiveness and food security The self-sufficiency ratio provides a very broad indicator of agriculture’s ability to meet consumer demands, i.e. competitiveness. The ratio is not an appropriate measure of “food security” since it fails to 1 account for many dimensions of this complex issue. The key points on self-sufficiency and food security are: o
Diversity enhances security. The United Kingdom sources foods from diverse stable countries, mainly European countries, and imports can make up for domestic supply shortages
1 A detailed discussion and analysis is given in the Defra publication ‘Food Security and the UK: An Evidence and Analysis Paper’ available at http://statistics.defra.gov.uk/esg/reports/foodsecurity/default.asp .
2
o
Self-sufficiency fails to insulate a country against many possible disruptions to its supply chain.
o
Production potential is more relevant at EU level, and the EU as a whole is over 90% selfsufficient.
o
Further trade liberalisation is unlikely to materially affect food security within the EU.
Consumers’ expenditure on food, drink and catering In the third quarter of 2007 38% of consumers’ expenditure was spent on food, 32% on catering and 30% on drink (including non-alcoholic drink).
Farmers’ share of consumers’ expenditure In 2007 the farmgate share of the price of a basket of items covering staples of agricultural production was 36%. This is 11 percentage points less than the farmgate share in 1988. Table 7.2 shows the items in the basket and how the farmers’ share has changed for each. The table shows thatt farmgate prices are not keeping up with retail food prices. This can be explained partly by retail price rises accounted for by greater processing and packaging beyond the farmgate. Also a factor is additional regulation beyond the farmgate to ensure food safety, notably in meat processing. Changes in exchange rates have a significant impact on farmgate prices. Farm gate prices increased up to 1995 but then reduced when sterling strengthened against the euro. CAP reform over the last 15 years, which cut commodity support prices and compensated with direct payments to farmers, has also played a role. Retail food prices were less affected by these factors as the food chain contains a large cost component that reflects overall conditions in the economy.
Changes in retail price indices Food inflation reached 6.0% in December 2007, the highest rate since 1991 when general inflation went into double figures. The prices of both butter and eggs rose by 30% during 2007 and the prices of both bread and milk rose by about 15%. Food retail price rises were driven by the rise in the agricultural commodity price of cereals.
3
Food prices rose faster than general inflation in 2007. General inflation as measured by the all items retail price index was 4.0% in December 2007. However since 1998 food prices have risen by only 20% while prices of all items have risen by 32%.
Alan Spedding, 28 May 2008 RuSource briefings provide concise information on current farming and rural issues for rural professionals. They are circulated weekly by email and produced by Alan Spedding in association with the Arthur Rank Centre, the national focus for the rural church. Previous briefings can be accessed on the Arthur Rank Centre website at http://www.arthurrankcentre.org.uk/projects/rusource_briefings/index.html RuSource is a voluntary project partly supported by donations and sponsorship. © Alan Spedding 2008. This briefing may be reproduced or transmitted in its entirety free of charge. Where extracts are used, their source must be acknowledged. RuSource briefings may not be reproduced in any publication or offered for sale without the prior permission of the copyright holder. If you would like to be put on the list for regular briefings or have any other queries about the service contact [email protected].
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