ECONOMIC ANALYSIS AND RATIONALE FOR ENGAGEMENT WITH THE FOOD AND
DRINK INDUSTRY
EXECUTIVE SUMMARY
This paper provides an economic overview of the Scottish food and drink industry and an
analysis of its economic performance against key benchmarks. Analysis showed that:

the food and drink production and processing supply chain employs around 122,000 people
and contributes 3.6% of total Gross Value Added;

it is the largest manufacturing sector, with 23% of the total manufacturing workforce;

there are more than 1200 companies working in the sector in urban and rural economies
across the country;

it is characterised by a generally lower skilled workforce than elsewhere in Scotland;

there are proportionately more than three times the number of business units with 50 or
more employees than Scotland’s industry as a whole;

it has some of Scotland’s largest and fastest growing businesses;

the industry has grown over the last nine years and is around 7% larger in real terms than it
was in 1998;

growth in Fruit and Vegetable Processing and Beverages GVA increased much more in
Scotland than the UK as a whole;

employment has fallen by 8,000 since 1998 as the industry has focussed on increasing its
productivity, principally driven by the spirits sector;

employment in non-beverage food and drink is characterised by low productivity;

the industry accounted for over 18% of Scotland’s overseas exports in 2006;

exports valued at £3.7bn represents one-third of UK total food and drink exports;

spirits, principally whisky, accounts for almost 90% of Scottish food and drink exports; and

firms do not invest heavily in technical research and development, but have an above
average rate of product innovation and new product development.
The industry continues to make an important contribution to the Scottish economy. It has been
outperforming its key benchmarks, productivity has been rising and the contribution to Scottish
exports is significant. However, there remain challenges in improving the productivity of the
food, rather than drink sector, increasing the value of food exports and increasing the level of
innovation overall.
1
INTRODUCTION
This paper provides an economic overview of the food and drink industry; an analysis of the
economic performance of the industry against key benchmarks; and information on the
contribution of food and drink to performance committee indicators which allow progress of the
Scottish economy over time to be monitored. It also describes the current focus of Scottish
Enterprise’s support to the industry and the competitive advantages we aim to exploit.
BACKGROUND
The Government Economic Strategy, published in 2007, sets out clear objectives and strategic
targets for sustainable economic growth. In particular, it sets out the aspiration that Scotland’s
rate of growth matches that of the UK by 2011 and a group of comparable, small European
nations by 2017.
The Scottish Enterprise Business Plan sets out our contribution to the
strategy and in particular our focus on those industries with the greatest growth potential and
the capacity to increase their productivity to help Scotland achieve this level of growth. This
paper sets out an analysis and a rationale for engagement with one of these priority industries,
food and drink.
Food and drink is an important industry in the Scottish economy. With annual sales of £7.6bn,
the processing sector alone makes a significant contribution to the Scottish economy in terms
of GVA, employment and strong export performance.
Taking the agriculture and fishing
sectors into account, the whole food & drink production and processing supply chain employs
around 122,000 people across Scotland and accounts for 3.6% of total GVA. Excluding this
wider definition, it accounts for 3.3% of Scottish GVA. It is the largest manufacturing sector in
Scotland representing 23% of the total manufacturing workforce, 22% of sales and 25% of
GVA and is greater than the proportional representation in the UK which is around 14%.
2
The table below shows how food and drink compares with the other priority industries.
Table 1 – Key Facts
Food &
Drink
Tourism
GVA
£2.9 billion
£3.6 billion
% of Scottish
GVA
3.3%
4.2%
GVA per
Employee
£59,867
GVA Annual
Avg Growth
Rate*
Financial
Services
Life
Sciences
Energy
Digital
Markets
Scotland
£1.3 billion
£12 billion
£3 billion
£86 billion
-
1.6%
14%
3.5%
-
£18,200
-
£52,825
£269,597
£65,291
£44,562
2.5%
3.7%
4.9%
4.7%
15.2%
4.1%
2.1%
Turnover
£7.7 bn
£11.4 bn
-
£2.9 bn
£23.5 bn
£7.6 bn
£180.5 bn
Average Weekly
Wage
£352
£250
£540
£542
£730
-
£408
Exports
£3.5 billion
-
Number of Units
1,237
17,800
Number of
Employees
48,000
198,800
£7 billion
(2007)
£1.1 billion
(2006)
3,786
(2006)
86,000
(2006)
£1.9 billion
-
(Oil & Gas)
£19.15
-
billion
413
466
887
265,090
25,400
44,700
46,700
2,449,000
Source: Scottish Government and Scottish Enterprise Analysis
Table 2 gives an overview of Scotland’s food and drink industry compared to the UK. Due to
data restrictions, a direct comparison of years is not possible. Table 2 below, therefore, refers
to 2005 data for Scotland and 2004 data for the UK.
Table 2: Food and Drink Key Facts
Food & Drink
Scotland
UK
GVA
£2.9 billion
£ 21.3 billion
% of Scottish GVA
3.3%
2.0%
GVA per Employee
£59,867
£45,238
GVA Annual Avg. Growth Rate
2.5%
2.9%
Number of Units
1,237
6,988
Number of Employees
48,000
441,000
Source: Scottish Government; Scottish Enterprise Analysis; ABI
3
Products from Scotland have a strong international reputation, predominantly built around
whisky, salmon, seafood, meat and shortbread and this, coupled with a productive industry that
is aligned to key trends in the marketplace, is a strong platform on which to develop and
sustain competitive advantage.
The original ten-year industry strategy was launched in 1999 and has been regularly refreshed
in that period. A major change has been the establishment of the private sector leadership
organisation Scotland Food and Drink in 2007, which now also serves as SE’s Industry
Advisory Board. This has effectively galvanised what was a very fragmented industry into one
that is clearly focused on shared ambitions. These are:
–
for Scotland to be internationally known as the land of food and drink.
–
to be generating £10bn a year from food and drink processing by 2017 and with everyone
in the supply chain benefiting from this.
–
and to continue outperforming the UK food and drink industry and Scottish economy.
The launch of the national food and drink policy in June 2008 has recognised these ambitions,
has put sustainable economic growth at the heart of the policy and recognises Scotland Food
& Drink as the main platform for engagement with industry.
INDUSTRY STRUCTURE
The entire food and drink industry in Scotland covers a range of activities. It has primary
producers (including farming and fishing) and processors, wholesalers, retailers and
foodservice operators (including restaurants, cafes and bars). The main focus of this paper is
on the food and drink processing sector only. This is the part of the industry which the growth
of the industry will be monitored against and has been the main focus of SE’s interventions.
However collaboration throughout the industry supply chain is one of the fundamental strategic
aims of the industry strategy and a focus of SE’s support. To ensure a rounded picture is
available, therefore, definitions and key statistics giving an indication of the scale of the whole
supply chain are presented at Appendix 1.
The food and drink processing sector in Scotland has over 1200 companies and is important to
urban and rural economies across the country. Whilst the majority of the industry is made up
of small and medium sized companies, predominantly family owned, it is also worth noting that
it contains some of Scotland’s largest and fastest growing businesses. For more detailed
4
analysis of the “Top 70 Scottish Food & Drink Companies” see Appendix 2.
Of these top 70
companies, 13 are within our portfolio of growth companies.
Employment
Most employment in Scotland’s food and drink industry is in larger employers. Figure 1 shows
that 78 % of the industry’s employees work in firms with fifty or more employees.
Figure 1 – Percentage of Food & Drink Employment by Employer Size Band
Structure of Scottish Food and Drink Employment 2005
1-10 employees
7%
11-49 employees
200 or more employees
15%
46%
50-199 employees
Source: ABI
32%
As detailed in Table 3, the percentage of employment in Scotland’s Food and Drink firms with
fifty employees or more is higher than that other manufacturing firms and the economy as a
whole; 78 per cent compared to 69 % and 56 % respectively.
Table 3 - Percentage of All Industries Employment by Employer Size Band
1-10
11-49
50-199
employees employees employees
200 or
more
employees
Food & Drink
7
15
32
46
Manufacturing
11
19
31
38
All Industries
19
25
24
32
Source: ABI
5
Business Units
Although 78 % of employment is in firms with 50 or more employees, most business units (84
%) have fewer than 50 employees (Figure 2).
Figure 2 – Percentage of Food & Drink Business Units by Employer Size Band
Structure of Scottish Food and Drink Business Units 2005
200 or more employees
4%
50-199 employees
12%
11-49 employees
25%
1-10 employees
59%
Source: ABI
However, the proportion of small business units in the Food and Drink industry is lower than
manufacturing generally and other industries. Proportionately, Food and Drink has more than
three times the number of business units with 50 or more employees than industry as a whole.
Table 4 - Percentage of All Industries Business Units by Employer Size Band
1-10
11-49
50-199
employees employees employees
Food & Drink
Manufacturing
All Industries
59
25
12
200 or
more
employees
4
72
80
19
16
7
4
2
1
Source: ABI
6
INDUSTRY PERFORMANCE
Gross Value Added (GVA)
The Gross Value Added (GVA) in food and drink manufacturing has shown strong growth in
the last few years and in particular since the launch and full implementation of the Scottish food
and drink strategy, although we are not able to quantify to what extent this is due to the
strategy.
Nevertheless, the industry is growing with the direct economic impact now almost
£2.9bn GVA. This is an increase of 46% since 2000 in current prices i.e. not having been
adjusted for inflation.
Figure 3 – GVA (£m) in Food and Drink in Scotland 1998-2005,
GVA from Food and Drink Industry
Refresh
of Strategy
3.4%
3500
3.3%
3.3%
3000
GVA £m
2500
2070
2031
2000
1969
2736
Implementation
of Strategy
Launch
3.1% of Strategy
3.3%
2873
2036
2.9%
3.0%
3.0%
2.9%
1500
3.2%
3.1%
2355
2096
3.3%
2.9%
2.8%
2.8%
1000
2.7%
500
2.6%
0
2.5%
1998
1999
2000
2001
2002
2003
2004
2005
Year
Food and Drink
% of Total Scottish GVA
Source ABI
In 2005 the industry accounted for 3.3% of the economy by value. While this is the same level
as 1998, it is important to understand that there was a significant dip between 1998 and 2001
not least because of the Foot and Mouth crisis of 2001. Including the agriculture and fishing
industries, the industry would account for around 3.7% of economic output in 2005 – a total of
£3,201m.
7
While the overall figures for the monetary value of food and drink are only available up to
20051, an index of production is available up to 2007 which can track the growth of the industry
in real terms i.e. having accounted for inflation. This is shown below in Figure 4 in which it can
be seen that the industry has grown over the last nine years and is now around 7% larger in
real terms than it was in 1998. Over this period, the economy as a whole has grown by over
20%, driven principally by growth in the service sector.
Figure 4 – Index of GVA Growth for Food and Drink Vs Scotland
Index of Growth for Food and Drink and Scotland Overall
140.0
130.0
1998 = 100
120.0
110.0
100.0
90.0
80.0
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Year
Food and Drink
Scotland
Source: ABI, Scottish Enterprise
Gross Value Added by the main industry sub-sectors
Figure 5 shows a breakdown of the GVA contribution of the main food and drink processing
sub-sectors to the overall industry performance – comparing 1998 and 2005 data. This figure
shows that all sectors and particularly beverages have shown strong growth over this time
period.
1
The latest Annual Business Inquiry tables for Scotland only have 2005 data. However , at a UK level, figures are
available up to 2006 although there are no published figures for 2005 due to a discontinuity in the data.
8
Figure 5 - Gross Value Added in Food and Drink Manufacturing in Scotland by Main
Sub-sectors, 1998, 2005
Gross Value Added in Food and Drink Manufacturing in Scotland by Main sub-sectors, 1998, 2005
40.2
Animal Feed
2005
1998
58.3
Fruit & Vegetable Processing
51.2
23.9
118.5
Dairy Products
109.3
202.1
Meat Processing
204.9
295.4
Fish Processing
215.6
566.4
Other Food Products
408.4
1581.7
Beverages
969.6
0
200
400
600
800
1000
1200
1400
1600
1800
£ million
Source: ABI 2005
Figure 6 shows a breakdown of the GVA sub sector contribution for the UK in 1998 and 2005.
While in both Scotland and the UK most sub-sectors show GVA growth, there are
some notable differences in GVA performance, which is illustrated in Figure 7.
Figure 6 - Gross Value Added in Food and Drink Manufacturing in the UK by Main
Sub-sectors, 1998, 2005
Gross Value Added in Food and Drink Manufacturing in the UK by Main sub-sectors, 1998, 2005
Fish Processing
Animal Feed
Dairy Products
538
2005
1998
1,762
673
826
1,055
1,470
1,589
Fruit & Vegetable Processing
1,321
3,384
Meat Processing
2,884
4,000
Beverages
3,496
8,847
Other Food Products
0
Source: ABI 2006
1998 and 2004 data for Beverages
6,488
1,000
2,000
3,000
4,000
5,000
£ million
9
6,000
7,000
8,000
9,000
10,000
Figure 7 – Food and Drink GVA Growth in Scotland and the UK by Main Sub-sectors
UK and Scotland
Food and Drink Subsectors Growth 1998 - 2005
Animal Feed
Beverages
Dairy Products
Fish Processing
Fruit & Vegetable Processing
Meat Processing
Other Food Products
-80.0
Source: ABI 2006
1998 and 2004 data for UK Beverages
-30.0
20.0
UK Percentage Change
70.0
120.0
170.0
Scotland Percentage Change
There were notable differences in four sub-sectors: GVA growth in Fruit and Vegetable
Processing and Beverages increased much more in Scotland than the UK as a whole; and
Dairy Products and Fish Processing increased in Scotland while these declined in the UK as a
whole. Table 5 compares the GVA growth of each of the main sub-sectors.
Table 5 – Comparison of Main Sub-sector Growth in Scotland and the UK
Food & Drink
UK
Scotland
Difference
Fruit & Vegetable Processing
20.3%
114.2%
93.90%
Beverages
14.4%
63.1%
48.70%
Other Food Products
36.4%
38.7%
2.30%
Fish Processing
-69.5%
37.0%
106.50%
Dairy Products
-28.2%
8.4%
36.60%
Meat Processing
17.3%
-1.4%
-18.70%
Animal Feed
-18.5%
-31.0%
-12.50%
Source: ABI
10
Employment and Productivity
Employment within the food and drink industry has fallen by 8,000 since 1998 (see Figure 6) as
the industry has focussed on increasing its productivity in an attempt to boost its
competitiveness (see Figure 8).
Figure 8 - Employment in Food and Drink in Scotland 1998-2005
Employe e s in Food a nd Drink in Scotla nd 1998-2005
58
57
56
56
54
54
53
Employees '000
52
52
51
50
49
48
48
46
44
42
1998
1999
2000
2001
2002
2003
2004
2005
Source: ABI
Figure 9 below sets out the productivity improvements, measured in GVA per employee
between 1998 and 2005. By 2005, the average worker produced almost £60,000 of GVA, an
increase in current prices of 62% since 1998. To put this in context, in 2005, the Scottish
average (excluding financial services) was £44,560 GVA per employee and grew by 47% over
the same period.
Figure 9 - GVA per employee in food and drink 1998-2005,
GVA pe r Employe e in Food a nd Drink in Scotla nd 1998-2005
70000
59867
60000
56182
50000
46531
GVA (£)
40722
40000
37040
38352
35743
36457
1999
2000
30000
20000
10000
0
1998
2001
2002
Source: ABI
11
2003
2004
2005
This increase in productivity has principally been caused by the spirits sector which over the
period 1998-2005 doubled its productivity per employee from £81,100 to £168,500 in current
prices. Despite employing less than 8,000 or 1/6th of the workforce, directly, it accounts for
almost 46% of the total GVA from food and drink. Furthermore, the spirits industry has been
able to increase its proportion of GVA from 38% of turnover to almost 53%. This dominance in
the importance of spirits to GVA growth is shown in Figure 10 below.
Thus, excluding spirits, employment in non-beverage food and drink is characterised by low
productivity. In 2005, productivity per employee was only 87% of the Scottish average and the
rate of growth of 35%, in current prices, was significantly below the average across Scotland.
Figure 10 - GVA in Food and Drink, Spirits and Other Food and Drink 1998-2005
GVA per Employee Spirits vs Non Spirits
180000
168500
154300
160000
GVA per Employee (£)
140000
121200
120000
100000
90700
81100
97300
89200
80800
80000
40000
59867
56182
60000
37040
27500
40722
38352
36457
35743
28662
27152
46531
29152
28445
30851
36732
38632
20000
0
1998
1999
2000
2001
2002
2003
2004
2005
Year
Food and Drink Total
Spirits
Excluding Spirits
Source ABI and Scottish Enterprise Analysis
The food and drink industry is characterised by a generally lower skilled workforce than
elsewhere in Scotland with higher proportions of people employed in process, plant, machine
operative & elementary roles (2/3rds of all food & drink employees.) There is a shortage of food
scientists, technologists, engineers, electricians and skilled (especially craft)
workers.
To
maintain and improve productivity and competitiveness, management and supervisory skills
must all be improved, and the quality and supply of technical, practical and craft skills need to
be increased.
12
It is likely therefore that most of the increase in productivity to date has been through product
and process innovation rather than investment in the skills of the workforce, or indeed capital
expenditure. Merger and acquisition activity has resulted in increased concentration in the
sector with the result that the average company size in food and drink is larger than elsewhere
in manufacturing. Resulting rationalisation and economies of scale will have contributed to the
increased labour productivity.
INDUSTRY PERFORMANCE AGAINST KEY BENCHMARKS
The industry leadership organisation Scotland food and drink aims to drive up the overall
performance of the Scottish food and drink industry and intends to measure this against key
benchmarks of growth in GVA. These are:
 Manufacturing in Scotland
 The Scottish economy as a whole
 The food and drink industry across the UK
 Manufacturing in the UK
Unfortunately, there is a discontinuity in the official statistics for UK food and drink and figures
for 2005 are not available. The analysis below therefore reflects performance from 1998 to
2004. The index of GVA does allow more up to date analysis to be carried out however and
this is reported later.
However the two measures are methodologically different and not
directly comparable2.
Economic Performance
Figure 11 below shows that compared to these benchmarks, overall the Scottish food and drink
industry is performing well. Despite competitive pressures, the Scottish food and drink industry
overall has managed to increase its output and therefore potentially its competitiveness and
sustainability.
2
For more detail on this, please see http://www.scotland.gov.uk/Topics/Statistics/Browse/Economy/gdp
13
Figure 11 – Change in GVA from Food and Drink and other benchmarks 1998-2004
Total change in GVA from 1998-2004
35%
32%
30%
% Changes 1998-2004 (Current Prices)
30%
25%
20%
19%
15%
10%
5%
0%
F&D Scotland
-5%
Mfr Scotland
Scottish economy
-3%
F&D UK
Mfr
UK
-2%
-10%
Sector
Source ABI, Scottish Enterprise Analysis
While manufacturing in Scotland has registered a small decrease of 3% in current prices, the
food and drink industry has grown by 32%. This is almost twice the increase of the UK food
and drink industry at 19% growth over the same period.
The cost pressures alluded to earlier, force manufacturers to become more productive.
Improved productivity is a key area of our strategic and operational support to the food and
drink industry. The performance of the industry in Scotland is striking, with the GVA per
employee outstripping the benchmarks, as shown in Figure 12.
14
Figure 12 – Change in GVA/ Employee for Food and Drink and other Benchmarks,
1998-2004
Change in GVA/Employee from 1998-2004
% Changes 1998-2004 (Current Prices)
60%
52%
50%
40%
35%
33%
28%
30%
20%
10%
0%
F&D Scotland
Mfr Scotland
F&D UK
Mfr UK
Sector
Source ABI, Scottish Enterprise Analysis
Looking at the index of growth for each of the benchmarks, Figure 13 below sets out how the
Scottish industry has compared with each.
Figure 13 – Index of Growth of Food and Drink against Benchmarks
Index of Growth for Benchmarks for Food and Drink
110
Index of Growth (1998 = 100)
105
100
95
90
85
80
1998
1999
2000
2001
F&D Scotland
2002
F&D UK
Source: ABI, Scottish Enterprise
15
2003
2004
Mfr Scotland
2005
Mfr UK
2006
2007
As can be seen from the diagram, the Scottish food and drink industry outperforms each of the
benchmarks.
CONTRIBUTION TO PERFORMANCE COMMITTEE INDICATORS
Beyond the overall GVA, employment and productivity measures, there are two further
Performance Committee indicators of particular relevance. These are:
 Level of exports
 Business expenditure on R&D
Level of Exports
A key role for SE and Scottish Development International (SDI) in delivering against the food
and drink industry strategy is to help companies’ access international markets and compete
globally. Overall, the Scottish food and drink industry has a very strong export performance,
accounting for over 18% of Scotland’s overseas exports in 2006, up from 14% in 2002. With
exports now totalled at £3.7bn, the Scottish industry makes up one-third of the UK total food
and drink exports.
It is clear from Figure 14 that the great majority of this is exports of spirits, principally whisky,
which accounts for almost 90% of Scottish food and drink exports. Even in current prices, the
remainder of the food and drink industry has seen a fall of around 7% over the period. Again,
this serves to underline the importance of the spirits industry both to the food and drink industry
but also the economy overall.
16
Figure 14 – Exports from the Food and Drink Industry 2002-2006
Exports from Food and Drink Industry
4,000
3,740
3,510
3,500
Exports (£m)
3,000
2,500
3,300
2,880
2,780
2,305
3,070
3,030
2,450
2,600
2,000
1,500
1,000
475
500
430
440
430
440
0
2002
2003
2004
2005
2006
Year
Food, products and beverages
Exports of spirits
Non-spirits
Source, Global Connections Survey 2007
In terms of export destinations, Europe is the largest market for Scottish food and drink
exports, accounting for 42% of the total. Asia and North America are also significant markets,
accounting for 20% and 17% of the total respectively. By way of context, each employee in
food and drink exports nine times the Scottish average of exports though this is dominated by
spirits in which each employee will export almost 50 times the Scottish average. For the
remainder of food and drink, the level is around 30% above the average.
Business Expenditure on Research and Development
Business expenditure on research and development is one, perhaps rather narrow, measure,
frequently taken as a proxy for innovation although its focus is on ‘technical R&D’ rather than
the wider concept of innovation activity. Technical R&D is not an area that food and drink firms
invest in heavily as can be seen from Figure 15 below.
17
Figure 15 - Expenditure on R&D by Food and Drink Companies,
Food and Drink Expenditure on R&D 1998-2006
8000
7490
1.3%
7000
1.4%
1.2%
R&D Spend (£'000
6000
1.0%
5176
0.9%
5000
0.6%
2937
3000
2268
0.5%
0.8%
0.8%
3762
0.7%
4000
0.6%
3120
0.4%
0.6%
2326
0.4%
1871
2000
% of total Business R&D
6147
1.1%
0.2%
1000
0
0.0%
1998
1999
2000
2001
Food, products and beverages
2002
2003
2004
2005
2006
Food as a % of total Scottish R&D
Source: Scottish Government, Scottish Enterprise Analysis
Overall, the proportion of business expenditure on research and development, while growing,
remains extremely small and by 2006 accounted for only 1.3% of the Scottish total. The level
of R&D expenditure per employee is less than half of the Scottish average.
The EU Community Innovation Survey takes a wider definition of innovation3. The most recent
survey, carried out in 2005, shows the food and drink sector with a lower overall rate of
innovation activity (45%) than Scottish industry as a whole (56%). A significant part of this
difference is accounted for by a lower proportion of these businesses engaging in process
innovation.
In contrast they have an above average rate of product innovation, driven by powerful retailer
and consumer pressures for continuous new product development. This rapid response is vital
in such a competitive market, but it masks a low level of engagement in medium and longer
term R&D, which could yield more sustainable benefits. It is also apparent in the generally low
3 The Fourth Community Innovation Survey (CIS 4), conducted in every EU member state collects data on innovation
activities in enterprises, namely on product innovation (goods or services) and process innovation. A product innovation
is the market introduction of a new or a significantly improved good or service. A process innovation is the implementation
of a new or significantly improved production process, distribution method or support activity for goods or services.
18
sector uptake of grants such as SMART (3% of all awards), SPUR (5% of all awards) and R&D
Plus (5.5% of all awards).
Despite the low level of BERD, Scotland has a significant food science research base. The
network is extensive and world leading in certain agri-food related disciplines where Scotland
has a high share of world publishing.
Particular R&D strengths are in the areas of crop
science, dairy, functional foods and dietary research. The strongest areas of research are in
the primary/agriculture part of the industry and most of the output is in core (rather than near
market) science and take-up by the domestic food industry is low.
GROWTH OPPORTUNITIES FOR FOOD AND DRINK
The GVA of the food and drink industry has shown continual growth over the last seven years
and it is believed this growth can be accelerated if the industry takes full advantage of the
growth market opportunities internationally, within the UK and in the health and well-being
area. Scotland’s food and drink industry has real advantage in terms of the excellence of its
raw materials, high animal welfare standards and production systems, an increasing number of
strong consumer brands, real strengths in crop, animal husbandry and human nutrition
research, and many high performing, often family owned businesses which plays well into the
consumer desire for provenance.
The other key advantage the industry has in Scotland is the huge step forward that has been
made to tackle fragmentation within the industry. The establishment of Scotland Food and
Drink, where all the key players within the supply chain now have shared ambitions and are
moving towards an integrated approach plan focussed on how to achieve the vision, and the
launch of the Scottish Government’s National Food and Drink Policy which is aligned to the
industry vision, will have a significant role to play in helping the industry achieve it.
The specific growth market opportunities are as follows:
International Markets
Europe has traditionally been the largest market for Scottish food and drink exports and the
strength of the Euro coupled with continual demand for premium products such as seafood and
whisky, indicates that such opportunities will continue. Asia and North America are becoming
increasingly significant, particularly for luxury goods such as whisky, shortbread and salmon.
Scotch whisky is an iconic product which secures huge premiums, particularly in the new
growth economies of China, India, Eastern Europe and South America. This spread across
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international markets should ensure good growth for the Scotch whisky industry for years to
come and offer potential for other food and drink products as well as they can benefit from the
‘halo’ effect of Scotch Whisky both in terms of imagery and networks.
UK Markets
While the growth potential internationally is significant, the UK market remains important to
Scotland’s food and drink industry. Figure 16 provides an overview of the destination of sales,
for each of the key sub-sectors of the food and drink processing industry. This gives a flavour
of the difference between sub-sectors such as beverages, with 42% of overall product sold
overseas, and meat, dairy and “other products” (which includes bakery) which are
predominantly sold in the UK market.
Fig 16- Destination of the Majority of Scottish Processors' Sales by Sector, 2008
Source: Research on the Levels of Scottish Primary Food and Drink Produce Processed in Scotland, 2008 –
Scottish Government, Food and Drink in Scotland, Key Facts
UK Food Retail
Total food retail sales in the UK reached £106.6bn in 2006 and, despite recent economic
uncertainty, are still forecast by Mintel to reach £128.7bn by 2012. The UK sector is one of the
most advanced in the world and more concentrated than in many countries of comparable size.
20
The dominant trend over the last few years has been for consumers to trade up to more
premium product lines and premium retailers such as Waitrose have performed well in this
environment. There has been a strong focus on provenance, premium own-label ranges, fairtrade, speciality & fine foods, organics and locally sourced products. The premium market
share is currently £14.5bn and forecast to grow by 40% over the next 5 years to over £20bn.
Scottish producers and processors are well placed to benefit from this sustained consumer
interest in food provenance and the wider environmental and ethical impacts of food production
– as well as the taste for premium products.
However, as the economic slowdown continues, it is the smaller discount operators who lead
the market in terms of growth. Budget retailers such as Aldi, Lidl, Iceland and Farmfoods all
achieved double-digit sales uplifts last year – against the market average of 6.2% sales growth.
This is likely to continue as consumers become more value conscious and the UK market will
display a price-premium dichotomy, with the possibility that mid-range products are squeezed
out. This will make the international markets even more important.
UK Foodservice
Mintel estimates that the eating-out market in the UK was worth £30.4bn in 2007 and continues
to show significant growth. Whilst economic uncertainty may produce a moderate slow down
(estimated at less than 3% in 2007, for the first time since the 1990s) the market will grow by
an estimated 20% at current prices to reach a value of £36.6bn by 2012. The restaurant
segment is predicted to remain dominant and display the highest rate of growth over this
period.
Health – the dominant global trend
Health, nutrition and wellbeing are now key selling points used by many mainstream
companies in the global food and drink industry.
Consumers have a strong interest in
“naturally healthy” and health-enhancing products which has driven strong growth in this
market – alongside the more specialised functional foods and vitamins & supplements.
In 2006, the global market for these categories was £224bn - up 29% since 2002. The global
market is forecast to grow by 26% to £282.5bn by 2011. (Euromonitor Health and Wellness
Global Report 2007) In the UK market the current estimate is that one-quarter of products are
now sold on the “healthy” and “better for you” platform.
Scotland has taken a strong market-led focus in this area, based on those categories where we
have existing, natural products with intrinsic health value. These include oats, berries and fish
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rich in omega-3 oils.
Future opportunities in new ingredients, driven by science and
technology, are most likely to come from the academic research base, with opportunities for
inward investment and joint ventures. The functionality of food and its health giving properties
also link well into some of the strengths around life science research in Scotland, particularly
linked to heart health, bone disease, diabetes and gut health.
SCOTTISH ENTERPRISE’S ROLE IN SUPPORTING INDUSTRY GROWTH
The economic overview demonstrates that the food and drink industry continues to make an
important contribution to the Scottish economy, has been outperforming its key benchmarks,
productivity has been rising and the contribution to Scottish exports is significant. There also
remain significant opportunities for growth both within the UK and Internationally. That said,
there remain challenges in improving the productivity of the food, rather than drink sector,
increasing the value of food exports and increasing the level of innovation overall.
The launch of Scotland Food & Drink, the industry leadership organisation, demonstrates clear
industry ownership of the Strategy and the ambition to drive forward step-changes in industry
performance. Scottish Enterprise is working closely with the industry and stakeholders through
Scotland Food & Drink to collectively address the challenges and opportunities and to achieve
the ambition of being a £10bn industry. This includes focusing on key themes of skills for
growth, collaborative value networks, building our international reputation and innovation.
Specifically Scottish Enterprise is focusing on the following:
1.
Improving Productivity - Industry scale
Figure 13 shows that since 1999 the number of food and drink enterprises in Scotland has
fallen at an average rate of 2.4 per annum from 1,475 to 1,237 in 2005. Despite this, industry
turnover has increased at an average annual rate of 2.4 from £6.6bn to £7.6bn in 2005.
This gradual consolidation is beginning to accelerate, as witnessed by recent activity such as
the acquisition of Grampian Country Food Group by Vion Food Group (Netherlands), the
acquisition of Scottish & Newcastle plc by Heineken (Netherlands) and the smaller scale
acquisition of ScotTrout by Scottish company Dawnfresh Seafoods, and is seeing larger
companies become more important to the food & drink industry as a whole.
Analysis of industry trends (OC&C Grocer Index 2007) shows that going forward, as food
manufacturers continue to see profit margins squeezed due to high raw material prices,
increased energy costs and a wider economic slowdown, it is the larger scale operations that
22
are best placed to survive in the new environment. It will therefore be important to continue to
support Scottish companies, where appropriate, to access the investment required to support
business growth – organically or through consolidation – to achieve a significant industry of
scale in Scotland. Scottish Enterprise will continue to work with the 230 account managed
food and drink companies to ensure continual growth and access to investment; utilise the
companies of scale and global companies programmes as well as looking at new opportunities
for joint ventures, pan-European partnerships and co-operative models.
Figure 17 – Scottish Food & Drink Enterprises and Turnover, 1999-2005
No. of Units
Total turnover (£m)
1,500
7,800
7,600
1,450
Business Units
7,200
7,000
1,350
6,800
1,300
6,600
1,250
6,400
Turnover £ million
7,400
1,400
6,200
1,200
6,000
1,150
5,800
1,100
5,600
1999
2000
2001
2002
2003
2004
2005
Source: Scottish Executive
Experian Report to Scottish Enterprise (January 2008) – “Scottish Food and Drink Manufacturing – Industry
Performance Tracking”
2.
Innovation
The development of new products, processes and markets is vital to achieving the goals of
increased productivity and sustainable economic growth in Scotland’s food and drink industry.
Scottish Enterprise has a key role to play, alongside Scotland Food & Drink, to help improve
the innovation performance of the industry. Together we are building on an existing Innovation
Services project which has been running for 2 years and is meeting or exceeding most of its
key targets as well as fully utilising the Scottish Manufacturing Advisory Service (SMAS).
Going forward, innovation support to the sector will be enhanced by the proposed development
of an innovation centre, to combine food research and marketing expertise. This will have a
particular focus on food & health innovation, building on the recent merger of Rowett Research
Institute with Aberdeen University, which creates the UK’s largest research resource in nutrition
and health.
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3.
Premium Market Development
The size and nature of the premium market opportunities in the UK and internationally offers
the potential for sustained, profitable growth for the Scottish food and drink industry. Scottish
Enterprise has developed strong relationships with the key UK retailers and foodservice
operators to help our companies access these key market players. Since April 2005, SE has
invested £600k in the UK Market Development programme, which has resulted in an estimated
£7m of additional sales for Scottish companies – both in retail and foodservice markets.
A more predatory market penetration strategy has been agreed with Scotland Food & Drink,
Scottish Government, SDI and SE to ensure that the industry is maximising the opportunities
available to them in both the UK and internationally. In particular, the international aspect will
be critical if the Growth Target is to be met, and this will see an enhanced range of activities
underway, including specific targeting of European retailers.
4.
Collaborative Value Network
The concept is to build world class food and drink collaborative supply chains where producers,
processors and others work together to deliver what the market wants, generating value for all,
in a climate of trust and mutual respect. This will involve the setting up of a research pool to
share existing cross-sector research and commission new work to inform action at an industry
and sector level. It will also include the establishment of a coaching academy and virtual
excellence centre, with a Scottish academic partner.
The centre will be responsible for
knowledge accumulation and transfer, lead in the development of tools and techniques,
equipping and enabling companies to embed change in culture and behaviours. This project
has the potential net benefit of generating £1.5bn additional wealth over the next 10 years.
CONCLUSION
The Scottish food and drink industry is an important component of the Scottish economy and
will be a significant contributor to its future growth. This is an industry that is demonstrating
strong performance to date and has a sustainable and profitable future, given the right
conditions for business growth. There are undoubtedly significant challenges to overcome, but
this is a sector with a strong chance of weathering future economic uncertainties – and vital in
providing Scotland with a diverse and balanced portfolio across the national economy.
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Appendix 1: Food and Drink Supply Chain – Definitions and Key Statistics
The food and drink supply chain in its widest sense includes food and drink manufacturing,
wholesaling, retail sales, non residential catering, agriculture and fisheries.
Food
and
drink
manufacturing
Gross
value
added
Food and drink industry
£2.9 billion
£7.3 billion
Sales (2005)
£7.6 billion
£26.0 billion
Employment (2006)
45,700
360,5574
Exports (2006)
£3.7 billion
£4.0 billion
1,237
21,850
(2005)
Number
of
business
units (2005)

4
Employment figures for agriculture comprise working occupiers, spouses of occupier and employees. Fisheries figures refer
to sea fisheries. Fish processing is included in manufacturing.
- not available on same basis
25
Trend in gross value added in the food and drink industry in Scotland, 1998-2005
Source: Annual Business Inquiry 2005

Gross value added in manufacturing has been on the increase in recent years and increased by
46 to £2873 million since 2000. GVA in retailing and non-residential catering also increased
during the 1998-2005 period.

The wholesale sector saw fluctuations in its GVA and in 2005 it was 21 lower than in 1998.

Food and drink manufacturing accounted for 40 of GVA in 2005.
26
Appendix 2: Top 70 Scottish Food & Drink Companies
Rank
Company Name
Owned
Sales
05/06 £M
Managed
(TBC)
Sector
1
2
SCOTTISH &
NEWCASTLE
PLC
GRAMPIAN
COUNTRY FOOD
GROUP
SCO
3
DIAGEO
SCOTLAND
4
ROBERT
WISEMAN &
SONS
Milk
5
CHIVAS
BROTHERS
Whisky
6
WILLIAM GRANT
& SONS
Whisky
7
THE EDRINGTON
GROUP
Whisky
8
JAMES FINLAY
9
WHYTE AND
MACKAY
Whisky
10
YOUNGS
SEAFOOD
Seafood
11
A.G. BARR P.L.C.
12
BELHAVEN
BREWERY
COMPANY
Brewing
13
A MCLELLAND &
SON
Cheese
14
WA BAXTERS &
SONS
Grocery
15
J.W. GALLOWAY
Meat
16
ALBERT
BARTLETT &
SONS (AIRDRIE)
17
WALKERS
SHORTBREAD
18
MARINE
HARVEST
(SCOTLAND)
Acquired by
3,328.000
Brewing
Meat
Account
Heineken (Netherlands)
SCO
1,807.000
UK
883.000
SCO
568.564
FRA
362.588
SCO
352.600
SCO
263.400
UK
203.936
UK
161.0*
UK
157*
SCO
141.876
SCO
114.438
Vion Food Group (Netherlands)
Whisky
Tea & Coffee
Soft Drinks
Greene King (UK)
FRA
113.743
SCO
110.021
SCO
107.906
SCO
84.671
SCO
79.805
NDL
79.323
Fresh Foods
Bakery Products
Seafood
Pan-Fish (Norway)
27
19
JOHN DEWAR
AND SONS
20
KETTLE
PRODUCE
21
THE
GLENMORANGIE
COMPANY
22
FOOD
PARTNERS
(HOLDINGS)
23
HIGHLAND
SPRING
24
CAMPBELLS
PRIME MEAT
25
PAN FISH
SCOTLAND
26
BROWNS FOOD
GROUP
Meat
27
LIGHTBODY OF
HAMILTON
Cakes
28
FARNE SALMON
& TROUT
Seafood
29
SCOT-LAD
31
A.K. STODDART
30
SHETLAND
CATCH
75.940
SCO
74.524
FRA
58.213
SCO
56.75*
Vegetables
Whisky
Sandwiches/Snacks
Duke Street Capital (UK)
LCH
51.595
SCO
46.901
NOR
46.634
SCO
44.810
SCO
44.293
Bottled Water
Meat
Seafood
Finsbury Food Group, plc.(UK)
Iceland
44.221
Meat
SCO
43.009
Meat
SCO
42.876
SCO
42.869
40.856
Whisky
Trinidad
and
Tobago
SCO
38.9*
SCO
38.680
BVI
38.054
SCO
37.200
SCO
35.546
SCO
33.262
SCO
31.570
SCO
31.144
Seafood
BURN STEWART
DISTILLERS
32
Bermuda
Whisky
33
SCOT TROUT
Seafood
34
MACPHIE OF
GLENBERVIE
Food Ingredients
35
INVER HOUSE
DISTILLERS
Whisky
36
SCOTCH
PREMIER MEAT
37
WHITELINK
SEAFOODS
Seafood
38
MATHERS
(INVERURIE)
Meat
39
GLENRATH
FARMS
Eggs
40
THOMAS
TUNNOCK
Bakery Products
Meat
28
Dawnfresh Seafoods (Scotland)
41
MORRISON
BOWMORE
DISTILLERS
Whisky
42
TAYPACK
POTATOES
Potatoes
43
FRESH CATCH
Seafood
44
HJALTLAND
SEAFARMS UK
Seafood
45
BELCHER FOOD
PRODUCTS
46
GLEN CATRINE
BONDED
WAREHOUSE
Bottling
47
THISTLE
SEAFOODS
Seafood
48
DRAMBUIE
Whisky
49
SCOTTISH MILK
PRODUCTS
Cheese
50
SCO FRO
FOODS LTD
51
WOODROWS OF
DUNFERMLINE
52
IAN MACLEOD
DISTILLERS
Whisky
53
NOR-SEA
FOODS
Seafood
54
KINGDOM
CHEESE
Cheese
55
STRACHANS
Meat
56
DAWNFRESH
SEAFOODS
Seafood
57
ALEXANDER
BUCHAN
Fish
58
MATTHEW ALGIE
& COMPANY
59
A P JESS LTD.
60
SPEYMALT
WHISKY
DISTRIBUTORS
Whisky
61
SCOTPRIME
SEAFOODS
Seafood
62
CALEDONIAN
BOTTLERS
Bottling
JPN
29.741
SCO
29.390
SCO
29.169
NOR
27.387
SCO
27.165
SCO
25.978
SCO
24.539
NDL
24.163
UK
23.333
SCO
23.000
SCO
22.568
SCO
21.982*
SCO
21.115
SCO
20.429
SCO
19.913
SCO
19.735
SCO
19.664
SCO
19.184
SCO
18.982
SCO
16.641
UK
15.095
SCO
14.898*
Meat
Seafood / Grocery
Soft Drinks
Tea & Coffee
Meat
29
63
LOCH LOMOND
DISTILLERS
64
FJORD
SEAFOOD
SCOTLAND
Seafood
65
PATERSON
ARRAN
Bakery Products
SANGS (BANFF)
66
SCO
14.570
NOR
13.489
SCO
12.814
SCO
12.811
SCO
12.153
SCO
11.916
SCO
11.711
SCO
10.830
Whisky
Soft Drinks
67
BELL BAKERS
Bakery
68
MORTON'S
ROLLS LIMITED
Bakery Products
69
INTERNATIONAL
FISH CANNERS
Canned Food
70
JW HOLDINGS
Fish
Kenny Webster & Andy Anderson
(Scotland)
Source: Experian
* Turnover figures supplied by company and not from Experian National Business Database
30