Biosector exports earn 2.5 times more per €100

Thursday, August 09, 2012

In 2008, every €100 of products exported from the agriculture, forestry, and fishing industries brought €52 of net foreign earnings into Ireland.

In terms of net foreign earnings, this was about two and a half times better than our other export industries, which returned only €19 for every €100 of exports.

Lower import requirements per euro of exports, and higher receipts of EU payments, are the main reasons for the better contribution to net foreign earnings from what economists call the ‘biosector’, which includes the food and beverage industries.

The findings are in a new report prepared by the Department’s Economics and Planning Division.

“This report underlines the key contribution which the agri-food sector can make to an export-led economic recovery,” said Agriculture Minister Simon Coveney.

The report’s main finding is that, in 2008, the biosector accounted for 40% (€8bn) of Ireland’s net foreign earnings from merchandise exports. This is more than double the biosector’s 19% share (€16bn) of merchandise exports in that year.

Research economist Brendan Riordan supervised the preparation of the report.

* What is the significance for the Irish economy of net foreign earnings? Does it mean that exporting a tonne of skim milk powder for €2,300 brings €1,200 into Ireland? (2,300 x 0.52=1,200).

>>Actually, the €2,300 of skim-milk powder exports are likely to add more than €1,200 into Ireland, as its value-added in Ireland would be well above the average for the biosector.

* The report says the biosector’s merchandise exports are €16bn. Why is this about two times the food exports announced annually by Bord Bia?

>> Bord Bia, and most economists, use data from the CSO Trade Statistics. The categories included in the agri-food total do not include products where only a few firms account for most of the exports.

In contrast, our report used the data of all firms in the sector, as provided for the Census of Industrial Production. This includes all of the products they exported.

A threat to the privacy of a firm’s business could arise in publication of exports of cola concentrate, for example, when Coca-Cola and Pepsi Cola account for nearly all the exports. Then, publication of total exports of cola concentrate would enable each of them to surmise how much business their competitor was doing.

* Does the biosector’s proportion of net foreign earnings from exports change much from year to year? For example, will next winter’s expected higher costs for imported livestock feed have an effect?

>> We have found that the biosector’s proportion of net foreign earnings from merchandise exports has been quite stable.

In fact the biosector’s 40% share in 2008 is the same as the revised figure for 2005. That said, a fall in the value of biosector exports or increased imports would, indeed, tend to reduce the biosector share.

* What are the important benefits of industry other than net foreign earnings, and how does the biosector rate for those benefits?

>>We report that from every €100 of biosector exports, €52 remains in the economy, adding to spending, investment and employment. In contrast, €100 exports of other merchandise leaves only €19 in the economy. Thus, in addition to providing a very effective boost to our international balance of payments, biosector exports are also effective in raising levels of business and employment in our economy.

The way this works is most clearly seen in the case of meat factories, where most of the money received for exports is spent on buying cattle, etc, and on pay for the factory workers.

Farmers selling to the meat factory would also spend a large part of what they get for their cattle on buying fertilisers, feed and other inputs, in addition to household expenses, that, in their turn, largely provide sales for other Irish businesses.

Eventually, some of the spending leaks out of the economy, as imports of goods and services, but most has added to earnings in Ireland and thus to our national income.

In contrast, the money received by exporters of typical non-biosector products soon leaks out of the economy, as imports needed in manufacture of the export items and as payments to their head offices abroad.

The linkage between exports and the rest of the economy is largely captured by the CSO input-output tables.

The latest figures are for 2005, and show that €100 of office machinery and equipment sales lead to spending on imports of €88, for example.

This figure, and all those used in our report, take account of imports made directly by the exporting firm itself, and indirect imports arising from other outlays made by the firm, including imports of their suppliers, and imports that eventually arise from household expenditure.

* Is the €1.6bn received from the EU in the form of CAP payments (mostly the single farm payment) the major factor in high net foreign earnings?

>>Even more important than transfers from the EU is the relatively low usage of imports in the production of biosector exports.