Agri-Aware, a body set up by organisations in the farm and food industries to improve the image and understanding of agriculture and the food sector in Ireland, has just issued a report The Agriculture and Food Industry – Bigger, Brighter, Tougher prepared by Jim Power of Friends First. The report examines data on the employment performance of the food industry during the past twelve months as well as surveying the opinions of industry managers on the main challenges they face over the next 12 months as well as their views on prospects for the coming 5 years.
Unfortunately, the main finding that the report itself highlights – that one in seven jobs in Ireland are dependent on the agriculture and food industries – appears to be based on a flawed analysis of the survey data. No one would deny that the agri-food sector has a hugely important role to play in helping to turn the real economy round, and there is no doubt that it faces real challenges, as usefully documented in this report. But the attempt to puff the industry up into playing a bigger role than it actually does is simply part of the special interest pleading we see so much of in the run-up to the next budget.
To deal with the numbers issue first. The report concludes that its survey identifies 268,000 jobs supported directly or indirectly by the agri-food sector, which is 14% of those currently employed in the economy. This is based on a survey of a database of 3,814 companies, of which 1,361 companies were classified as directly part of the agri-food sector and the remaining 2,453 companies were classified as indirectly dependent on agri-food companies. The former group include food and drink manufacturing firms, forestry companies, agricultural service suppliers, livestock marts, breeding companies and live exporters. The latter group include professional service suppliers (accountants, veterinarians, financial service companies), agricultural supply merchants, animal and plant health companies, animal feed companies and grain merchants. The indirect employment was calculated by multiplying total employment in these companies by the fraction of their turnover estimated to be generated by the agri-food industry alone.
Questionnaires were mailed to all firms in the database and 1,031 companies responded, or a 27% response rate. As the response rate varied across the 20 sectors identified, the responses were adjusted to account for this differential response rate and the adjusted employment in the responding firms totalled 46,770. This was then grossed up to account for non-respondents to give a total employment of 151,675. To this total was then added employment in primary agriculture of 116,500 to arrive at the grand total of 268,175 jobs dependent on the agri-food sector.
There are two issues with this approach. The first is that the database is treated as the full population of relevant firms. This is likely to be the case given the involvement in Agri-Aware of leading industry representatives. However, to the extent that the database is incomplete, this would lead to an underestimation of the number of agri-food jobs.
More important is that, although the responses were stratified by sector, they were not stratified by size. In a survey of this kind larger firms are more likely to respond. The methodology used implicitly assumes that non-responding firms are equally as large as responding firms, and this is likely to seriously over-inflate the estimated total number of jobs.
To gain an idea of the degree of over-estimation, the survey results can be compared to the CSO employment figures for the food and drinks industry (NACE 15). The latest 2007 figure on the CSO website (which currently involves a good degree of imputation) is 43,300, compared to the Agri-Aware figure of direct food industry employment of 94,928. While the CSO numbers exclude firms with just 1 or 2 employees, and the Agri-Aware survey legitimately includes some other sectors such as forestry and the livestock marts, it is very unlikely that either of these factors accounts for this discrepancy. Also, the employment figure that the report uses for farming employment (116,500) exceeds the latest CSO figure in the QNHS first quarter of 102,700 persons employed not only in farming but also forestry and fishing. Thus it is highly probable that the Agri-Aware figure overestimates direct employment in the industry by up to 50,000 persons.
This still means that the agri-food sector supports over 10% of total employment and is thus a vital part of our economic base. It is thus of interest to read further what the survey finds about the performance and prospects for the food sector.
Three further points are highlighted in the report. The first is that the survey finds that employment among respondents in the direct and indirect food industry sectors has declined at a slower rate (around half) than the national average over the past 12 months – by 5% compared to a 10% national figure. The national figure is dominated by the falls in construction (down 30%) and admin jobs (down 19%) and the food industry figure is more or less in line with industry as a whole. However, this is all the more surprising given the dependence of the industry on the UK market and the outcry there was at the beginning of this year about the damage being done by the fall in sterling relative to the euro. That employment in the industry has held up as well as it has suggests that the government was right to ignore the special pleading for support put forward by IBEC and the IFA at that time.
The second is the identification of financing and cash flow as the single largest challenge facing the sector in the next 12 months. It is not clear what is the relative importance of supply side factors (the inability of the banks to extend credit) or demand side factors (declining profitability among food industry firms leading banks to be prudent in extending further credit) in contributing to this challenge. The report itself is in no doubt that the problem is the lack of banking credit and demands intermediate intervention by the government.
The third is the level of confidence among food firms about expansion possibilities in the medium term. Although on average respondents were evenly split (51% of companies felt they would expand in the next 5 years), the degree of confidence varied by sector. Food manufacturing firms involved in secondary processing and value added activities were slightly more confident of expanding (58%) than firms involved in primary processing (meat, 43%, dairy 32%) or animal feed (40%) or professional service firms (39%). By and large, these findings seem plausible though they do not allow us to say whether food firms overall are more or less optimistic about the future than other firms in the economy.