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APPENDIX A: Technical Appendix

Industrial definitions

This study made extensive use of information published by the Scottish Government and Office for National Statistics ( ONS). Most of the published information classified primary producers, retailers, wholesalers, food and drink processors and other industrial sectors by the Standard Industrial Classification ( SIC) system. This included Input-Output, ABI, IDBR, GDP index and manufactured exports index data. Whilst the SIC system allows transparent and consistent analyses there are a number of issues, effecting primary produce in particular, which need to considered when interpreting the data.

Input-Output data for Scotland can be presented by commodity or industry, respectively showing the value and characteristics of goods and services or the value and characteristics of establishments that produce goods and services. This is an important distinction as most establishments produce a number of goods and services. For example, a butcher is likely to process meat whilst at the same time providing retail or wholesale services. On the primary produce side farms are likely to offer hospitality services alongside traditional agricultural output.

Establishments are assigned to industrial sectors on the basis of their principal activity; the principal activity of an establishment is the activity that contributes most to Gross Value Added ( GVA). Where GVA data are not available the principal activity can be identified through other indicators such as turnover or output. For example, a farm generating agricultural produce and offering bed and breakfast services would be assigned to 'hotels and restaurants' if the value added by bed breakfast was greater than agricultural produce value added.

In addition to dealing with establishments producing a range of goods and services, the SIC system is prescriptive in allocating activities to industrial sectors. For example vessels engaged in fishing, processing and freezing of fish would be classified as 'sea fishing'. Additionally, retail, wholesale and packaging activities cover 'sale without transformation' including sorting, grading and assembling of goods, mixing (blending) of goods (e.g. wine), bottling (with or without preceding bottle cleaning), packing, breaking bulk and re-packing for distribution in smaller lots, storage (whether or not frozen or chilled) and cleaning and drying of agricultural products. The aforementioned activities would not be included in the processing sectors unless undertaken alongside food and drink processing and processing was the main activity of the establishment.

The arrangement of activities by SIC does not impact on the accuracy of any data presented in this report, nor is it an issue specifically for Input-Output data. The most significant implication for this study is that stakeholders familiar with the primary produce sector may find activities partly captured in unanticipated industrial sectors. An overview of the SIC system is provided through the link below:
www.statistics.gov.uk/methods_quality/sic/methodological_guide.pdf

Satellite accounts

Satellite accounts are advocated by a number of global bodies and the ONS as encouraging more flexible use of general accounting frameworks. It allows the user to concentrate on and expand areas of interest while collapsing others to a more aggregate level (internal satellite account) or by adding material (external satellite account). In terms of the A more detailed overview of satellite accounts is provided by the United Nations Statistics Division: System of National Accounts: Chapter XXI).
http://unstats.un.org/unsd/sna1993/toctop.asp

Satellite accounts relevant to this study have also been developed by the ONS for the UK with the recent production of experimental accounts to measure and value the output of household production of meals including all meals and hot drinks requiring preparation. The accounts provide estimates for the number of adult and child portions of main meal types, types of sandwich and salads including the value of home-produced meals, using the average price of buying those meals in a café or restaurant.
www.statistics.gov.uk/hhsa/hhsa/Index.html

The core data presented in the report concentrates on Scottish Input-Output data, expanding areas related to primary produce and food and drink processing while collapsing others to a more aggregate level whilst also adding previously unpublished and estimated data. In this sense, the Input-Output data presented in this report forms both an internal primary produce satellite account with an additional external satellite account, namely exports from Scottish processors to processors in the rest of the UK. The summary internal and external satellite accounts are shown in Table A.1 and Table A.2 below.

The satellite accounts rearrange the published Input-Output data alongside additional internal and external data. This allowed production of many of the indicators outlined in this report such as the proportion of primary produce sourced from Scotland by Scottish processors. Most industrial sectors in the satellite accounts have been collapsed to broad industrial sections with a number of industrial sectors aggregated to form more relevant groups. These are as follows:

• Primary produce contains Input-Output sectors 1 agriculture, 3.1 sea fishing and 3.2 fish farming;
• Packaging contains Input-Output sectors 32 pulp, paper & paperboard, 33 paper & paperboard products, 47 rubber products and 48 plastic products;
• Transport contains Input-Output sectors 93 railway transport, 94 other land transport, 95 water transport and 96 air transport; and
• Finance contains Input-Output sectors 100.1 Banking, 100.2 other financial institutions, 101 insurance & pension funds, 102.1 auxiliary financial services not elsewhere classified and 102.2 auxiliary to insurance.

Table A.2 was developed through previously unpublished data provided by the Scottish Government and is presented in aggregate format to ensure confidential data are not disclosed.

Table A.2 links to Table A1 and thus the published Input-Output data for Scotland. The development of Table A.2 involved additional modelling work building a basic set of 'Scotland-rest of UK' Input-Output data. Firstly the 2004 UK Input-Output data were transformed with the UK combined use of products (domestic and imports) matrix stripped of imports from the rest of the world through an import penetration coefficient.

Secondly a set of Scottish import penetration coefficients were developed and applied to the estimated UK domestic use matrix. This provided data for sales from Scottish processors to processors in the rest of the UK. This is a similar approach to the 'technology assumption', discussed earlier in this report, used by the Scottish Government to estimate imports of primary produce across Scottish sectors. Arguably the assumption is stronger when applied to the Scottish and UK processing sectors, as there is greater level of detail.

Updating

A commonly cited weakness in Input-Output analysis is that data are frequently can dated and do not reflect recent industry and policy developments. To address this issue an updated version of the 2004 Scottish Input-Output data was produced for the calendar year 2007. A RAS process was used to iteratively adjust the rows and columns of the 2004 Input-Output table. The RAS process is used to balance Input-Output data by the Scottish Government.
www.scotland.gov.uk/Topics/Statistics/Browse/Economy/Input-Output

The RAS procedure updated the Input-Output tables by adjusting individual cells, rows and columns of the tables in a series of iterative steps. Target data for 2007 was developed using the Scottish Government GDP series and manufactured exports series. For example, the 2004 Input-Output table shows food and drink exports at £5,321 million. The index of food and drink exports from the manufactured exports series was 100 in 2004 rising to 115.5 in 2006. A 15.5% increase in food and drink exports gave a cell target £6,146 million in 2007 (in 2004 prices) whilst all other food and drink were increased by 2.2% general GDP growth for food and drink between 2004 and 2007.

This process was simultaneously carried out for all rows, columns and where possible individual cell entries. The 2007 primary produce chart shown overleaf is based on the updated 2007 Input-Output data and is consistent with the charts shown in the benchmarking section of this report. The chart should be used to illustrate broad patterns and is not intended to replace the main tables and charts for Scotland presented in throughout this report.

Further applications

The published Input-Output data covers all sectors of the Scotland's economy. The role of primary produce and types of processed foods could be explored in schools, social care and hospitals.

Standard impact and valuation exercises can be undertaken, numerous impact scenarios have been outlined in the Scottish Economic Report and Scottish Economic Statistics. Additionally, the benchmark data assembled in this study could be used to inform a number of 'what if' scenarios. For example what if the relationship between Scotland's hospitality and primary produce sectors were more like that of Italy? Or what if the processing sectors were more those in Denmark?

Other scenarios could be modelled showing how changes in price are transmitted through the sector or. Alternatively scenarios could be examined where the supply of selected sectors is constrained whilst others continue to expand.

Table A.1 Internal satellite account

Table A.2 External Satellite Account

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