Food and Agriculture: A Value Chain Analysis

A value chain is made up of all the processes that add value to a product. In the case of food and drink, the value chain begins with agriculture. Farms add value by producing cattle, milk, crops and fruit.  The food and drink manufacturers then add value by producing goods from these, including meat, butter, specialised health foods and fortified milk powders. Distributors are the next link in the chain and they add value by bringing the output to market through retailers and wholesalers, including as exports to other countries.

This publication presents a Value Chain analysis of Agriculture and Food activities in the Irish economy. This has been done using the National Accounts as an integrating framework to present a detailed and consistent analysis of the sectors.  In fact, this frontier series leverages a combination of new and existing methodology found in the Supply and Use Tables and the Institutional Sector Accounts to produce much more detailed estimates of production and consumption of agricultural, food and beverage products in the economy.

A value chain analysis follows economic transactions from output, imports, and exports, through value added, to dividends and assets. This publication illustrates the highly globalised nature of the value chain in agriculture, food and drink in Ireland. This is apparent in both inflows and outflows. The country has large imports of food and drink, and large investment here by foreign-owned food and drink producers, but also notable inflows of income from exports and dividends from foreign subsidiaries of Irish-owned MNEs. The food and drink value chain is correspondingly highly exposed to outflows: it relies on markets in other countries for goods, and households consume large volumes of imports. Ultimately households, as farmers, as employees, and as consumers, are affected by the agriculture and food value chain.

Of course, this analysis could have presented any value chain in the economy, however, Agriculture and Food was chosen as these activities are significantly impacted by Brexit. This report gives some visibility of where the Brexit-induced pressure points on the value chain might arise and will be of interest to policy makers and analysts. The long term strategic importance for the Irish economy of this value chain was another important argument for inclusion.

In 2018 Ireland produced €8.7 billion worth of agricultural products. This output was mostly made up of cattle and milk, while crops were a relatively small part. Ireland had the tenth largest output of agricultural products of the EU 27 countries in 2018 (the fifteenth largest country by area), and was the eighth largest producer of live animals and animal products in the Union. Of this output, Irish agricultural exports were worth €640m in 2018. Most of these exports consisted of live animals and animal products and the majority went to the United Kingdom.

Much of Ireland’s agricultural produce goes into the food industry here (as intermediate consumption) for processing and is then exported. This includes €2.8 billion of dairy products and €2.7 billion of meat. Food and drink produced by domestic Irish firms were exported to 159 countries in 2018. The United Kingdom (UK) accounted for 44% of these exports by domestic food producers.

The majority of agricultural output is purchased by domestically owned food and drink corporations, and this publication focuses on these producers, rather than the foreign-owned multinationals located here.  These domestically owned corporations operate at a global level and earn around a third of their income as dividends from their foreign owned subsidiaries and affiliates. In 2018 these corporations received almost €0.5 billion in investment income from their subsidiaries abroad, which was more than half the total net profit on their production here in Ireland.

The Irish owned MNEs operating in the Food industry invest significantly in Research and Development activities as part of product development. This investment by domestic producers in innovation is related in particular to the production of food ingredients, food additives and more generally with the objective of moving up the value chain. These newer products, ingredients or final products meet the international demand for healthy food that promotes wellbeing.

In addition to the €7.2 billion of food exports from domestic firms, there were €14.6 billion of food and drink exports from foreign multi-nationals in Ireland. Exports thus account for the majority of Ireland’s €25.7 billion output of food and drink, with the remainder either being consumed in Irish households or being used as inputs into more production (animal feed and so on).

Foreign MNEs account for the majority of gross value added (GVA) in food and drink as well as the majority of these exports. After intermediate consumption costs, their gross value added was €7.1 billion. Around €1.1 billion was paid to their 21,000 employees here in Ireland and €5 billion flowed out to owners abroad either as dividends or reinvested earnings. In contrast, Irish producers had gross value added that was less than a third of the GVA of foreign-owned producers, but they paid €1.3 billion in wages to their 32,000 employees.

Household consumption of food and drink was €10.5 billion in 2018. This expenditure includes €1.2 billion in product taxes (less subsidies) and €2.8 billion in wholesalers’ and retailers’ margins. Of the remaining €6.5 billion ‘basic price’ expenditure, €3.3 billion (51%) went on imports, with the remainder going to food and drink producers here.

As well as providing necessities for Irish households, food and agriculture yields €6.3 billion in income to workers and €2.3 billion in tax. Overall this is a highly globalised part of the economy with very significant impacts on Ireland too.