Aquaculture sector - wider economic impacts: estimates

11. Methodological Appendix

This section sets out how GVA and employment impacts across the report were estimated.

11.1 Measuring Economic Impact

To express the economic contribution made by the Scottish aquaculture sector, the analysis relied on two widely accepted measures of economic contribution: gross value added (GVA) and jobs.

• GVA is a measure of the value that an organisation, company or industry adds to the economy through its operations. The analysis uses the production approach to measuring this contribution, where the GVA is equal to the value of production less the value of the inputs used; and
• employment (jobs) is measured in terms of headcount jobs supported unless stated otherwise.

One of the reasons these measures are so widely used is that they provide a convenient way of capturing the entire economic contribution of an organisation in a single number.

The quantifiable outputs from this study have been rounded.

11.2 Economic Impacts

The total GVA and employment contributions made by an organisation come from three sources: the direct, the indirect and the induced effect.

The direct impact captures the contribution to economic activity that an organisation can claim as being exclusively its own. It is given by an organisation’s direct GVA which is represented by its staff costs plus profits, and the number of people it employs.

Economic activity generators do not live in a vacuum and, as a result, they have an impact on other economic entities. This is captured by an organisation’s indirect and induced contribution to economic activity and is measured using economic multipliers from the Scottish and UK Input-Output tables.

11.2.1 Direct GVA

To estimate the sector’s direct GVA, it was necessary to estimate profits and staff costs, where possible, or to use the difference between turnover and non-staff operational costs otherwise.

The direct GVA for the salmon production sector was estimated by sourcing profits and staff costs from the companies’ accounts.

To estimate the direct GVA of processing companies, it was first necessary to estimate staff costs and profits. Staff costs for those companies not included in the survey were estimated by multiplying an estimate of the sector staff costs provided in a 2018 report by Seafish to the share of direct employment in the sector not covered by survey respondents^[19]. Profits were estimated based on the share of profits to income of the salmon sector, weighted by the data in the Seafish report^[20].

The direct GVA for the shellfish sector was estimated by taking the difference between its turnover and operational expenditure, due to the difficulty in estimating profits for the sector given businesses’ size. The turnover was sourced from the Scottish Government’s 2018 Scottish Shellfish Production Survey. The supply spending from the shellfish sector was estimated based on production data from the 2018 Scottish Shellfish Production Survey and the 2017 Scottish Shellfish Development Critical Mass Model.

Due to similar data limitations, the same process was followed with regards to the estimation of the direct GVA from other finfish. In that case, the turnover taking place in the production of other finfish was estimated by multiplying the production volumes by the value of trout production per tonne. The value of trout production was estimated using the turnover and production figures of the larger trout producing companies. Operational expenditure was then subtracted from turnover.

11.2.2 Supply Chain Impact

The method used to estimate the impact of the supply chain expenditure drew from both the survey data undertaken as part of this study and other relevant survey data that has been published by other organisations.

The survey evidence on procurement was the starting point for estimating the supply chain impact of the aquaculture sector and provided a detailed breakdown of spending. The first step in assessing the economic impact from supply chain spending was to estimate how much spending in goods and services took place in Scotland. To achieve that, it was necessary to impute the spending for those companies and subsectors that were not represented in the survey.

The companies that filled in the survey accounted for around 72% of the turnover of Scottish salmon companies. Supply spending from salmon production was imputed by scaling the expenditure recorded.

It was estimated that around 43% of Scottish aquaculture processing was represented by the companies filling in the survey. The remainder of the estimation of supply chain expenditure relied on a breakdown of turnover between raw materials, spending on energy, other operating costs, labour costs and profits^[21].

The spending not accounted for in the survey was imputed by weighting the total spending on energy and other operating costs by the share of employment in the sector excluded from the survey. Raw materials were not included when considering the supply chain of aquaculture processors because either they came from finfish/shellfish producers in Scotland or from abroad. In the first case, accounting for them would have led to double-counting.

To estimate the supply chain expenditure supported by the production of other finfish species, it was assumed that companies in this sector had similar spending patterns as salmon producers. Namely, the largest component of operational expenditure was feed, followed by services such as veterinary and business support. This assumption was based on evidence from the consultations exercise. This also highlighted that although the spend profile was similar to that of salmon production, there were some key differences. In particular, while the majority of salmon feed was procured from within Scotland, the feed for trout in 2018 was typically imported. The breakdown of the supply chain was then estimated by weighting the share of each component of the supply chain by the total supply chain expenditure for the sector which was estimated to be around £8.1 million, based on data on trout production from the Scottish Rural College (SRUC)^[22]. This data suggested that supply chain expenditure was equivalent to 51% of turnover in the trout production sector, which is lower than the comparable figure for the salmon production sector.

Expenditure in the shellfish supply chain was assumed to be similar to that of the processing sector. From consultations significant differences emerged between the supply spending of finfish and shellfish companies. For instance, shellfish companies do not require any animal feeds to support their production. Similarly, veterinary expenses are not as significant. As a result, the sectors’ supply chain expenditure - £1.8 million – was assumed to be similar to that of the processing supply chain. The analysis was based on production data from the 2018 Scottish Shellfish Production Survey^[23] and the 2017 Scottish Shellfish Development Critical Mass Model^[24].

11.2.3 Induced Impacts Estimation

The total annual staff costs paid by employers in the aquaculture sector was the starting point in the estimation of the induced impact generated by the sector. In order to estimate how much of this impact took place in Scotland, it was necessary to assume how much of the spending from people employed in Scotland takes place in Scotland. Based on internal analysis on ONS data from the Annual Expenditure Survey, it was estimated that around 70% of expenditure takes place in Scotland. To estimate direct GVA and employment, this spending was then divided by the turnover per GVA and turnover per job of the Household Expenditure sector. Indirect and induced impacts were then estimated by applying Type 1 and Type 2 employment and GVA multipliers to the direct impacts.