Pentland Firth Orkney Waters Marine Spatial Plan: Value Added in the Fish Supply Chain in Orkney and Northern Highlands

Section 3: Estimates of the Contribution of PFOW Landings to the Local Economy

To understand the contribution these landings are making to the PFOW region, we commissioned an Input-Output ( IO) analysis by an external consultant. This was undertaken by Erinshore Economics Limited and the below is a summary of their findings.

Input-Output ( IO) analysis attempts to model a given economy (local or national) by describing the explicit linkages between buyers (consumers) and sellers (producers). Such linkages allow for inferences to be made about the economy of interest, for example, the dependency of a local economy on locally-sourced inputs. IO analysis provides a snapshot of an economy at a given point in time. Such a snapshot is useful in providing context to inform policy. However the rigidity of IO analysis means that it must be combined with logical reasoning for it to add value to the decision-making process. It is also important that the assumptions and limitations of IO analysis are understood (see below). The IO analysis adopted here focuses on processors and merchants operating in the PFOW region and attempts to quantify the linkages these businesses have within and outside of the study area.

Over £42 million of marine species were landed into PFOW ports in 2011 ( Table 1) and of that £11.4 million were purchased by Orkney and North Highland processors and merchants. However of this only £2.5m came from inside PFOW-SA ( Table 3) and the remaining is caught from outside the area. The figures inputted into the IO analysis represent the value accrued from inside PFOW-SA only, as this is the upper boundary of value that could potentially be impacted from lost fishing opportunity. This analysis therefore quantifies the total loss of £2.5m rather than the full £11.4m purchased by PFOW processors and merchants. For this report this analysis was broken down into four separate groups - processors and merchants from;

1) Orkney handling non-crustacean species
2) Orkney handling crustacean species
3) Northern Highland handling non-crustacean species
4) Northern Highland handling crustacean species

The IO analysis implies that £2.5m of initial raw material input ( i.e. crustaceans and non-crustaceans) from the PFOW-SA (Orkney and Northern Highlands) contributes to £10.4m in output (sales), £2.9m in income (wages), and 159 full-time equivalent (FTE) jobs within the PFOW-SA locality ( Table 5). These numbers represent the direct and indirect upstream effect (type 1) of economic activity within the region. That is to say these 159 jobs include jobs in the processing sector (direct) within the PFOW-SA and also suppliers to the processing sector (indirect) within the PFOW-SA ( e.g. the fish-catching sector). Results are also presented for the direct, indirect and induced upstream effect (type II). The induced effect is the change in economy-wide household income resulting from the direct and indirect effects. For example the income accruing to these 159 (direct and indirect) jobs generates spending in the wider economy which itself contributes to output, income and jobs ( Table 6).

Table 5: Direct and Indirect effect (Type I) at the regional level (Orkney and North Highland) from fish caught inside PFOW-SA. Values represent total in £ millions

Table 6: Direct Indirect and Induced effect (Type II) at the regional level (Orkney and North Highland) from fish caught inside PFOW-SA. Values represent total in £ millions

At the national (Scotland) level the IO analysis implies that £2.5m of initial raw material input from the PFOW-SA contributes to £11.7m in output (sales), £3.4m in income (wages), and 172 FTE jobs ( Table 7). As expected the total impact at the national level is larger than the local level since, by definition, more interdependencies exists at a national level compared to a local level. For example processors within the PFOW-SA who import certain goods and services ( e.g. IT services) from the rest of Scotland are not supporting output, income and jobs at the PFOW-SA level but clearly are supporting output, income and jobs at the Scotland level. This data however does not offer any analysis on the severity of these impacts as local losses can be severe at the local level due to job opportunities in the wider Scottish economy mitigating national losses.

Table 7: Direct and Indirect effect (Type I) at the Scottish level from fish caught inside PFOW-SA. Values represent total in £ millions

IO analysis allows for the simulation of 'shocks' to the examined economy. Traditionally such shocks are examined in terms of final demand. For example, say, a foreign country has a sudden increase in demand for more fish produce from the PFOW-SA. This increase in demand expands output (more processed fish are sold) which in turn increases the demand for inputs (more fish are caught). This ripple effect on output feeds into income and jobs providing an overview of how the economy of interest, as a whole, responds to the final demand shift. Clearly such a shock can be negative ( i.e. final demand decreases) and the IO framework is equally capable of examining such a scenario. The policy context relating to the PFOW-SA is focussed around possible restrictions to fishing activity resulting from proposed marine developments e.g. marine renewables. Given this context the traditional IO demand-driven analysis described above does not seem overly appropriate as there is no reason to suggest that final demand for PFOW-SA produce will fall as a result of renewable developments. Therefore a more appropriate use of this IO analysis is in understanding the extent to which there is a reliance on catch sourced in the PFOW-SA. This is what will be impacted should renewable or other restrictive development go ahead - it is the relevant information to inform policy.

The IO analysis implies that a 10% reduction in landings from the PFOW-SA will result in the loss of £1m in output (sales), £0.3m in income (wages), and 16 FTE jobs within the PFOW-SA ( Table 8). At the Scotland level a 10% reduction in landings from the PFOW-SA implies that £1.2m in output (sales), £0.3m in income (wages), and 17 FTE jobs will be lost.

Table 8: Losses arising to the local Economy from a 10% reduction in landings for fish and shellfish from PFOW-SA

It is important to be aware of the assumptions which caveat such estimates. The results presented above could be both over or under-estimates. From this analysis no indication can be gleaned regarding the downstream impact beyond processors and merchants ( e.g. the extent to which hotels and restaurants are dependent on locally-sourced inputs). If such businesses are dependent ( e.g. no substitutes exist) on inputs from within the PFOW-SA the impact presented here could be an underestimate.

The above analysis also makes certain assumptions regarding possible adjustment mechanisms. No account is taken of the fact that price increases and/or input substitution from elsewhere could offset any losses from the PFOW-SA. For example, if the price of PFOW- SA produce rises because of supply restrictions and consumers are still willing to buy at this higher price the supply-chain impact will be offset to some degree e.g. fishermen receive more revenue per tonne of PFOW-SA landed catch. If final consumers are willing to accept a substitute product the impact will also be offset e.g. instead of producing less output there is a shift towards different output. Any assessment of the above analysis must be combined with a reasonable narrative as to the likelihood of: 1) to what extent will spatial restrictions impact on the availability of fishing opportunities within the PFOW-SA?; 2) how substitutable is PFOW-SA sourced catch? and; 3) How sensitive is the demand for PFOW-SA produce relative to price/quality? Some of these questions will now be explored in section 4 using data from key informant interviews.

The full independent report is available at http://www.scotland.gov.uk/Topics/marine/science/mau/Relpub/PFOWProcEcon.