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Real Output Textiles Halved

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    • 1. What’s the future of manufacturing in the UK?
    • 2. Iain Ferguson CBE Chief Executive Securing the future for UK manufacturing? Tate & Lyle PLC
    • 3. Securing the future for UK manufacturing?
    • 4. Rigorous economic data
      • Rigorous economist!
      ‘ It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest’
    • 5. Share of wallet UK household expenditure (1971  100) Spend in food has increased… but by less than the overall increase in income Source: Duffy, 2003 122 167 227 235 138 137 117 105 Food & non-alcoholic drink Total 0 50 100 150 200 250 1981 1991 2001 2002
    • 6. Share of wallet Source: Duffy, 2003 Spend in food has increased… but by less than the overall increase in income 64.30 61.60 61.40 64.99 Average UK weekly household expenditure on food and non-alcoholic drink at 2002/3 prices £ Food & non-alcoholic drink Total 0 100 200 300 400 1974 1984 1994/5 2002/3 % of Total Spend 0% 10% 20% 30% 291.19 295.10 346.30 402.9 22.3% 20.8% 17.8% 16.0%
    • 7. Food and Drink manufacturing sector Primary Processing for example: Milling Refining Slaughtering/rendering Roasting/drying ……………………………… . Final Stage Processing for example: Baking Ready meal preparation ……………………………… . Sales £67.6bn Purchases from UK agriculture £11bn Additional Costs for example: Labour Energy Packaging Plant and Equipment Utilities and Services Distribution Other (including profit) £44bn Imports of raw materials and semi-processed products £12.6bn Source: Food & Drink Federation; input-output analyses, Office for National Statistics, 2004 Foodservice £66.8bn Retail £72.8bn Of which exports £8.9bn
    • 8. Market potential 30,858 13,925 - 13,758 11,658 - 11,512 9,245 - 9,201 7,303 - 7,260 4,360 - GDP € billion
    • 9. Food, Drink & Tobacco sector distribution 19,600 889 - 879 575 - 543 356 - 351 223 - 221 11 - Output € billion
    • 10. UK overseas shipping costs Source: Kaukiainen (2003) Transport has become cheaper in recent times 100% 49.3 56.2 38.8 56.8 27.1 22.9 1872/4 1911/3 1952 1968/9 1979 1990 2001
    • 11. UK performance by sector Sources: Feinstein, 1999; OECD, 2004 Real output: Food output rose, Textiles halved 2000 = 100 76.7 88.6 94.6 101.6 82.3 141.7 169.8 168.5 1970 1979 1989 2002 Food, drink & tobacco Textiles, leather & footwear Productivity: both Food & Textiles saw improvements 2000 = 100 52.4 64.5 88.2 106.9 43.1 56.6 69.7 107.3 1970 1979 1989 2002 Industrial employment: de-industrialisation of the UK % all employment (UK) 48.9 43.8 24.2 1950 1971 2002 Employment numbers: Food has declined, Textiles collapsed 1000’s 1180 906 614 231 509 575 736 784 1970 1979 1989 2002
    • 12. UK revealed comparative advantage Sector performance Source: Proudman & Redding, 1998; updated using ITC, 2004 1 = average export trade performance 0 0.5 1 1.5 2 2.5 Textiles, Leather & Footwear Pharmaceuticals Aerospace Food, Drink & Tobacco 1970-74 1980-84 1990-93 1998-2002
    • 13. UK revealed comparative advantage Details of Food, Drink & Tobacco Source: Proudman & Redding, 1998; updated using ITC, 2004 1 = average export trade performance 0 0.5 1 1.5 2 2.5 3 3.5 Milk products Flour & starch Sugar & sugar confectionery Chocolate Animal feed Margarine Edible products n.e.s Non-alcoholic beverages Alcoholic beverages Tobacco products 1998-2002
    • 14. Taxonomy of success 100 = average export trade performance Technology R&D Highly skilled sector Sales to final consumers (fewer links in chain) Textiles Drugs & medicines Aircraft Beverages Tobacco Food H L H H H L H L H L H H H L H H M M
    • 15. Case study: Textiles
      • Cut costs
      • International competition was much more cost effective
      • Used scale to try to insulate itself from international competition
      • Dramatic decline
    • 16. Accession to the EU of East European countries Market access (distance to GDP, miles) 1761 2172 1548 833 857 1617 1279 Best Access Worst Access Source: Crafts, 2004 Wage costs ($/h) UK The Netherlands Spain Greece Czech Republic Hungary Poland 5.2 12.5 13.5 24.4 24.8 4.9 5.5 Lowest Highest Technology achievement index 0.41 0.44 0.48 0.63 0.61 0.46 0.47 Lowest Highest
    • 17. Harnessing the forces of globalisation
      • Possibilities for vertical disaggregation
      • Invest in the parts of the process where we add value
        • Match our successful taxonomy
        • Proximity to distribution
        • Consumer knowledge
      • Offshore what can be done best elsewhere
    • 18. The real economics of offshoring * Estimate based on historical U.S. re-employment trends $1 previously spent in U.S., now offshored 0.45 $1.45 – $1.47 $1.00 0.3 0.67 0.47 0.33 » … delivers value to location of offshore business … brings new savings & returns to U.S. … … creates new value from re-employing U.S. labour* … … and makes the global pie that much bigger Source McKinsey Global Institute
    • 19. National labour market flexibility Least flexible Most flexible 0 1 2 3 4 5 6 7 8 Czech Republic The Netherlands USA Denmark Hungary UK Austria Greece Spain Poland France Germany 7.060 6.831 6.121 5.542 5.163 5.103 3.871 3.851 3.731 2.867 2.469 1.192
    • 20. Looking forward for food manufacturing
      • Food manufacturing is insulated from globalisation, but not immune
      • EU enlargement, reduced transport costs & faster communications present opportunities for vertical disaggregation
      • Offshore manufacturing where costs benefit
      • Retain operations in UK that require proximity, skills/technology & consumer understanding
      • Flexible labour regulations ensure the whole UK economy will benefit from offshoring
      • We should not resist these opportunities
    • 21. Looking forward for food manufacturing
      • We can face the future with confidence!
    • 22. Final word: Adam Smith
      • ‘ If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it off them with some part of the produce of our own industry employed in a way in which we have some advantage’
    • 23.  
    • 24. What’s the future of manufacturing in the UK?