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The net contribution of the Agri-Food Sector to the inflow of funds into Ireland: a new estimate

Riordan, Brendan (2008): The net contribution of the Agri-Food Sector to the inflow of funds into Ireland: a new estimate.

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Abstract

This new analysis of Ireland’s Balance of International Payments (BOP) shows a surprisingly large net contribution from the Biosector. In 2005 net foreign earnings of the sector, comprising agriculture, forestry, fisheries, food, drink and tobacco industries, amounted to 32 percent of the total net earnings from primary and manufacturing industries. This is double the sector’s 16 percent contribution to exports in that year. Reasons for the sector’s disproportionately large net contribution to earnings from exports include: 1. Import requirements per euro of Biosector exports were lower than in the Non-Biosector, import requirements for every euro of output averaged 38 cent in the Biosector but 58 cent per euro of output in the Non-Biosector. 2. Foreign ownership, and thus profit repatriation outflow, was lower than in other sectors. This was despite strong growth in the activities of foreign based enterprises in some of the food and beverage industries. Profit repatriation by these enterprises in the Biosector was only 9 cent per euro of exports in 2000 while it was then 21 cent on average in the Non-Biosector. However, since 2000 the activities of foreign owned businesses in the Biosector have grown and their profit repatriation in 2005 accounted for 15 cent per euro of exports from this sector. On the other hand this growth propelled a 46 percent increase in exports from the sector between 2000 and 2005, though this is not visible in the Trade Statistics, possibly due to data confidentiality concerns. Profit repatriation by businesses in the Non-Biosector peaked at 26 cent per euro of exports in 2002, but by 2005 it was back again to 20 cent. 3. Receipts of EU payments were almost entirely in support of agriculture and its exports. This is especially a feature of the Biosector, unlike the Non-Biosector where they are negligible. EU payments grew at the same rate as exports from the Biosector in the years from 2000 to 2005 and continued to provide an important addition to BOP inflows. Importation of capital goods was also analysed in the context of the BOP. Results showed that industries in the Biosector made almost as much use of imported capital goods as those in the Non-Biosector. Thus adjustment of net in-flow estimates for out-goings on the purchase of capital goods from abroad only raised the net contribution of the Biosector from 30 percent to 32 percent of the total, according to calculations for 2005. Corresponding figures for the year 2000 were higher at 38 percent and 39 percent respectively. In every one of the intervening years the Biosector’s net contribution was found to be close to 30 percent. Support for the overall conclusion that the Biosector contributed close to 30 percent of the net flow of funds into the economy generated by the primary and manufacturing industries is provided by the detailed analysis described in the Report. What is more, were the earnings of Irish companies operating abroad to be included, the result could have shown an even larger contribution from the Biosector, due to the overseas achievements of Irish food firms. Results for 2007 could also show a higher proportionate contribution from the Biosector, reflecting large increases in prices for food product exports between 2005 and 2007.

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