Insue for Inernaonal Inegraon Sudes IIIS Dscusson Paper No.180/Sepember 006 The mpac of globalsaon and rade on producvy performance of he Irsh food manufacurng secor Carol Newman Insue for Inernaonal Inegraon Sudes and Deparmen of Economcs, Trny College Dubln
IIIS Dscusson Paper No. 180 The mpac of globalsaon and rade on he producvy performance of he Irsh food manufacurng secor Carol Newman Dsclamer Any opnons expressed here are hose of he auhor(s) and no hose of he IIIS. All works posed here are owned and copyrghed by he auhor(s). Papers may only be downloaded for personal use only.
The mpac of globalsaon and rade on he producvy performance of he Irsh food manufacurng secor Carol Newman Insue for Inernaonal Inegraon Sudes, Trny College Dubln, Ireland. Deparmen of Economcs, School of Socal Scences and Phlosophy, Trny College Dubln, Ireland. Absrac. Globalsaon and nernaonal negraon can yeld effcency gans hrough he promoon of compeon and rade n markes for nernaonally raded goods. A he frm level, exposure o compeve pressures has creaed a necessy for frms o operae as close as possble o he echnology froner n order o survve. Furhermore, ncreased negraon has lead o an nflux of nvesmen by Mulnaonal corporaons who brng wh hem echnologcal nnovaons. Ths has he effec of mprovng overall producvy by shfng he bes pracce echnology froner whle a he same me makng ncreasngly dffcul for smaller compeors o survve. In an Irsh conex, he food ndusry has recenly been acknowledged n naonal polcy as an mporan secor for fuure developmen. The am of hs paper s o measure he producvy performance of he food processng ndusry n Ireland and esablsh he exen o whch globalsaon has brough abou effcency and producvy gans o he ndusry. Key Words: Food Indusry, Ireland, Producvy, Sochasc Producon Funcon JEL Codes: D4, L66 1. Inroducon Over he course of he 1990s he Irsh economy grew a an unprecedened rae. Beween 1990 and 003 he numbers n employmen expanded by 55 per cen and oupu grew a an average of 9 per cen per annum. The mos ofen ced explanaon for Ireland s success sory was he change n polcy emphass, dang back o he 1960s, oward an ouward-lookng focus n erms of encouragng expors and nward nvesmen, parcularly n he manufacurng secor. Over he course of he 1990s he ndusral secor n Ireland grew by 7 per cen n erms of employmen, wh 67 per cen of hs accouned for by foregn-owned enerprses, and 49 per cen n erms of ne oupu, 88 per cen of whch was due o foregn-owned enerprses (CSO, 1991; 001). By 001, foregn-owned enerprses consued 87 per cen of ne oupu n he manufacurng secor. A an aggregae level research has shown ha n general foregnowned companes n he Irsh manufacurng secor are more producve 1 and expor nensve han her ndgenous counerpars (Ruane and Ugur, 004). However, n he 1 Based on paral producvy measures. 1
face of an ncreasng cos envronmen, poor economc condons n expor markes and gven he secor s ncreasng relance on foregn-owned enerprses, producvy s a key ssue of concern for busness and polcy makers n Ireland as he fuure compeveness of all secors s pushed o he forefron of he polcy agenda. An mporan queson, herefore, for he fuure of manufacurng s o asceran he exen o whch he secor has remaned producve n he face of such pressures. In addon, he mpac of globalsaon n he form of foregn ownershp of frms and an expor orened focus on producvy s also mporan o undersand. Of parcular neres n an Irsh conex s he food processng ndusry. The food drnks and obacco secor n Ireland drecly employed 54,000 people n 004 (.9 per cen of oal employmen) and conrbued 6.4 per cen o GDP (Deparmen of Agrculure and Food, 005). In 003, he value of expors from he food and drnks secor was esmaed a 6.7 bllon (An Bord Ba, 004). Unlke he res of he manufacurng secor n Ireland, food and drnks processng s sll very ndgenous n naure wh foregn companes consung approxmaely 5 per cen of employmen n 001 (compared wh 49 per cen for manufacurng as a whole) (CSO, 001). Indgenous frms n he food and drnks secor, however, accoun for 55 per cen of oal ndgenous expors suggesng ha he secor performs well n erms of compeveness n world markes. The secor has recenly been acknowledged n naonal publc polcy as an mporan secor for he fuure developmen of Irsh ndusry havng been gven a specfc sub-programme n he Operaonal Programme for Indusral Developmen (1994-1999) and subsequenly a seres of naves n he Naonal Developmen Plan 000-006. Prevous research has found ha he Irsh food ndusry performed well relave o oher EU counres n erms of s compeveness n he md-1990s, bu no n he hgh growh secors (Teagasc, 001). Enhancng he compeveness of he secor has been ced as beng a parcularly mporan facor n ensurng he fuure of he ndusry and Irsh ndgenous ndusry n general. Whls facng he same challenges as he manufacurng secor as a whole n erms of cos pressures, mananng compeveness s even more crucal for he food manufacurng secor; frsly, gven he sgnfcan shfs n consumer preferences over he las decade leadng o a fundamenal change n wha domesc and nernaonal consumers demand; secondly, gven he necessy of frms o adhere o ncreasngly srngen food safey regulaons and he cos pressures hs mposes; and fnally, gven he subsanal reforms of he Common Agrculural Polcy and he general rend oward a more lberal radng envronmen for food producs (An Bord Ba, 004). A key ndcaor of compeveness s producvy and as such he focus of hs paper s on analysng he producvy performance of he food manufacurng secor n Ireland beween 1995 and 003 usng frm level daa provded by Census of Indusral Producon (CSO, 1995-003). Ths wll be acheved hrough he paramerc esmaon of sochasc producon funcons of he echnology used by NACE 3-dg sub-secors of frms and he consrucon of ndexes of producvy change for each of hese sub- These measures nclude; capal nvesmen o encourage ncreased effcency; he provson of a research, echnology and nnovaon fund; he provson of a fund o suppor promoonal work by An Bord Ba and o enhance he markeng capables of ndvdual frms; and he provson of a fund o asss n human resource developmen parcularly n he area of ranng (Deparmen of Agrculure and Food, 001).
secors. Gven he ndgenous naure of he secor and he mporance of expor markes for many food producon frms, hs sudy wll analyse producvy performance by ownershp and expor saus o asceran who he key drvers of producvy growh n he secor really are. Secon of hs paper oulnes he model and mehods used o acheve hese ams. Secon 3 presens he daa. The emprcal resuls are dealed n secon 4 and he paper concludes wh secon 5.. Mehods The producon echnology n he food processng ndusry s frs defned usng a sochasc producon froner. Producvy changes are hen measured by analysng changes n componens of hs froner over me. In he sochasc producon froner, oupu s expressed as a funcon of npus, echncal neffcences capurng he degree o whch frms produce below he opmal level of producon and a random error componen. y ( x ) + v u = f ; β (1) where y s he oupu of he h frm n me perod, x s he vecor of npus no he producon process of he h frm n me perod, β s he vecor of parameers o be esmaed capurng he relaonshp beween npus and oupus across frms and me, v represens sascal nose and oher random exernal evens nfluencng he producon process 3 and u are he frm specfc neffcency effecs, whch may be me varyng. Coell e al. s (1998) specfcaon of he me-varyng echncal effcency effecs s consdered, ha s u = ( exp ( η( T ))) where η s a parameer o be u u esmaed. 4 If = 0 he frm s effcen and operaes on he producon froner n ha parcular me perod, whle f u > 0, here are neffcences and he frm s operang beneah he froner a me. and are assumed o be ndependen. v u The frs sep n esmang a sochasc producon froner s o specfy an approprae funconal form for he model. In hs paper a Cobb Douglas funconal form s assumed. 5 The Cobb Douglas sochasc producon froner s presened n equaon (). ln y K 0 + βk ln k =1 k = α x + v u () 3 v are assumed o be d N( 0, σ ) v. 4 u are assumed o be d as runcaons of N( µ, σ ) u. 5 A ranslog funconal form s also consdered bu n mos cases s no found o sgnfcanly mprove on he smpler Cobb-Douglas model. Furhermore, due o sample sze and mulcollneary problems he ranslog s no suable o hs parcular applcaon. 3
By ncludng a me rend and neracons beween me and he npus, echncal change componens can also be ncorporaed no he funconal form of he model. Ths s llusraed n equaon (3). ln y K K 1 = α 0 + βk ln x k + ω0 + ω00 + ωk ln x k + v u (3) k = 1 k = 1 Maxmum lkelhood esmaon wll produce conssen parameer and neffcency esmaes based on he sochasc producon froner. 6 The model s esmaed usng Saa/S.E. Verson 8.0 (Saa Corporaon, 003). The purpose of consrucng a producvy ndex s o measure oupu growh ha s ne of npu growh, ha s oupu growh due o echncal change, effcency change or he conrbuon of reurns o scale. For a sochasc producon froner, wh a sngle scalar oupu, a Dvsa ndex of he rae of producvy change can be defned as he dfference beween he rae of change of oupu and he rae of change of an npu quany ndex. 7 T FP & y& X& = (4) To fnd he rae of change n oupu, y&, where oupu y s defned by he producon funcon n equaon (1), s necessary o oally dfferenae he log of he producon funcon. Ths yelds hree componens. Frs, he rae of echncal change n frm n perod : ( x ; β ) f TC & ln = (5) Second, he rae of echncal effcency change n frm n perod : u EC & = (6) Thrd, he rae of change n oupu as a resul of a change n an npu quany on frm n perod : ln y X = ε k x& k k (7) where ε k are elasces of oupu wh respec o each of he npus. Subsung equaons (5), (6) and (7) no equaon (4) yelds: 6 The varance parameers σ = σ v + σ u and γ = σ u σ, where γ measures he proporon of oal varance arbued o he neffcency effecs, are also esmaed. 7 Ths approach follows ha of Kumbhakar and Lovell (000) ]. 4
T FP & TC & + EC & + k kx& k X& = ε (8) X &, he rae of change n he npu quanes n frm n perod can be defned as he sum of he change n he ndvdual npus weghed by her proporonal conrbuons o oal oupu,.e. expressed as: k k k ε ε = ε k TFP & = + + k TC & EC & ε εkx& k k k ε = TC & + + ( k EC & ε ε 1) x& k k ε ε. Usng hs defnon equaon (8) can be x& k The frs componen of Equaon (9) measures he rae of echncal change, he second componen measures he rae of echncal effcency change and he fnal componen measures he rae of change n oupu as a resul of a change n he scale of producon. Equaon (10) descrbes how T & C relaes o he componens of he Cobb Douglas producon funcon gven n equaon (3). K y TC & = = ω0 + ω00 + ωk ln xk (10) k= 1 The frs wo componens measure neural echncal change, common o all frms. A posve/negave sgn on ω 0 ndcaes neural echncal progress/regress whle a posve/negave sgn on ω 00 ndcaes ha echncal progress/regress s akng place a an ncreasng/decreasng rae. The hrd componen measures non-neural echncal change. A posve/negave sgn on ω k ndcaes ha here s a posve/negave npu bas assocaed wh npu k, leadng o non-neural echncal progress/regress. The echncal change ndex beween perods and +1 s consruced based on an arhmec average of hs componen each year. TCI = 0.5 + 1 ( TC + T& C ) & (11) Snce EC & = u, he effcency change ndex beween perods and +1 s consruced based on he change n he average effcency levels n each year. Tha s: ECI TE = TE + 1 E = + 1 + 1 ( exp( u ) v ) E( exp( u ) v ) Fnally, each npu elascy can be evaluaed as: (9) (1) 5
K ε k = βk + ωk (13) k = 1 and a scale effec ndex beween perods and + 1 can be consruced based on an arhmec average of he scale effec on oupu of a change n npus. SEI K [( ) ( ) ] + 1 + 1 + 1 x + k 1εk ε 1 k ln xk = 0.5 ε ε (14) k= 1 3. Daa The daa are aken from he Census of Indusral Producon (CIP) 1995-003 provded by he Cenral Sascs Offce of Ireland. The model s esmaed for sx sub-groups of he wo-dg NACE classfcaon, 15, of frms nvolved n he manufacure of food producs (dealed n Table 1). Ths consues 1,10 frms and 6,51 observaons over he enre sample perod. Table 1: NACE codes for he food manufacurng secor 15: Manufacure of food producs and beverages 151: Producon, processng and preservng of mea and mea producs 15: Processng and preservng of fsh and fsh producs 153: Processng and preservng of fru and vegeables 155: Manufacure of dary producs 156: Manufacure of gran mll producs, sarches and sarch producs 157: Manufacure of prepared anmal feeds 158: Manufacure of oher food producs Noe: The followng wo sub-secors of he NACE 15 secor are excluded from he analyss. The former due o oo few observaons o faclae he esmaon of a producon funcon and he laer due o he fac ha s no concerned wh he food ndusry per se. 154: Manufacure of vegeable and anmal ols and fas 159: Manufacure of beverages The oupu varable s defned as he gross oupu of he frm deflaed by he wholesale prce ndex relevan o he 3 dg sub-secor. Four npus are consdered: varable npus (VAR) conssng of he sum of he deflaed value of maerals used and ndusral servces 8 ; labour (LAB) measured as he oal number of persons employed; he deflaed value of fuel and power expendure (FUEL) 9 ; and a proxy for capal usage (CAP). Daa on capal sock are no provded n he CIP. 10 The approach used o develop a proxy for capal s based on a perpeual nvenory model of capal usage. For each 3 dg sub-secor an ndex of capal usage s consruced n each year based on he fuel and power consumpon of each frm n an aemp o capure he relave 8 Each npu s separaely deflaed before aggregang usng he Wholesale Prce Index. 9 The energy componen of he Wholesale Prce Index s used for deflang he value of fuel and power consumpon 10 Daa on capal npus are rarely avalable n applcaons of hs knd. Ugur (004) uses fuel and power consumpon as a proxy for capal sock n hs sudy of he Irsh elecroncs secor. Smlarly, Bokusheva and Hockmann (006) proxy capal usng he value of deprecaon, machnery manenance and fuel coss n her sudy of echncal effcency n Russan agrculure. 6
poson of each frm n erms of capal usage. For he year of enry of he frm he base level of capal usage s assumed o be 1,000 mes hs ndex, hus assumng a base level of capal usage for he leas capal nensve frms n each sub-secor of 100,000. In each subsequen year he deflaed value of ne addons o capal sock are added o hs value. 11 4. Emprcal resuls 4.1 Specfcaon esng Varous specfcaons of he economerc model are consdered. The frs es consders he exen o whch echnology dfferences exs beween he varous hree-dg subgroups of food manufacurng o asceran wheher analysng sub-groups separaely s necessary. Ths s acheved by comparng he log-lkelhood value of an aggregae sochasc producon funcon model usng a pooled daase and wh he sum of he ndvdual log-lkelhood values for he same model esmaed separaely for each subgroup (see Baese e al. (004)). The resul of hs es, presened n Table, concludes ha sgnfcan echnology dfferences exs beween each sub-group jusfyng he dsaggregae approach o analysng food manufacurng presened n hs paper. 1 I s assumed ha echnology s homogenous across each 3-dg sub-secor analysed. Table : Tesng for echnology gaps H 0 : All sub-secors share he same echnology H A : Sgnfcan echnology gaps exs Tes Sasc: 1,718 Crcal Value: 165 Rejec Null a 1% Sgnfcance Model Table 3: Tesng he dsance funcon approach H 0 : Deermnsc approach ( γ =η = 0 ) H A : Sochasc approach Log Lkelhood Log Lkelhood Tes Sasc Resrced Model Unresrced Model Resul χ,0. 01 = 9.1 NACE 151-439.7-300.64 77.7 Rejec NACE 15-05.93-164.87 8.11 Rejec NACE 153-91.8-53.76 75.03 Rejec NACE 155-349.13-89.85 118.56 Rejec NACE 156/7-395.80-69.03 53.55 Rejec NACE 158-1,1.8-907.8 68.00 Rejec The second es ams o provde a jusfcaon for he use of he sochasc approach o analysng producvy over a deermnsc approach. The sochasc approach s compared o a mean producon funcon approach esmaed by mposng he resrcon ha he neffcency erms are equal o zero (Irz and Thrle, 004). The resuls of hs es are presened n Table 3. Lkelhood rao ess lead o a rejecon of hese 11 As a check on he appropraeness of hs proxy for capal he model was also esmaed by smply usng fuel and power usage as n Ugur (004) wh smlar resuls obaned. 1 Secors 156 and 157 are modeled ogeher due o he fac ha here are oo few observaons o model hem separaely. 7
resrcons mplyng ha a sochasc raher han a deermnsc approach s more approprae. The hrd se of ess relae o he choce of echnology specfcaon. Frsly, lkelhood rao ess are used o es for he neural and non-neural echncal change componens wh he concluson ha boh componens are approprae. Secondly, he appropraeness of he me varyng neffcency model s esed by comparng agans a me nvaran model wh he laer deemed more approprae n four cases and he former n he remanng wo. The resuls of each of hese ess are presened n Table 4. Model Table 4: Tesng he echnology specfcaon H 0 : No echncal change ( ω 0 = ω00 = ωk = 0 ) H A : Neural and non-neural echncal change Log Lkelhood Log Lkelhood Tes Sasc Resrced Model Unresrced Model χ Resul 6,0. 01 = 16.81 χ 6,0. 05 = 1.59 NACE 151-357.8-300.64 113.8 Rejec a 1% level NACE 15-183.8-164.87 37.90 Rejec a 1% level NACE 153-60.84-53.76 14.16 Rejec a 5% level NACE 155-313.45-89.85 47.0 Rejec a 1% level NACE 156/7-88.4-69.03 38.78 Rejec a 1% level NACE 158-936.9-907.8 59.8 Rejec a 1% level H 0 : Tme nvaran neffcency ( η = 0 ) H A : Tme varyng neffcency effecs Model Log Lkelhood Log Lkelhood Tes Sasc Resul Resrced Model Unresrced χ 6.63 1,0. 01 = Model NACE 151-30.31-300.64 3.34 Do no rejec NACE 15-166.6-164.87 3.49 Do no rejec NACE 153-53.76-53.76 0.00 Do no rejec NACE 155-91.18-89.85.67 Do no rejec NACE 156/7-74.47-69.03 10.89 Rejec NACE 158-917.97-907.8 1.40 Rejec 4. Technology represenaon The resuls of he sochasc producon funcon model for each hree-dg sub-secor consdered are presened n Table 5. γˆ, he share of echncal effcency n oal varance s sgnfcan and n each case and ηˆ, he parameer assocaed wh me n he neffcency effecs, s negave and sascally sgnfcan a he 1 per cen level for NACE 156/7 (he manufacure of gran mll producs, sarches and sarch producs and he manufacure of prepared anmal feeds) and for NACE 158 (he manufacure of oher food producs) ndcang ha over me here have been sgnfcan negave changes n he average levels of echncal effcency n hese secors. 13 13 Ineffcency effecs are found o be me nvaran for he oher sub-secors (see Table 4) and as such, ηˆ s resrced o zero n hese models. 8
Table 5: Parameer esmaes of producon funcons NACE 151 NACE 15 NACE 153 NACE 155 NACE NACE 158 156/7 Consan 0.6134*** (0.1887) 1.356 (5.783) 1.5018 (5.9538) 1.644 (18.406) 0.5356*** (0.151) 1.165*** (0.1459) ( ln x 1) 0.764*** 0.4399*** 0.63*** 0.53*** 0.4550*** 0.5967*** (0.001) (0.0444) (0.079) (0.0414) (0.0330) (0.0330) ( ln x ) 0.3783*** 0.1904*** 0.833*** -0.058 0.549*** 0.145*** (0.036) (0.0399) (0.0704) (0.0486) (0.0453) (0.0397) ( ln x 3) 0.0373 0.016 0.196** 0.0076 0.0800** 0.00 (0.047) (0.0389) (0.0535) (0.0473) (0.039) (0.0301) ( ln x 4 ) 0.3488*** 0.563*** 0.05 0.433*** 0.160*** 0.609*** (0.043) (0.0356) (0.0116) (0.0497) (0.0368) (0.073) 0.0334*** -0.0954*** 0.033 0.0641*** 0.0515*** -0.0683*** (0.0134) (0.0190) (0.0313) (0.06) (0.0195) (0.016) -0.0049* 0.0157*** -0.0060-0.0098** -0.0014 0.0154*** (0.005) (0.0036) (0.0059) (0.0045) (0.0038) (0.006) ( ln x 1 ) 0.030*** 0.013*** 0.000-0.0015-0.0167*** -0.013*** (0.0035) (0.0077) (0.0016) (0.0075) (0.0061) (0.0049) ( ln x ) -0.015** -0.0054-0.0404*** 0.08*** 0.0038*** 0.0157*** (0.00510 (0.0066) (0.0119) (0.0086) (0.0075) (0.0060) ( ln x 3 ) 0.0114*** 0.0033 0.001 0.089*** 0.0175*** 0.014*** (0.0040) (0.0069) (0.0087) (0.0084) (0.0053) (0.0047) ( ln x 4 ) -0.0305*** -0.010** 0.031*** -0.0436*** -0.0041 0.0000 (0.0043) (0.0190) (0.0089) (0.0075) (0.0060) (0.004) σ 0.144*** 0.1030*** 0.117*** 0.1664*** 0.1775 0.080*** (0.0083) (0.0067) (0.0147) (0.01) (0.0170) (0.0109) γˆ 0.4637*** 0.73*** 0.5041**** 0.3674*** 0.5349*** 0.514*** (0.0400) (.0470) (0.0704) (0.0483) (0.0474) (0.080) ηˆ -0.041*** -0.0197*** (0.0145) (0.0048) Log -30.31-166.6-53.76-91.18-69.03-907.8 lkelhood No. of frms 55 15 67 14 144 404 n 1,451 781 331 707 849,13 ln x1 s he log of varable npus, ln x s he log of labour, ln x3 s he log of fuel coss, ln x4 s he log of capal coss, s he me rend, γˆ s an esmae of he share of echncal effcency n oal varance and ηˆ s he esmaed parameer assocaed wh me n he neffcency effecs. Sandard errors are gven n parenhess, *** ndcaes sgnfcance a he 1% level, ** ndcaes sgnfcance a he 5% level, * ndcaes sgnfcance a he 10% level The resuls accord wh wha would be expeced from a heorecal pon of vew n ha producon s non-decreasng n npus. Snce he daa are mean correced pror o esmaon he coeffcens on each of he npus can be nerpreed as npu elasces. The elascy on he varable npu s sgnfcan and hgh n all sub-secors. Capal npus yeld a parcularly hgh reurn n boh he manufacure of mea and n he manufacure of dary producs. In conras, for he producon and processng of fru and vegeables capal s nsgnfcan wh fuel and power playng a more mporan role. Labour yelds a relavely moderae reurn across all sub-secors wh he excepon of he manufacure of dary producs for whch s nsgnfcan. 9
4.3 Producvy resuls The parameers of he sochasc producon funcon are used o consruc an ndex of producvy for he 1995 o 003 perod for each sub-secor of he Irsh food ndusry as oulned n Secon. As dscussed, n hs model producvy can be mproved va hree mechansms: frsly, hrough mprovemens n he bes pracce echnology froner; secondly, hrough mprovemens n he performance of he average frm relave o he bes pracce froner; and fnally, hrough changes n he npu mx (scale effecs), whn he gven echnologcal consrans. The resuls are presened n Table 6. Table 6: Producvy ndex and decomposon a Techncal change Effcency Reurns o scale Generalzed Malmqus NACE 151 103.67 103.53 100.51 106.13 % Growh Rae 1995-003 0.46 0.55 0.10 0.87 1995-1999 1.61 0.5-0.0 1.7 1999-003 -0.63 0.94 0.05-0.07 NACE 15 83.3 10.45 14.31 104.46 % Growh Rae 1995-003 -.00 0.8 5.35.40 1995-1999 -4.98 0.57 6.98 0.83 1999-003 0.85 0. -.13-0.55 NACE 153 97.5 106.03 99.8 98.31 % Growh Rae 1995-003 -0.3 1.34 0.08 0.13 1995-1999 0.03 0.87 0.0 0.4 1999-003 -0.69 0.74 0.13-0.41 NACE 155 119.38 100.5 99.6 118.59 % Growh Rae 1995-003.46 0.3-0.10.4 1995-1999 4.00-0.14-0.0 3.9 1999-003 1.01 0.1 0.13 1. NACE 156/7 147.30 80.0 99.71 131.8 % Growh Rae 1995-003 5.99 -.5-0.03 4.06 1995-1999 5.39 -.70-0.03 3.64 1999-003 6.44 -.33-0.04 4.31 NACE 158 119.6 83.94 100.96 116.89 % Growh Rae 1995-003.35-1.95 0.1.03 1995-1999 -0.74 -.0 0.09-1.09 1999-003 5.63-1.89 0.10 5. a Index n 003 presened relave o base year 1995 (100.00) The producvy performance vares subsanally across sub-secors. In he frs subsecor, he producon, processng and preservng of mea and mea producs (NACE 151), producvy growh occurs a an average rae of close o 1 per cen per annum. Ths growh s drven by echncal progress n frs half of he sample perod and 10
mprovemens n average effcency levels n he second half as he pace of echncal progress slows and he average frms manage o cach up. 14 The second secor, he processng and preservng of fsh and fsh producs (NACE 15), on he overall fgures experences a smlar performance o he prevous secor, however, he decomposon of he producvy ndex reveals a very dfferen sory. Techncal regress of 5 per cen per annum s evden n frs 4 years of he sample wh some recovery hereafer. Average effcency levels remaned sac over he perod suggesng ha he negave mpac on echnology experenced by he secor affeced all frms equally. In conras, changes n he npu mx over me conrbue posvely o producvy n he frs 5 years of he sample leadng o producvy mprovemens of almos 7 per cen per annum. Whle s dffcul o asceran wha facors caused hs collapse, he way n whch he secor o adjus s npu mx o beer su s producon consrans s mpressve, leadng o a moderae growh n overall producvy of per cen per annum, hghlghng he dynamc naure of he secor. 15 The poores performance s evden n he fru and vegeables sub-secor (NACE 153) for whch producvy remaned vrually sac wh vrually no echncal progress evden over he sample perod. Wh lle mprovemen n he echnology froner over me, s unsurprsng ha here s some mprovemen evden n average effcency levels wh growh of jus over 1 per cen per annum recorded. The secor nvolved n he manufacure of dary producs (NACE 155), performs well hroughou he perod. Techncal progress of 4 per cen per annum s evden n he frs half selng o a more moderae growh rae of 1 per cen per annum for laer me perods. A declne n average effcency levels n frs half can be explaned by dffcules experenced by frms performng a he average keepng up wh he rapd pace of echncal progress. Wh a more moderae pace of echncal progress n he las 4 years of he sample, average effcency levels sablse. Overall, he oulook appears good for hs secor wh average growh of almos.5 per cen per annum n oal facor producvy erms. The secor ncorporang gran mll producs, sarch, sarch producs and anmal feed (NACE 156/7) experences he fases rae of producvy growh over me of 4 per cen per annum beween 1995 and 003. Ths s arbuable o a very mpressve rae of echncal progress of 6 per cen per annum, accelerang over me. A noable feaure of hs secor s performance, however, s ha whle he cung edge or froner echnology mproves a a very fas pace he average frm n he secor fnds dffcul o keep up as refleced n he fallng average effcency levels of.5 per cen per annum. 16 14 Snce for sub-secors 151 o 155 he neffcency effecs are resrced o beng me nvaran, changes n average effcency levels are caused by frms leavng and enerng he sub-secor. 15 Whle s dffcul o pnpon he facors ha caused such a collapse n echnologcal progress n he secor, one hypohess ha could be advanced s ha he secor was sll feelng he effecs of he collapse n he Irsh sea rou ndusry experenced n he early 1990s due o a sea lce nfesaon beleved o be caused by salmon farms (see hp://www.seaweb.org/resources/aquaculurecener). 16 Some cauon s needed n nerpreng he resuls for hs sub-secor gven he dversy of he group of frms, and as such echnologes, ncluded n hs sub-secor. 11
The fnal sub-secor consdered s he manufacure of oher food producs (NACE 158). Afer a slow sar wh vrually no echnologcal mprovemens coupled wh a fall n average effcency levels, he secor experenced mpressve echncal progress a a rae of over 5 per cen per annum n he second half of sample. Whle average effcency levels connued o declne, hs occurred a a slower pace n he laer years of he sample. The more recen performance of he secor s encouragng gven ha he group ncludes hgh growh secors such as prepared foods (Teagasc, 001). 17 Overall, an mporan fndng revealed by hese resuls s ha for mos sub-secors, producvy growh declnes remarkably beween 1999 and 003 relave o growh raes experenced beween 1995 and 1999. 18 Gven he rsng cos envronmen n Ireland durng hs perod s no surprsng ha producvy growh raes have suffered. 4.4 Indcaors of globalsaon and producvy resuls A key am of hs paper s o analyse he mpac of ncreased nernaonal negraon on he producvy performance of he food manufacurng secor n Ireland. By separang he resuls for each 3-dg sub-secor by ownershp (foregn vs. domesc) and expor saus (exporng vs. non-exporng) a pcure of he effec of globalsaon on producvy n he secor can be esablshed. Table 7 presens he resuls. I s clear from he above able ha rade and orgn of ownershp mpac on sub-secors n dfferen ways. In general, as mgh be expeced, exporng frms perform beer han non-exporng frms wh he excepon of he manufacure of oher food producs (NACE 158) where exporng frms experence a slghly slower pace of growh han non-exporng. Overall, foregn-owned frms make up a very small proporon of frms n he secor. Neverheless, n some sub-secors hey experence a far superor producvy performance over he sample perod. A more dealed analyss of each of he sub-secors s presened below. For he producon, processng and preservng of mea and mea producs (NACE 151), exporers ouperform non-exporng frms due o a faser pace of echncal progress, parcularly n frs half of he sample perod. Whle hey are also more effcen n ha on average hey are closer o he bes pracce froner, non-exporng frms experence a faser pace of growh n overall effcency levels over he sample perod. I s dffcul o asceran he mpac of foregn ownershp on producvy performance n hs secor as s prmarly an ndgenous secor. The small number of foregn-owned frms ha are presen perform poorly relave o domesc producers. For he processng and preservng of fsh and fsh producs (NACE 15) he exen of globalsaon s hghly correlaed wh producvy mprovemens. Exporers sgnfcanly ouperform non-exporers due o he complee collapse n producvy of 17 As for NACE 156/7, some cauon s requred n nerpreng hese resuls gven he dversy of frms ncluded n hs sub-secor. 18 Ths s no he case for wo sub-secors, NACE 156/7 and NACE 158, who perform beer n he laer perod. 1
non-exporers pos 1999. In addon foregn-owned frms perform beer han ndgenous enerprses on he bass of every componen of producvy. Table 7: Producvy change decomposed by ownershp and expor saus NACE 151 NACE 15 NACE 153 NACE 155 NACE 156/7 NACE 158 Foregn-owned n=5 n=5 n=45 n=119 n=44 n=187 Index 003 a 93.47 183.70 10.33 15.07 108.76 107.97 % Growh Rae 1995-003 -1.01 14.69 0.54 8.18 0.70 0.96 1995-1999 -0.60 10.5-0.4.73.85-3.0 1999-003 -1.15 9.1 0.87 13.89-0.9 4.55 Domesc-owned n=1,456 n=788 n=300 n=774 n=846 n=,051 Index 003 a 106.70 104. 97.77 111.86 133.48 117.39 % Growh Rae 1995-003 1.00.15 0.01 1.49 4.9.05 1995-1999 1.8 0.66 0.33 3.73 3.74-0.85 1999-003 0.00-0.54-0.69-0.56 4.66 5.05 Exporng n=1,00 n=647 n=15 n=463 n=460 n=870 Index 003 a 108.76 14.6 97.11 16.35 133.59 113.75 % Growh Rae 1995-003 1.04 6.66 0.34.94 4.1 1.39 1995-1999.35 0.3-0.31 5.65 3.78-1.5 1999-003 -0.06 6.09-0.34 0.36 5.01 4.8 Non-exporng n=488 n=166 n=193 n=36 n=379 n=1,368 Index 003 a 103.34 60.64 98.40 119.43 18.47 117.7 % Growh Rae 1995-003 0.78-4.4-0.08.74 3.74.14 1995-1999 1.05 0.07 0.57.70 3.5-0.79 1999-003 -0.04-14.13-0.5 3.37 3.13 4.97 a Index n 003 presened relave o base year 1995 (100.00) The poor performance of he fru and vegeable secor (NACE 153) n he aggregae daa s evden n boh exporng and non-exporng frms wh no obvous dsncons. Decomposon by ownershp reveals ha foregn frms perform beer n relaon o echncal change whle ndgenous frms perform beer n relaon o effcency mprovemens. For he manufacure of dary producs (NACE 155), frms servng he domesc marke only are more effcen and more echnologcally progressve, however, exporng frms are beer able o adap her npu mx o benef from reurns o scale. Overall hs leads o a superor performance by exporng frms n hs secor. Foregn-owned frms perform much beer han domesc frms. They are more effcen han domesc-owned counerpars who experence a declne n average effcency levels over he sample perod. They also experence a much faser pace of echncal progress. The fas pace of producvy growh experenced n he secor producng gran mll producs, sarch, sarch producs and anmal feed (NACE 156/7) s prmarly due o exporng frms who perform beer n erms of faser raes of echncal progress and hgher average effcency levels. Indgenous frms perform beer n hs secor bu here are very few foregn-owned enerprses makng dffcul for any conclusons o be drawn. 13
Fnally, n relaon o he producon of oher foods (NACE 158), exporers have hgher average effcency levels whch mprove sgnfcanly over me bu, n conras o wha mgh be expeced, non-exporers experence a faser pace of echncal progress leadng o a beer overall producvy performance. Foregn-owned frms have a hgher average level of effcency and perform beer over me on hs measure however ndgenous frms are he forerunners n echnologcal progress experencng a faser rae of echncal change and faser raes producvy growh overall. Gven he ndgenous naure of he Irsh food secor and s success on world markes over he course of he 1990s, mgh be expeced ha domesc frms ou-perform her foregn-owned counerpars. However, hs s only he case n hree ou of he sx subsecors analysed. Despe hs fac, n mos cases, Irsh owned-frms are he fore-runners n echnologcal advancemens n he secor wh foregn-owned frms n general performng beer on effcency measures. Ths s parcularly evden on he scale effcency measure. 19 Ths mgh sugges he presence of a group of neffcen Irshowned companes unable o keep up wh he pace of echncal progress n he secor hus draggng down he average effcency performance of he domesc-owned group. Ths laer fndng could be explaned by he fac ha he Irsh food ndusry has ended o under-nves n ranng poenally leadng o lower average effcency levels and unyelded poenal for greaer economes of scale n domesc frms. 0 In conras, as expeced, he evdence suggess ha for he mos par exporng frms are boh more echnologcally progressve and effcen han hose servng he domesc marke only. Two excepons exs: he manufacure of dary producs (NACE 155) and he manufacure of oher producs (NACE 158). 5 Conclusons Ths paper addresses wo mporan ssues n relaon o he food ndusry n Ireland. Frsly, o wha exen has he secor has remaned producve n he face of new consrans facng he secor n Ireland n he lae 1990s and early 000s, namely, rsng cos pressures, srucural changes n consumers ases and preferences and ncreased exposure o exernal pressures due o an ncreasngly more lberal rade envronmen. Secondly, hs paper examnes he mpac of globalsaon on producvy by comparng he performance of ndgenous frms wh her foregn-owned counerpars and exporng frms wh hose who solely rely on he domesc marke. In relaon o he frs ssue, an mporan fndng revealed by he resuls presened n hs paper s ha he pace of producvy growh slows, and n some cases producvy self even declnes, beween 1999 and 003 when compared wh producvy growh raes experenced beween 1995 and 1999. Ths s a worryng rend parcularly gven he mporance of hs secor o ndgenous ndusry n Ireland. A posve fndng n hs conex however, s he fac ha he oppose rend s observed for wo sub-secors, 19 In suppor of hs resul, he repor of he Food Indusry Developmen Group (1998) hghlghed he fac ha he Irsh food ndusry suffers from scale relaed dffcules 0 A repor of he Exper Group on Fuure Sklls Needs (003) relang o he food processng secor hghlghed a range of employer focussed naves n hs area ha need o be adhered o movng forward. 14
NACE 156/7 (he secor producng gran mll producs, sarch, sarch producs and anmal feed) and NACE 158 (he secor producng oher food producs), he laer of whch ncludes he secor wh he greaes growh poenal n he ndusry: prepared meals (Teagasc, 001). In relaon o he second ssue, has long been hypoheszed ha globalsaon and nernaonal negraon can yeld subsanal effcency gans hrough he promoon of compeon and rade n markes for nernaonally raded goods and servces. A he frm level, exposure o compeve pressures creaes a necessy for frms o operae as close as possble o he echnology froner n order o survve. The evdence presened n hs paper suppors hs hypohess wh exporng frms ou-performng nonexporng frms n mos sub-secors and foregn-owned frms producng more effcenly han her domesc counerpars, parcularly n relaon o he exploaon of scale effcences. The srong poson of domesc frms a he forefron of echnologcal nnovaon s re-assurng bu he nably of frms on average o keep up n erms of effcency mprovemens or by explong scale economes suggess ha he governmen and neres groups on-gong concerns n relaon o he compeveness of he secor s warraned and worhy of connued aenon. Acknowledgemens The auhor would lke o acknowledge he Cenral Sascs Offce of Ireland for permng he use of he daa and he asssance of Prof. Frances Ruane of he Insue of Inernaonal Inegraon Sudes and he Deparmen of Economcs, Trny College Dubln for her asssance n ganng access o he daa. References Baese, G., Rao, P. and O Donnell, C. (004). A Meafroner Producon Funcon for Esmaon of Techncal Effcences and Technology Gaps for Frms Operang under Dfferen Technologes. Journal of Producvy Analyss 1: 91-103. Bord Ba (004), The Irsh Food and Drnk Indusry Annual Revew and Oulook 003/04, Bord Ba, Dubln. Bokusheva, R. and Hockmann, H. (006), Producon rsk and echncal neffcency n Russan agrculure, European Revew of Agrculural Economcs, Vol. 33, pp. 93-118. Cenral Sascs Offce (1991), Census of Indusral Producon, Saonery Offce, Dubln. Cenral Sascs Offce (001), Census of Indusral Producon, Saonery Offce, Dubln. Coell, T., Rao, P. and Baese, G. (1998), An Inroducon o Effcency and Producvy Analyss, Kluwer Academc Publshers, Massachuses. 15
Deparmen of Agrculure and Food (005), Annual Revew and Oulook 004/05, Saonery Offce, Dubln. Deparmen of Agrculure and Food (001), Summary of he Inaves for he Food Secor n he Naonal Developmen Plan, 000-006, Accessed a www.agrculure.gov.e/ndex.jsp?fle=areasof/agr_food.xml Deparmen of Agrculure and Food (1998), Repor of he Food Indusry Developmen Group, December 1998. Accessed a www.agrculure.gov.e/prnndex.jsp?fle=publca/foodndusry/fr.xml Exper Group on Fuure Sklls Needs (003), The Demand and Supply of Slls n he Food Processng Secor, Accessed a www.forfas.e/publcaons/show/pub147.hml Irz, X. and Thrle, C. (004), Dual Technologcal Developmen n Boswana Agrculure: A Sochasc Inpu Dsance Funcon Approach, Journal of Agrculural Economcs, Vol. 55, pp. 455-478. Kumbhakar, S and Lovell, C. (000), Sochasc Froner Analyss, Cambrdge Unversy Press, Cambrdge. Ruane, F. and Ugur, A. (004), Labour Producvy and Foregn Drec Invesmen n Irsh Manufacurng Indusry: a decomposon analyss, Dscusson Paper Seres No. 7, Insue for Inernaonal Inegraon Sudes, Trny College Dubln. Saa Corporaon (003), Saa/SE 8.0 for Wndows, Saa Corporaon, Texas. Teagasc (001), The Compeveness of he Irsh Food Processng Indusry, Research Repor No. 43, Teagasc, The Naonal Food Cenre, Ireland. Ugur, A. (004), Techncal Effcency n Irsh Manufacurng Indusry, 1991-1999, Trny Economc Paper No. 4, Deparmen of Economcs, Trny College Dubln. 16
Insue for Inernaonal Inegraon Sudes The Suherland Cenre, Trny College Dubln, Dubln, Ireland