National statistics

Total Factor Productivity of the United Kingdom Food Chain 2020 – final release (published 28 July 2022)

Updated 27 July 2023

The Covid-19 pandemic affected all parts of the economy in 2020, and the food chain to a greater or lesser extent. It also impacted on the collection of the ONS statistical sources that underpin this TFP calculation. It is not possible to separate out the impacts of the government response to Covid on productivity of the sector in a quantitative way.

Food and drink manufacturing is a critical sector, with the labour force mostly designated as key workers in 2020. Businesses had to implement a range of measures to ensure business continuity including testing, adjusting working patterns and shift arrangements to isolate cohorts of workers, and other biosecurity measures. The exceptional additional costs involved with these mitigations may not be completely captured in the input costs here.

Wholesalers were affected differently during the Covid-19 pandemic, depending on what type of business they supplied. Wholesalers supplying smaller retailers such as convenience stores continued as normal, but business was affected of wholesalers supplying catering companies or schools for instance.

During the lockdown measures in place for part of 2020, retail became the most important source of food for most consumers. Some food which would normally have gone through wholesale to the catering or school sectors was diverted on to retailers’ shelves. Whilst this will have contributed to a rise in retail outputs, as with manufacturing there were associated costs as retailers implemented social distancing measures and strengthened their home delivery and ‘click and collect’ services, amongst others.

The catering sector was effectively paused for around 3 months of 2020. Catering workers were not classified as key workers and many were furloughed or moved to alternative employment during that time, and there were consequential recruitment issues as the sector slowly reopened. Capital costs such as rent etc remained essentially constant throughout 2020 however. The Eat Out to Help Out scheme in August 2020 stimulated demand in the summer, but consumer caution around a second wave towards the end of the year also impacted the sector.

1. Key messages

• In 2020 the productivity of the food chain decreased by 1.5 per cent while there was a decrease of 1.1 per cent in productivity in the wider economy. In the 10 years prior to 2020, the average annual growth rate of the food chain was 0.1 per cent while the wider economy’s average annual growth rate was 0.2 per cent.
• In 2020 two of the four food sectors had a higher productivity than in 2019. Wholesale has increased by 0.9 per cent while retail increased by 3.7 per cent.
• In 2020 catering showed a decrease of 10.1 per cent due to Covid-19 impacts.
• In 2020 the value of Gross Value Added for the four sectors of the food chain was £104.7 billion. Retailing was the largest contributor with £36.2 billion while wholesaling was £13.2 billion.

2. Overview

The total factor productivity (TFP) of the United Kingdom food chain is an indicator of the efficiency and competitiveness of the food industry within the United Kingdom. An increase in TFP indicates the industry is improving its efficiency. If TFP in the UK food chain increases faster than other countries, this indicates that the industry is improving competitiveness.

Factors influencing total factor productivity

In economic theory, Total Factor Productivity (TFP), also called multi-factor productivity, measures the proportion of output not explained by traditionally measured inputs of labour and capital used in production.

Increases in total factor productivity reflect a more efficient use of inputs, and TFP is often taken as a measure of long-term technological change or dynamism brought about by such factors as technical innovation. This indicator does not explicitly capture these factors, but attempts to produce a more sophisticated measure than simple labour productivity estimates. Explaining year-to-year changes in TFP is not straightforward as there is no single factor that can explain changes in TFP.

There are several macro and micro economic factors, which together can help to understand patterns in the TFP behaviour. These include technological advances, Macroeconomic factors, Human capital and Institutions. Please see the Background Notes section for further details.

The food sector plays a significant part in our economy, accounting for about 9 per cent of the Gross Value Added of the UK non-financial business economy. Four sectors make up the food chain: manufacture, wholesale, retail and non-residential catering. Both alcoholic and non-alcoholic drinks are included in food. Total factor productivity is a measure of the efficiency with which inputs are converted into outputs. For example, TFP increases if the volume of outputs increases while the volume of inputs stays the same. Similarly, TFP increases if the volume of inputs decreases while the volume of outputs stays the same. Although there is a practical limit on how much food people want to buy, the volume of output can increase due to increases in quality of products and by increases in exports.

Figure 2.1. Gross value added of the UK food sector 2020

2020	£ billion
Food and Drink Manufacturing	£28.8bn
Food and Drink Wholesaling	£13.2bn
Food and Drink Retailing	£36.2bn
Non-Residential Catering	£26.5bn

Figure 2.1 description: Figure 2.1 shows the gross value added of the UK food sector in 2020.

In 2020, the value of Gross Value Added for the four sectors of the food chain was £104.7 billion. Retailing was the largest contributor with £36.2 billion while wholesaling was £13.2 billion. This estimate for 2020 is final as the underlying data used are final estimates. See the Uses section for more details. The background data and charts in this release can be downloaded here: Food chain productivity

3. Sector trends

Figure 3.1. Total Factor Productivity trends within the UK food industry 2000 to 2020

Figure 3.1 description: Figure 3.1 shows the Total Factor Productivity trends within the UK food industry, 2000 to 2020.

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• In 2020 productivity increased in the wholesaling and retailing sectors and decreased in the manufacturing and catering sectors.
• Since 2014 manufacturing productivity increased steadily but decreased in 2020. In 2018 wholesale productivity began to overtake it and is now at a higher level.
• Manufacturing and wholesale have risen steadily from 2000 to 2020. Retail and catering have seen a flatter trend, although catering decreased in 2020.
• In 2020 the wholesale and retail food sectors had a higher productivity than in 2019. Wholesale has increased by 0.9 per cent, retail by 3.7 per cent, while manufacturing has decreased by 3.1 per cent and catering has decreased by 10.1 per cent.
• In 2014, all sectors saw a decrease in productivity.

4. Sector Analysis

Figure 4.1. Manufacturing

Figure 4.1 description: Figure 4.1 shows the inputs, outpus and productivity data for the manufacturing sector, 2000 to 2020.

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• In 2020, total factor productivity in food and drink manufacturing decreased by 3.1 per cent and decreased by 0.2 per cent over the last 10 years.
• In 2020 inputs decreased by 1.2 per cent, while outputs decreased by 4.3 per cent, resulting in the productivity decrease.
• Since 2019, labour input increased by 5.5 per cent. In the last 10 years there has been an average annual increase of labour input of 1.0 per cent.
• In 2020, food and drink manufacturing contributed 27 per cent to Gross Value Added of the food chain beyond the farm-gate.

Figure 4.2. Wholesaling

Figure 4.2 description: Figure 4.2 shows the inputs, outputs and productivity data for the wholesaling sector, 2000 to 2020.

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• Total factor productivity of food wholesaling increased by 0.9 per cent in 2020, while in the last 10 years has shown an average annual increase of 0.6 per cent.
• Between 2019 and 2020, inputs have decreased by 4.6 per cent, while outputs have decreased by 3.7 per cent.
• In 2020 labour input increased by 2.5 per cent. Labour decreased by 12.4 per cent between 2008 and 2009, but increased by 18 per cent between 2011 and 2012.
• In 2020 the wholesale sector contributed 13 per cent to Gross Value Added of the food chain beyond the farm-gate.

Figure 4.3. Retail

Figure 4.3 description: Figure 4.3 shows the inputs, outputs and productivity data for the retail sector, 2000 to 2020.

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• Productivity of the food retail sector increased by 3.7 per cent in 2020.
• In the last 10 years, productivity has shown an average annual increase of 0.6 per cent. Since 2000, inputs and outputs have followed a similar pattern to each other resulting in little change in productivity up until 2020 when the two values diverged.
• Labour input has increased by 0.6 per cent since 2019. In the last 10 years there has been no overall change in average annual labour input.
• In 2020 food retailing contributed 35 per cent to Gross Value Added of the food chain beyond the farm-gate.

Figure 4.4. Non-Residential Catering (NRC)

Figure 4.4 description: Figure 4.4 shows the inputs, outputs and productivity data for the non-residential catering sector, 2000 to 2020.

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• In 2020 non-residential catering (NRC) showed a decrease in productivity of 10.1 per cent.
• The decrease in productivity was due to a decrease in inputs of 24.2 per cent and a decrease in outputs of 31.8 per cent.
• Productivity of NRC was sharply affected in 2020 during the Covid-19 pandemic with the closure of many catering companies due to restrictions. Before 2020 productivity was strong and at its highest level since 2006. In 2009 productivity dipped due to the recession, when people cut back some expenditures such as eating out.
• In 2020, NRC contributed 25 per cent to Gross Value Added of the food chain beyond the farm-gate.

5. Benchmarking the UK food chain against the wider economy

An estimate of total factor productivity in the wider economy is calculated for comparison purposes from the same data sources as the food chain using the same method. This measure does not cover the full economy but rather non-public sector industries that are covered by the Annual Business Survey. Financial services are the largest sector not included in the measure.

In 2020 the productivity of the food chain decreased by 1.5 per cent while there was an decrease of 1.1 per cent in productivity in the wider economy. In the 10 years prior to 2020, the average annual growth rate of the food chain was 0.1 per cent while the wider economy’s average annual growth rate was 0.2 per cent. For the last 10 years, the food chain has had a higher productivity than the wider economy, except for 2014 and 2015.

Figure 5.1. Total factor productivity of the UK food sector compared with the wider economy for the UK

Figure 5.1 description: Figure 5.1 shows the Total factor productivity of the UK food sector compared with the wider economy for the UK, 2000 to 2020.

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6. Background notes

6.1 TFP calculation

The method incorporates the inputs and outputs that are associated with monetary transactions but does not incorporate external effects on society and the environment. TFP differs from labour productivity by factoring in capital consumption. This calculation covers labour, capital and purchases while output is the volume of sales. TFP is measured only in the form of changes as the change in the ‘volume of outputs’ divided by the change in ’the volume of inputs’. The series is annually rebased and chain linked. Inputs are measured in the form of labour, capital and purchases. Purchases (mainly food but also energy, water and other consumables) dominate the inputs in all sectors.

Figure 6.1. Contribution of inputs

Category	Capital	Purchases	Labour	Total
Catering	9	53	37
Retail	4	77	19
Wholesale	1	92	7
Manufacturing	4	80	16

Figure 6.1 description: Figure 6.1 shows the contribution of inputs in 2020.

A more detailed methodology note to accompany the release sets out methods, assumptions, data sources and revisions, and is available here: Food chain productivity

6.2 Factors influencing total factor productivity

In economic theory, Total Factor Productivity (TFP), also called multi-factor productivity, measures the proportion of output not explained by traditionally measured inputs of labour and capital used in production. Increases in total factor productivity reflect a more efficient use of inputs and TFP is often taken as a measure of long-term technological change or dynamism brought about by such factors as technical innovation. Explaining year to year changes in TFP is not straightforward as there is no single factor that can explain changes in TFP behaviour.

There are several macro and micro economic factors, which together can help to understand patterns in the TFP behaviour:

Changes in technology

Factors of production typically include land, labour, capital and natural resources. These inputs are used directly to produce a good or service. Technology, on the other hand, is used to put these factors of production to work. A firm doesn’t purchase additional units of technology to feed into the production process in the same way that a firm might hire more labour in order to increase output. Instead, the technology available in a particular industry or economy allows firms to use labour and capital more or less efficiently. Advances in technology alter the combination of inputs or the types of inputs required in the production process and that usually means that fewer and/or less costly inputs are needed. Innovation is the driving force behind these leaps in efficiency.

Macroeconomic factors

Economic stability (e.g. inflation, interest rates, and exchange rate), levels of taxation, fiscal and monetary policies can lead to changes in the level of output produced in the economy. For example, fluctuations in commodity prices resulting from increased/low levels of inflation or exchange rates can cause higher/lower inputs prices and subsequently affect the production cost and the TFP. Economic shocks and cyclical movements of the business cycle (intrinsic periods of recession to recovery) can also account for changes in total factor productivity.
Overall openness to international trade and capital mobility are expected to boost productivity growth. International trade spurs competition –which leads to innovation –as well as serves as a channel for technology diffusion amongst nations. Generally, openness to capital flows (Foreign Direct Investment) is associated with technology diffusion and knowledge transfers, which in turn boost productivity growth.

Human Capital

Labour skills positively affect productivity because of its inherent contributions to capital productivity, innovation and technological change. In addition better labour skills may also increase the capability of an economy to benefit from externalities created by international trade and capital flows.

Institutions

Institutions and the overall legal framework of an economy shape the incentives for both factor accumulation and innovation and therefore play an important role in fostering technological change as well as improving the overall allocative efficiency of factors of production. Furthermore, technical change is significantly impacted by innovation through public research and improved human capital through education and health care access.

7. Users and potential uses of this data

Defra use TFP in the food chain beyond agriculture as a measure of how well the UK food industry beyond agriculture is improving its productivity and thereby on course to be competitive in the future.

Improving the productivity and competitiveness of food and farming businesses, while improving the environment, is a priority for Defra. Domestically a more competitive, profitable and resilient farming and food industry is needed. As the UK economy recovers, this sector, like all others, needs to maximise its potential for sustainable growth, maintain and increase its chance of securing European and global trading opportunities, and meet society’s needs. We also need a basic level of resilience against changing environmental conditions, price fluctuations, financial uncertainty and food availability.

The Food and Drink Federation use this data to communicate to its members (by tracking the industry’s progress and promoting the sector) and they make this information available on their website.

Food and drink businesses can also use this data to track progress of the industry in general but this measure is not comparable with competitiveness measures applied to individual businesses and cannot be used to benchmark their own performances.

This measure is not directly comparable with the general calculation used by the Office for National Statistics to measure whole economy productivity. To enable a comparison with the wider economy we calculate TFP growth in the wider economy using this calculation, i.e. data from the annual business survey. It is limited to coverage of the economy by the Annual Business Survey. The Annual Business Survey is the main structural business survey conducted by the Office for National Statistics. Prior to 2009 it was known as the Annual Business Inquiry - part 2. It collects financial information for about two-thirds of the UK economy, covering agriculture (part); hunting; forestry and fishing; production; construction; motor trades; wholesale; retail; catering and allied trades; property; service trades. The financial variables covered include turnover, purchases, employment costs, capital expenditure and stocks. Further details on the survey are at: Annual Business Survey – ONS

The original research this statistics release is based on was published in May 2006 and is available here: UK Food Chain Productivity research. Total factor productivity of agriculture is published in Agriculture in the UK Chapter 5. Data up to 2021 is available in Figure 5.1.

8. National Statistics status

National Statistics status means that our statistics meet the highest standards of trustworthiness, quality and public value, and it is our responsibility to maintain compliance with these standards.

These statistics were published for the first time in April 2011. They were designated as National Statistics in June 2013 following a full assessment against the Code of Practice for Statistics.

Since the latest review by the Office for Statistics Regulation, we have continued to comply with the Code of Practice.

9. Glossary

9.1 Economic Definition of the food sector

The UK food sector is defined in terms of the standard industrial classification (SIC 2007) as food manufacturing, food wholesaling, food retailing and non-residential catering:

Category	SIC codes
Food and Drink Manufacturing	10 + 11
Food and Drink Wholesaling	46.3 (excluding 46.35) + 46.17
Food and Drink Retailing	47.2 (excluding 47.26) + 47.11 + 47.81
Non-Residential Catering	56

The deductions are to remove non-food items as far as possible.

9.2 Food and Drink Manufacturing

The sector comprises of nine main categories including processing and preserving meat, dairy, fruit and vegetables, oils, bread, biscuits and cakes, and confectionary. Animal feed manufacturing is included, covering both farm animal feed and pet food, and representing 7.5% of total turnover in food and drink manufacturing in 2020. The drink manufacturing sector includes alcoholic beverages and soft drinks and mineral waters.

9.3 Food and Drink Wholesaling

The sector consists of the buying, storage and reselling of food either manufactured or freshly produced. Wholesale of tobacco products is not included.

9.4 Food and Drink Retailing

The sector is defined as the sale of food within both non-specialised stores (e.g. supermarkets) and specialised stores such as butchers and bakers.

9.5 Non-residential Catering

(NRC) consists of restaurants and bars involved in preparation and serving of food, alongside canteens and catering services. Hotels are not included.

9.6 Gross Value Added (GVA)

GVA is the difference between output and intermediate consumption for any given sector / industry. This is the difference between the value of goods and services produced and the cost of raw materials and other inputs which are used up in production.

9.7 Inputs

Inputs are labour (total hours worked), capital expenditure and purchases (of goods materials and services).

9.8 Outputs

Output is Turnover (volume of sales of products.).

These estimates are usually produced twice yearly. Due to the Covid pandemic some data has been unavailable until a later date, resulting in this publication being delayed. Most of the data is sourced from the Annual Business Survey (ABS), which is produced by the Office for National Statistics (ONS). The ONS normally release the ABS provisional estimates around November and the revised estimates around June.

Data in this release comes from the Annual Business Survey published in June 2022, The Annual Survey of Earnings and Hours published in November 2020 and Capital Stocks: Consumption of Fixed Capital published in November 2021. The next TFP update will be in July 2023.

Enquiries to: David Lee Tel: +44 (0) 208 026 3006 email: david.lee@defra.gov.uk

Defra
Food Statistics team
2nd Floor, Seacole Building
2 Marsham Street
London
SW1P 4DF