Wales : An Economic Profile I - Primary Industries & Energy

I was originally going to take a look at local government reforms in relation to independence this summer. However, I decided to change that.

We won't know where we're heading, or where we could go, economically (union or no union) until we have some idea of where we stand right now. Over the next fortnight, in six parts, I intend to provide an "at a glance" (ha!) look at the fundamentals of the Welsh economy, including : sector profiles, prominent Welsh businesses, opportunities & threats, trade statistics and where Wales' economy is placed at UK, European and global levels.

Firstly, a disclaimer. I'm not an economist, I just consider myself a keen amateur. Any conclusions/conjecture should be considered "educated guesses", not the truth, nor standing up to any significant academic rigour. There will almost certainly be errors, though I'm hoping minor ones.

The first part today looks at the primary sector of the economy and energy production.

Agriculture

Wales might be stereotyped as home to more sheep than
people, but dairy cattle are the more "productive" Welsh livestock.
(Pic : ITV Wales)

Welsh agriculture is dominated by the pastoral (livestock) sector. According to the latest Welsh Government statistics, in 2011 only 7.65% of the 23,135 active farm holdings in Wales were aimed at crops, horticulture or were a mixture of the two. In addition, some 17,765 holdings were "dormant". Wales has 18% of the UK's total supply of permanent pasture land, and 9% of the UK's total supply of general agricultural land.

The livestock estimates for 2011 were:

• 8.6million sheep
• 8.1million poultry (chickens, ducks, geese etc.)
• 1.1million cattle
• 30,000 pigs

Wales, unsurprisingly, is home to more than a quarter of the UK's sheep (27%), and an above population share of cattle (11%). Livestock numbers are lower than 2001, perhaps on ongoing recovery from the 2001 foot and mouth crisis. The sheep population, for example, is recovering, but the population is still lower than in 2001 (9.9million).

The amount of land set aside for agricultural use has slowly increased over the years, from 1.62million hectares in 2001 to 1.71million hectares in 2011. Of that, some 84.5% of it is permanent grassland or rough grazing land.

When it comes to production, Welsh agriculture is dominated, not by sheep, but by cows. 30% of gross output is dairy products, 23% is cattle (presumably beef). Only 19.4% of agricultural output was based around sheep (presumably meat), but this figure doesn't include wool.

Dairy farming is the most "lucrative" element of Welsh agriculture, providing an estimated income in 2011-12 of £63,900 per farm - compared to the all-farm average of £38,200. However, this figure should be treated with caution due to the well-documented issues surrounding the retail price of milk in particular, as well as possible inflation of incomes via grant schemes.

Some £316million of grants were paid to Welsh farmers in 2011, with £263.4million (83.4%) of that being from the Single Payment Scheme, which is part of the EU's Common Agricultural Policy.

Agricultural exports amounted to £166million in 2011, rising steadily over the years from £127million in 2005, dipping during the recession, but experiencing the sharpest rise between 2010 and 2011. This could be due to schemes like Hybu Cig Cymru (Meat Promotion Wales) - a co-operative meat promotion scheme. It may also have aided by the Third Assembly's Red Meat Industry Measure 2010. The measure, introduced by former Rural Affairs Minister, Elin Jones AM (Plaid, Ceredigion), made it a statutory obligation to promote the Welsh red meat industry.

The official export figures could be underestimated. Recent figures suggest lamb & beef exports alone were worth £200million in 2011. However, agricultural exports made up just 1.2% of total Welsh goods exports in 2011.

As an employer, the agricultural sector provided 58,400 jobs in 2011, with around 43% of workers working on a part-time basis.

In my own opinion, one area that could be targeted for further growth in the same way as red meat are processed dairy products. Wales obviously has a ready supply of milk, so why aren't our cheeses - for example - being promoted to the same extent? That's not to mention other potential marketable spin-offs : creams, butter, ice creams, gelatos & yogurts.

Finding alternative incomes (farm diversification) is a goal for many farmers – for example tourism. In 2009-10, some 24% of farms were actively diversifying, compared to 20% in 2006. The Welsh Government has its own Farm Diversification Schemes, one of which provided £1.3million in support to farmers in Powys.

Wales' largest agriculture-related companies (2011)
(Click to enlarge)

If we're looking for specific farming/agriculture success stories, there's one that stands head and shoulders above all others. Llansantffraid-based Wynnstay Group, one of the UK's largest agricultural suppliers, is Wales' 15^th largest company in the Top 300 2011 list, with a turnover of £234million (pre-tax profits of £5.9million), employing around 770 people.

I think we can conclusively say that the Welsh economy is not "reliant on sheep". We can lay that popular tongue-in-cheek myth to rest. It looks like agricultural exports - in particular meat - have a bright future. But we must remember that prices are volatile, and agriculture is still an (unfairly) low-margin, subsidised, low value added sector, with heavy competition from elsewhere for similar products (New Zealand lamb for example).

Farmers could help lead the way in processing, marketing and promoting their goods, more on that in Part II later this week.

Fisheries

Shellfish is a primary Welsh maritime product, finding
ready and willing export markets. However, the overall
fishing industry in Wales is small by UK standards.
(Pic : UK Student Life)

The Welsh fishing industry is tiny by UK standards. According to the Rural Development Plan 2007-2013, only around 1,400 people worked full or part-time in the industry in 2007. Most of the industry is based around Pembrokeshire, Ceredigion, Anglesey and Gwynedd, and has obvious competition from the Irish, the more-developed Cornish deep-water fishing fleet, as well as (infamous) Spanish trawlers.

Having said that, Wales has a plentiful and high-quality supply of shellfish – cockles, mussels, scallops, lobster, crabs, crayfish etc. - but even these are under threat. It's been reported that Welsh restaurants struggle to source local fish as most of it is exported to mainland Europe - especially France and Spain. The Swansea & Carmarthenshire area is also famous for its cockles and laver - what the Japanese would call nori , and a key ingredient in Japanese and Korean cuisine. Some local businesses are already expanding by exporting laver to Japan.

The proposed creation of "Marine Conservation Zones" by the Welsh Government is proving contentious, with Environment Minister John Griffiths (Lab, Newport East) likely to face a legal challenge from commercial fishermen.

With pressure on fishing quotas, a tiny maritime zone, as well as possible pressure from Marine Conservation Zones, you could say that deep-water fishing is under threat in Wales. It's not impossible it could be reduced to nothing more than a cottage industry in the medium to long term. Sadly, the only way I can see a future for commercial fishing in Wales will be via inland/near water "fish farming."

Forestry

In 2010, 14.3% of Wales' total land area was woodland, though only 38% of this is owned by the Welsh Government - and this is increasing steadily. When woodland is lost, more than half of it (85 hectares) was to quarrying and golf courses between 1997 and 2010. Only 6 hectares were lost to wind farms, and 13 hectares to general urbanisation.

Although not entirely related to Welsh forestry, paper & packaging exports were valued at £210million in 2011. According to Forestry Commission Wales, the forestry sector was worth £340million to the Welsh economy, and employs as many as 16,000 people. There are comprehensive plans for marketing and export of timber, and that's before considering Welsh forestry's contribution to tourism and the environment.

According to a woodlands survey for 2011, and 78% of woodland visitors travelled less than 5 miles. Overall visits are increasing, especially for walking and cycling/mountain biking. So you could conclude that Welsh woodlands and forests are a valued local amenity.

Welsh primary sector, paper/packaging and energy exports
from 2005-2011
(Click to enlarge)

Through diversification - such as providing mountain biking facilities - the numbers of tourists from further afield visiting Welsh forests will inevitably grow. This could result in more pressure being exerted to build higher-quality, more comprehensive, tourist facilities in forestry areas (for example in the Afan Valley), which could damage the environment in a way the likes of the Forestry Commission were set up to prevent.

Forestry is a potential "jewel in the crown" for Wales, but it will need to be developed sustainably - whether that's for energy, supplies of timber, or for tourists. When a single environment body is established by the Welsh Government in the the coming years, it'll be down to them to make sure it isn't sold off, under-utilised or, indeed, overdeveloped.

Water

Water is something Wales has plenty of - we all know that - but we need to avoid complacency. Dwr Cymru's Water Resource Management plan estimates that only 3% of rainwater in Wales is utilised for public water supply, compared to 50% in parts of south east England. Due, mostly, to the decline of heavy industry, water demand in Wales is on a steady decline, from 1,090 million litres per day (ML/d) in 1995-96 to around 820 ML/d in 2009-10.

Water company catchment areas are based (largely) on drainage basins of major rivers. Dwr Cymru provides water for the bulk of Wales and Herefordshire, while Severn Trent provides water for north Powys, Wrexham and parts of Flintshire. Dwr Cymru is a subsidiary of Glas Cymru - a company limited by guarantee - based in Nelson, Caerphilly. Glas Cymru is Wales' fourth largest company by turnover - standing at £688million - employing around 3,000 people.

With recent concerns over water shortages in south east  England this spring, it's been suggested that Wales could export more water to England in the future. It's currently unclear how much Wales actually exports – for example, to the West Midlands and Merseyside. It's also unclear how much those exports are worth. John Osmond of the IWA put the figure at £4.5billion per year, while others have suggested a more modest figure of around £100million.That's a big margin for error, though I suspect the latter figure is closer to the truth.

The total cost to supply processed water is currently around 0.2p per litre. The roughly 400million litres per day (20% of Severn Trent's total output) supplied by Dwr Cymru is, notionally, worth around £292million per year (fully processed). There are other companies that use Welsh water too - United Utilities for example.

Unprocessed costs are likely to be much, much lower – judging by the lower end estimates above (£100million), perhaps up to 50% lower. This suggests the value is in providing processed water directly to consumers and businesses and associated services, not the "raw" water itself. So, Wales wouldn't really benefit - economically - from water exports unless a Welsh company, presumably Dwr Cymru, was providing the service themselves.

Even in its unprocessed cost, water exports would certainly provide a "nice little earner", and if transferred via Dwr Cymru onto consumers, might result in lower water bills for their customers. But we shouldn't consider it some magical, lucrative export proposition. We'll probably have to look further afield for that.

Wales' Top 10 Utilities & Energy Companies.
Glas Cymru, based in Nelson, Caerphilly, is #1
*NB - W&W Utilities turnover is £312.8million obviously
(Click to enlarge)

Water is likely to become an increasingly valuable commodity, especially in places like the Middle East, and perhaps even parts of southern Europe. Syniadau wrote on the possibility of exporting water to the Middle East before, citing an example from Flanders.

In simple terms, water's returned in tankers used to carry liquefied natural gas. MH suggested in the comments that there's the potential margin of around $250,000 (~£160,000) per full water tanker returned from Pembrokeshire (where we have an LNG terminal) to the likes of Qatar. That would require investment in new water storage facilities in the area, but with their bottomless pockets, I'm sure the Qatari's would be able to fund such facilities quite easily.

Energy

Wales' non-renewable sources
(Click to enlarge, edited from
d-maps.com)

I'll have to explain my methodology behind this first of all.

There are many different way to measure energy outputs, I've decided to go for the easiest option of simple generating capacity in megawatts (1MW = 1million watts) or gigawatts (1GW = 1000MW). I haven't accounted for energy lost in transmission, and I also haven't counted very small energy schemes, or micro-generation (home solar panels etc.). This is aimed at being a rough guide, mainly focusing on where and how energy/electricity is produced in Wales – not how it's used.


The technicalities of energy policy and independence will have to be revisited another time, but Syniadau has probably done more work than anyone else on this subject and I recommend you look there for more detailed analysis.

Energy is one of the big boys of the Welsh economy, perhaps the single biggest sector. Energy exports - which in 2011 totalled £4.06billion - make up just over 30% of all Welsh goods exports. Is this a good thing? It's a steady export stream, that's for sure. But Wales, of all places, should have learnt by now that putting all your export eggs into few baskets isn't smart – a point raised in the Offa's Gap report.

It's also important to note that it probably includes petrochemicals in that figure, but I'll be looking in a little more detail at that in Part II later this week. This is focusing almost entirely on electricity generation. Actual (physical) oil and gas exports from Wales are minuscule – only £22million worth was exported in 2011.

Energy exports from Wales have more than tripled in value since 2005. But the questions I'm going to attempt to answer now is, where does it come from currently? And where will it come from in the future?

Proportions of non-renewables : current and proposed.
(Click to enlarge)

Although coal played an important role in Wales' industrial past, there are only two coal-fired power stations in Wales (though a few more use some coal) – Aberthaw and Uskmouth B – total generating capacity of 1.89GW.

In terms of fuel, estimates in 2005 suggest there's as much as 250million tonnes of coal reserves left in Wales in 1979 (roughly 50-75 years worth). Small scale mining is still ongoing, but mainly opencast, with some drift mining still being undertaken in the Neath Port Talbot area.

Although coal has other uses – for example steel-making - it doesn't dominate the Welsh non-renewable energy production sector. That honour goes to gas. If/when Wylfa B is built, then there'll also be more nuclear energy produced in Wales than from coal.

There have been hopes that carbon capture and storage based "clean coal" technology could be developed in Wales. Clean coal, for now, is prohibitively expensive and untested, currently at the experimental stage in places like the United States. Perhaps though, some sort of underground coal gasification could be an alternative to shale gas "fracking". However, this still produces high levels of greenhouse gases, and I'm sure the concerns about geological instability will remain.

43% of Welsh energy production is fuelled by gas at present (4.09GW) , with an additional 4.09GW of gas-fired energy projects forthcoming - such as the new/proposed Pembroke and Port Talbot power stations. There's also the £70billion worth of coal shale gas, but for this exercise I've discounted it.

Renewable energy in Wales - current and proposed
(Click to enlarge)

What of renewables? Currently it's dominated not by wind, but by hydroelectricity – big schemes such as Dinorwig in Gwynedd. 87% of current renewable energy in Wales is generated from hydroelectricity, and I think the potential for further hydroelectic power has been ignored in favour of "cheaper" wind schemes.

It isn't a simple case of "build dam, install turbines, get electricity" because of how hydroelectricity is generated and used in the first place (usually to meet a short term spike in demand). The prospect of "drowning" more Welsh valleys would also no doubt be contentious. But what if it were carried out by a Welsh company, under a Welsh Government mandate, instead of foisted on us from elsewhere? Maybe the prospect would be more palatable.

Although somewhat controversial, wind power currently only generates 320MW (13% of renewable energy currently generated in Wales). However, if every single proposed wind scheme is constructed in Wales, or off Wales' coast, then that will rise to 2.7GW (48% of Wales' future renewable energy supply, discounting the Severn Barrage). Wind clearly has a future, but issues remain around wind subsidies and arguments around noise, efficiency and aesthetics. Considering Wales is one of the windiest places in the UK, it would be sensible to make full use of a clean, renewable source on our doorstep.

Wales' renewable sources of energy
(Click to enlarge, edited from d-maps.com)

A lot has been said of waste incinerators, but they're a fairly minor player - even in the future. Of the three schemes currently on track for delivery (Cardiff, Deeside and Hirwaun), they'll only generate around 50MW of energy between them (not counting the Deeside scheme). Whether you would consider these "renewable" or "sustainable" is another matter.

Biomass energy is due to increase in influence over coming years, rising from just 10MW of generating capacity now, to around 730MW from the likes of the Llynfi, Holyhead and Baglan Bay biomass plant schemes. Once again, questions should be asked about how "sustainable" these are considering their fuel is often transported long distances. To prove how up to date this is, I've only included the Chirk biomass scheme this afternoon, but it isn't included in the overall energy totals because I don't know the generating capacity.

Wales isn't associated with sunshine, but a lot of micro-generation in Wales is provided by solar panels. It's hard to quantify how much is produced this way, but there are scaled-up proposals for "solar farms" in Pembrokeshire and Carmarthenshire (combined 8MW) and Sarn on the outskirts of Bridgend (5MW).

Proportions of non-renewables v renewables : current, future
and including the proposed Severn Barrage
(Click to enlarge)

Taking the Severn Barrage out of the equation, although sheer renewable and non-renewable generating capacity in Wales is going to increase over the next decade or so, the proportions aren't going to change dramatically. This is slightly depressing/worrying, as Wales has enough potential to meet twice its own energy needs through renewable energy alone.

It would certainly help things along if we had a devolved government that wanted the power to deal with meaningful-sized energy projects – like Scotland's continuous examples - not muck about with tiny schemes. Is Wales' current policy sacrificing renewable energy targets to prop up exports/attract "investment" in big, new non-renewable power schemes?

Out of date energy consumption and demand statistics (available here, Annex C) suggest that Wales produced 35 Terrawatt hours (TWhrs) in 2005, and consumed 24 Twhrs. Though it's difficult to pin down the exact figures, Wales is clearly a net exporter of energy and energy-related products (petroleum etc.).

More recent figures on Syniadau, suggest that Wales exports 7,092 gigawatt hours (GWh) of renewable electricity to England – almost as much as Scotland.

Most of Wales' generating capacity is in north Wales. Because there's no "north-south" electricity link (more on this, once again, at Syniadau), while north Wales and Wales as a whole are net-energy exporters, south Wales is a net energy importer.

This results in the anomaly of south Wales paying some of the highest energy prices in the UK. This is likely to be offset in future by increased energy generation in the south, but a good "north-south interconnector" is vital – not just to ensure we have appropriate infrastructure, but perhaps to help combat fuel poverty too.

Part II – looking at the secondary sector (manufacturing), IT as well as science & technology - will be posted later this week.