Orkney Economic Review 2011

Development and Environment Services
Orkney Islands Council
School Place, Kirkwall, KW15 1NY
www.orkney.gov.uk
No. 25

IMAGE: Cover showing a yellow marine-energy vessel operating in rough water, the Orkney Islands Council crest, and the title “Orkney Economic Review 2011”. The cover also gives the publisher details and website.

IMAGE: Map of the Orkney Islands labelled FLOTTA, NORTH RONALDSAY, PAPA WESTRAY, WESTRAY, SANDAY, ROUSAY, EDAY, EGILSAY, WYRE, MAINLAND, STRONSAY, SHAPINSAY, GRAEMSAY, HOY, BURRAY and SOUTH RONALDSAY.

This booklet aims to bring together and review the latest data available on the Orkney economy and statistics and information which might influence the economy. The majority of the statistics come from published sources, which are credited below each table/graph.

Whilst it is the purpose of the review to present up-to-date information, in a few cases, where entirely current data was not available at the time of going to print, more dated figures are shown. In many cases historical data provided differs from that previously published. Updated statistics have been used where they have been provided.

Every care is taken in the production of this publication, however, neither the publisher nor the printer can accept responsibility for any errors or omissions.

Contents

1. Population
2. Labour Market
3. Economic Activity
4. Agriculture
5. Fishing
6. Shellfish
7. Fish Farming
8. Energy Production
9. Transport
10. Housing
11. Weather

IMAGE: Photograph of a wind turbine standing in a rural landscape on Westray, with construction equipment at its base.

Population

Although Orkney’s population natural growth rate (births minus deaths) remains negative the gap has closed significantly and, if the recent trend continues, could soon contribute to population growth. Estimated in-migration is rising again too and this might be influenced by the difficult conditions prevailing in the UK economy and the availability in Orkney of relatively accessible and affordable housing.

Orkney Population Change 2000–2010

Source: General Register Office for Scotland (GROS)

NOTE: population and migration figures post 2001 census are estimates.

The Orkney demographic is however moving towards an increasingly ageing population, a trend which is projected to continue. Predictions are highlighted in the following table.

Predicted population changes (per cent) 2008 to 2023

*Pensionable age is assumed to be 65 for men, 60 for women until 2010; assumed that between 2010 and 2020 pensionable age for women increases to 65.

Source: GROS

An Orkney Population and Migration study was completed in April 2009 and the comprehensive report can be viewed at:

http://www.orkney.gov.uk/Files/Council/Publications/2009/Orkney_Population_Change_Study_April_09.pdf

Labour Market

Unemployment Rate (% Job-seekers) in Orkney 2003–2010

Source: Office for National Statistics (ONS)

Note: These unemployment rates represent the proportion (%) of the resident population who are of working age and who are seeking employment. (ONS).

Orkney’s average unemployment rate rose again slightly in 2010 but remains significantly lower than the Scotland and UK December levels of 4.0% and 3.5% respectively. However, as the following table illustrates, the trend over recent years is towards increasing numbers of job seekers although long-term unemployment has remained relatively unchanged.

IMAGE: Photograph of a rural coastal settlement and surrounding hills, providing a general landscape image associated with Orkney.

Claimant count, Job Seeker Allowance

Source: Office for National Statistics (ONS)

Notes: Totals may not always tally due to rounding and owing to rounding, the apparent movements by age group and duration may therefore be distorted.

The age bracket displaying the largest increase in Orkney unemployment during the last four years is the 18–24 age-group, although there are indications that the situation is improving – in June 2011, there were fewer job-seekers of that age group than on the corresponding date in 2010.

However, the overall rate of increase in all job-seekers over the last two years, in percentage terms, is less than half that in Scotland and much lower than in Great Britain (GB) as a whole.

IMAGE: Photograph of a sunrise or sunset over the sea, with the sun partly obscured by clouds.

JSA Claimants

Source: ONS

Note: Claimant % is a proportion of resident working age people (estimated).

This is a consistent position and the following chart illustrates the relative health of the Orkney labour market over the past five years.

IMAGE: Bar chart titled “Unemployment (Job-seekers) Rate in Orkney and Scotland (December) 2004–2010”. It compares Orkney and Scotland for each year: Orkney is approximately 1.4%, 1.4%, 1.7%, 0.8%, 1.1%, 1.3% and 1.6%; Scotland is approximately 2.5%, 2.4%, 2.5%, 2.0%, 2.9%, 3.9% and 4.0%.

Source: Office for National Statistics

IMAGE: Photograph of British coins and banknotes, including £5 and £20 notes.

Economic Activity

The percentage of the Orkney population who are economically active, i.e. either in employment or actively seeking employment, tends to be consistently higher than both the Scotland and Great Britain averages.

Economically Active as % of (estimated) working age population

Source: ONS

Orkney’s active percentage is much more variable than the national statistics owing to the lower numbers involved but at its lowest is significantly above average.

IMAGE: Line chart titled “Economically active population”, showing Orkney above Scotland and Great Britain from 2006 to 2010. Orkney values are 81.8%, 86.0%, 83.7%, 87.6% and 81.7%; Scotland values are 77.8%, 77.5%, 77.4%, 77.4% and 77.0%; GB values are 76.7%, 76.5%, 76.7%, 76.7% and 76.2%.

Self-employment is also more prevalent in Orkney than in the rest of Great Britain.

Self-employment – regional comparison

Source: ONS

Workforce Qualifications

In terms of accredited skills and education at a higher level, the Orkney working-age population appears to lag behind that of Scotland but more closely resembles that of the aggregated Great Britain labour pool.

Qualifications Jan–Dec 2010

Notes: NVQ is known as SVQ in Scotland.

In vocational terms NVQ4 indicates management skills; and in academic terms, NVQ 4 or above indicates HND, etc. or above (Scottish Credit and Qualifications Framework level 8 and above).

Enterprises

Reliable and inclusive data on business churn is not available. However an enterprise birth and death rate is available in respect of what is termed ‘Active Registered Enterprises’ i.e. those which had either turnover or employment at any time during the reference period and were registered with HMRC for VAT and/or PAYE.

Active Registered Enterprises – Orkney

Source: ONS

At the date of publication, ONS data in respect of 2010 was not still available, but the Committee of Scottish Clearing Banks (CSCB) reported 55 new business starts in Orkney during 2010 and CSCB data is usually fairly indicative of HMRC numbers.

Scottish Corporate Sector Statistics provides a data set which offers a broader snapshot of Orkney’s business base. This shows the estimated total enterprises operating in Orkney at March 2011.

The estimated 1495 enterprises operate in the following sectors (Standard Industrial Classification, 2007).

IMAGE: Photograph of a large inflatable ball or sphere carrying the words “GRAND OPENING”.

Active Orkney Enterprises, March 2011

* rounded to nearest 5.

Source: Scottish Corporate Sector Statistics

The estimates have been constructed using data from the Inter-Departmental Business Register (IDBR), the Labour Force Survey (LFS), the Family Resources Survey (FRS) and Self-Assessment (SA) data. The IDBR provides the number of enterprises registered for VAT and/or PAYE. However there is a substantial number of very small enterprises which have no employees and are therefore not included on the IDBR. A modeling procedure that combines data from the IDBR with estimates derived from the LFS, FRS and SA data is used to estimate the number of unregistered enterprises. Estimates may however not capture the many micro enterprises and/or part-time enterprises operating in Orkney.

Owing to the irregularity of reporting and the very small number of Orkney businesses sampled, the reporting of productivity (or Gross Value Added [GVA]) by government statistics agencies has traditionally been unreliable. Nevertheless, an indication of trends and comparisons with other areas is provided by the Office for National Statistics, with the most recent data in respect of 2008 published in December 2010.

IMAGE: Line chart titled “GVA per head”, comparing Orkney, Shetland, Western Isles, H&I and Scotland from 2000 to 2008. Orkney rises from approximately £10,000 to £16,000; Shetland and Scotland reach approximately £20,000; Western Isles reaches approximately £14,500; and H&I reaches approximately £16,000.

Source: ONS

Between 2000 and 2008, Orkney output was consistently higher than that of the Western Isles and Highland and Islands region but well below that achieved by both Shetland and Scotland nationally.

In terms of household income, the following table and chart can provide an indication of changing household wealth between 1995 and 2009. Gross Disposable Household Income (GDHI) is money left after: expenditure associated with income, for example, taxes and social contributions; property ownership; and provision for future pension income. It is calculated gross of any deductions for capital consumption.

Gross Disposable Household Income (GDHI) per head

¹ Caithness, Sutherland, Ross & Cromarty
² Inverness, Nairn & Moray, Badenoch & Strathspey
³ Lochaber, Skye & Lochalsh, Arran, Cumbrae, Argyll & Bute

Source: ONS, March 2011

There are fairly wide variations in the extent of increase in the various areas over the years with, it appears, Orkney’s GDHI displaying increases well above the regional and national averages.

It is impossible to establish the reasons for this but Orkney and the Inverness area demonstrate the greatest increases and both have strong agricultural economies. Over the period 2007–2009, whilst livestock market prices were increasing, borrowing costs were reducing and the Pound also strengthened significantly against the Euro and this combination may have substantially boosted incomes in that sector.

During the same period, the construction sector in Orkney was also extremely vibrant.

Nevertheless, the possible explanations are purely speculative and the income statistics also come with the usual health warning with regard to risk of error due to small sample sizes.

IMAGE: Photograph of a calculator displaying £12,345.67.

Agriculture

Livestock values returned at Orkney Auction Mart rose dramatically during 2009 perhaps as a consequence of falling stock numbers both in Orkney and across Scotland generally. Livestock has continued to trade at, or near, these levels since.

Orkney Auction Mart Prices – Average price, pence per kg

Source: Orkney Auction Mart

Livestock numbers

Total livestock numbers now appear to have stabilised somewhat in all categories. However, following recovery in 2009 the dairy herd declined again in 2010, although remaining just above the sector low in 2008.

IMAGE: Photograph of three cattle standing together in a field.

Herd/Flock Size in Orkney

Source: Scottish Government’s Rural and Environment Research and Analysis Directorate RERAD, agricultural census annually at June.

Although livestock shipments through Orkney Islands Council (OIC) ports increased significantly in 2008, this may have been due in part to the temporary disruption of the privately-run St Margaret’s Hope–Gills Bay ferry service during peak periods. As data for that service is not available, total livestock shipments from Orkney can no longer be accurately ascertained. However, the livestock data presented above would suggest that any actual decline in livestock shipped is not as great as suggested by the following table.

Livestock Shipments from Orkney (OIC Ports)

Source: OIC Marine Services

Land Use

Although it appears that, following a slight increase in 2008, the total land area utilised by agriculture decreased significantly in 2009, the statistics agency believes that this may be an anomaly caused by changes to data collection and reporting processes.

Agricultural Land Use in Orkney (hectares)

Source: (RERAD)

Note: Totals may not always tally due to changes in reporting methods.
* not previously reported.

IMAGE: Photograph of wooden fence posts and barbed wire across a rural field.

Despite evidence of a declining dairy herd, milk production increased during 2009–10. However, two dairy farms withdrew from the market during the year 2010–11 resulting in the loss of almost 1 million litres of production. To date, the unused quota has not been taken up by the remaining producers.

90% of all Orkney milk production goes towards the manufacturing of the award winning Orkney Cheddar produced by the Orkney Cheese Company Ltd.

Orkney Milk Production (000’s of litres)

IMAGE: Bar chart showing annual milk production from 2001–02 to 2010–11. Production rises overall from approximately 14,900 thousand litres to approximately 16,000 thousand litres in 2009–10, before falling to approximately 15,100 thousand litres in 2010–11.

Total employment in agriculture has stabilised during the past year and, with a total of 1,971 people having a direct economic interest in farming, the agriculture industry remains the most significant employer in Orkney outwith the public sector.

Agricultural Employment in Orkney

Source: RERAD, Agricultural Census, June 2009

The total number of agricultural holdings has continued its upward trend and this, when considered alongside other evident trends, reinforces the belief that the apparent drop in agricultural land is due to changes in statistical procedures, and that the land area associated with agriculture in Orkney remains relatively constant.

CAP Subsidies: The total of all subsidy payments received by Orkney farmers during recent years under the EU Common Agricultural Policy support schemes is set out in the following table. Fluctuations may be due, in part, to currency exchange rate movements and changes in eligibility for dedicated schemes.

CAP subsidy payments

Excludes payments made in respect of Rural Priorities Contracts.

Source: Scottish Government Rural Payments and Inspections Directorate

At just under £20 million last year, subsidies are critical to the viability of Orkney farming and the future success of Orkney agriculture may be dependent upon the continued entitlement to these payments at the current levels.

The current levels of agricultural support received by Orkney farming are however not secure beyond 2013, when a new CAP structure will be put in place across the European Union. It is thought likely that direct support via several of the major CAP schemes will decrease thereafter.

IMAGE: Photograph of a tractor working a cultivated field.

Fishing

The size and make-up of the fleet has remained relatively unchanged since 2006.

Orkney Fishing Fleet

Source: Marine Scotland Science

Comparisons with the fishing fleets in Shetland and the Western Isles respectively are made below.

IMAGE: Photograph of fishing boats moored in a harbour.

Employment

Regular employment in the Orkney fishing industry in 2010 was virtually unchanged over the period (up by 2) whilst in Scotland generally, the number fell slightly (by 146 or 3.3%). The apparent substantial increase in fishermen part-employed in Orkney over the past two years is thought to be due to a change in reporting method.

IMAGE: Photograph of fishing boats in a harbour, including black-painted vessels moored alongside the quay.

Orkney Fishermen Employed

Source: Marine Scotland Science

Note: Figures relate to those employed on vessels which submit landing declarations to Marine Scotland.

Although the combined volume of landings of demersal and pelagic fish fell considerably in 2010, the value of fish landed increased again nominally. Demersal species contribute 99% of both the volume and value of landings.

Pelagic/Demersal landings by Orkney Vessels

Source: Scottish Sea Fisheries Statistics

IMAGE: Photograph of a lobster viewed from above.

Shellfish

Both the weight and value of shellfish landed in Orkney have increased significantly over the past two years. In addition to shellfish landed in Orkney, a further 1,037 tonnes valued at approximately £1.72m was landed at other Scottish ports in 2010 by vessels registered and based in Orkney (provisional figures).

Landings of Shellfish into Orkney ports

Source: Scottish Sea Fisheries Statistics

Shellfish species landed in Orkney since 2006, their live weight and values are as follows:

Source: Scottish Sea Fisheries Statistics

Fish Farming

Unconfirmed data (2010) suggests that the production of farmed salmon continues to rise from its 2006 low and, apart from the apparently exceptional level in 2003, is now higher than at any time during the last ten years.

Salmon & Smolt Production in Orkney

* Estimated production 2010.

• Not available.

Source: Marine Scotland Science

IMAGE: Photograph showing fish-farming cages floating in the sea.

Employment levels in the industry seem to fluctuate significantly from year to year and no explanation is offered for this. Although it is believed that levels have increased once more, no official data in respect of 2010 employment was available at the date of printing. The following table shows fish farming employment in Orkney as presented by the Scottish Government (Marine Scotland Science).

Fish Farming Employment in Orkney

Source: Marine Scotland Science

The above statistics are not however supported by figures reported by the trade body, the Scottish Salmon Producers Organisation (SSPO) who reported that direct employment by their members in Orkney increased from 56 in 2008 to 77 in 2009. It is not known why the two figures differ to such an extent.

Shellfish Production: Marine Scotland reports show that there were 8 registered producers in Orkney in 2010 with total employment in the sector of 2 full-time plus 4 part-time. However, only 2 sites were reported to be producing shellfish directly for the consumers’ table, with the remainder described as ‘no production or active on-growing, or fallow’.

In contrast, in 2010, there were 32 registered producers in Shetland, with active production at 54 sites, and employing 61 full-time; 54 part-time; and 18 casual workers.

Energy Production

Oil & Gas

The volume of crude oil leaving the Flotta Oil Terminal in 2010 matched the previous year’s level but propane gas throughput fell by 10%. Foinaven oil has not been shipped via the Flotta terminal since 2008.

Annual Tonnages of Cargoes Loaded from the Flotta Oil Terminal

Source: OIC Marine Services

Following the high of 2009, the number of ship-to-ship (STS) transfers in Scapa Flow decreased again in 2010 with the volume of oil transferred falling by over 60%. One transfer saw just over 8,000 tonnes of Liquefied Natural Gas (LNG) being shipped, the only such shipment since the first near-shore transfers made news headlines in 2007.

Ship to ship operations

Source: OIC Marine Services

IMAGE: Photograph of two red tankers operating side by side at sea.

Wind Energy

The number of operational commercial-scale wind turbines in Orkney continues to grow with 23 turbines generating up to 34.9 megawatts (MW) by the end of 2010. Planning consent for an additional 12 turbines generating up to 13.3MW has been approved but the projects were either still under construction in 2010 or had not yet commenced construction.

Operational Grid Connected Wind Turbines in Orkney, 2010

Source: OIC

IMAGE: Photograph of wind turbines, including a close view of turbine blades against a blue sky.

Marine Energy

In March 2010 The Crown Estate announced the names of the successful bidders for the lease of commercial wave and tidal generation sites in the Pentland Firth and Orkney waters (see map below). Seabed leases were awarded to developers to install 1050MW of marine generated power at eight sites in Orkney waters with a further 150MW at two sites on the northern coastline of the Scottish mainland.

Occupancy levels have increased at the European Marine Energy Centre (EMEC) test sites at Billia Croo and Fall of Warness and nursery sites for testing prototype technologies during the earlier stages of development have been introduced in the more benign wave and tidal areas of Scapa Flow and Shapinsay Sound respectively http://www.emec.org.uk.

The Council has invested £3m in phase one of a major redevelopment of the quayside and hinterland at Lyness as interest continues to increase from marine energy sector businesses for appropriate facilities. Proposals for further major harbour improvements at both Hatston and Stromness are also being developed.

IMAGE: Photograph of a yellow marine-energy test vessel moving through the sea.

IMAGE: Map titled “Pentland Firth and Orkney Waters Round 1 Development Sites”, showing leased wave and tidal development areas around Orkney and the northern Scottish mainland. Some map text is too small to transcribe fully.

Transport

Traffic on Stromness–Scrabster Route (NorthLink Ferries)

Source: OIC Marine Services
* provisional figure

The upward trend in passenger and accompanied car numbers on the Stromness–Scrabster route since 2002 was halted in 2008 and the recovery in 2009 proved short-lived with 2010 figures declining in all categories.

However, although numbers are not published, it has been reported by Pentland Ferries that business on the St Margaret’s Hope–Gills Bay route increased by 11 per cent during the year ended March 2011. This follows an 18 per cent increase the previous year.

With the exception of cargo (down 9%) traffic on the Lerwick–Kirkwall–Aberdeen route in 2010 was on a par with the previous year.

IMAGE: Photograph of a passenger ferry travelling through calm coastal waters.

Traffic on Lerwick–Kirkwall–Aberdeen Route (NorthLink Ferries)

Source: OIC Marine Services

Kirkwall Airport Traffic

Source: Highlands and Islands Airports Limited (HIAL), Annual Reports

Despite the effects of the economic downturn and numerous flight cancellations due to the severe winter conditions experienced and the volcanic ash cloud from Iceland, total passenger numbers through Kirkwall Airport continued to increase during the year ended 31 March 2010. This was in contrast to an 8% drop in total passenger numbers through the eleven airports operated by HIAL, with Kirkwall being the only airport within the region increasing its passenger traffic.

Although no breakdown was available at the date of publication, published figures show that total passenger numbers at Kirkwall through 2010/11 have increased again (158,705).

Orkney’s Internal Ferry Routes

The total levels of passenger and vehicle traffic on the internal ferry routes increased again over the past two financial years with the majority of islands displaying growth. Papay and Shapinsay both experienced a decline in passenger numbers between April 2009 and March 2011 but, in contrast, passenger traffic to/from Egilsay and Wyre increased by approximately 45%.

Single journeys – year ended March

Vehicle traffic increased slightly on all routes during the same period although traffic on the inner north isles routes decreased during the 2010–11 period.

Over the past seven years, total passenger and vehicle traffic numbers have increased by 10.5% and 12.6% respectively.

IMAGE: Map titled “Orkney’s Internal Ferry Routes”, showing the islands, ferry routes and the vessels MV Hoy Head and MV Thorsvoe.

Housing

During the fourth quarter of 2010, house prices in Orkney were lower than during the corresponding period twelve months earlier. The fall was in contrast to a significant increase in Shetland and a small increase in the Western Isles and in Scotland generally. Against the trend, Orkney house prices recovered again during the first quarter of 2011 to match the average achieved some fifteen months earlier. The average increased over the same period in the other two island groups, but fell in both Highland and Scotland overall.

Average Residential Property Prices

Source: Registers of Scotland

* quarterly percentage can be influenced by low number of sales.

In terms of the total numbers of sales completed over the same period (below) the property market in Orkney has been less vibrant than in the other two island areas, although activity levels in Orkney follows a similar pattern to the market on the Scottish mainland.

Number of Residential Sales

Source: Registers of Scotland

A more reliable indicator of trends might be had by comparing only sales of detached residential property (the most popular type in Orkney). This clearly shows the market in all three island groups performing much better over a 12-month period. However, the 2011 Orkney figure is still well below that of the corresponding period in 2009 when the average reached £170,450 and the number of sales recorded was 32% higher.

Detached Residential Property – Average Sale Price

A total of 987 new houses, or approximately 10% of the total Orkney housing stock, have been completed during the past seven years, with the number of private developments almost three times that of the social housing agencies.

Following several years during which Orkney Islands Council was building no new houses at all, the Council resumed building in 2010 and aims to complete 125 new Council houses over the next three years. Orkney Housing Association Limited is however now experiencing a drop in grant funding which restricts the number of houses it can undertake to build.

The steady decline in the number of new houses started by the private sector since 2007 (during a period of a rapidly falling interest base rate which reached a record low of 0.5% in March 2009, and has been maintained at that level since) is perhaps symptomatic of high local land prices, increasing building costs, personal insecurity resulting from the general economic downturn, and/or the decreased ability of individuals to secure the necessary mortgages.

Housing Starts and Completions in Orkney

OHAL ‘Starts’ = Approvals.
Source: Scottish Government

IMAGE: Photograph showing a red model house in front of several green model houses.

Weather

As an archipelago so dependent on economic activity related to agriculture, fishing and tourism, the weather in Orkney can be very influential both in terms of productivity and reputation.

Temperature

Sources: 2010 data: Loch of Hundland climate station, 10 year average, period 2000–2009: Loch of Hundland climate station, 50 year average: Kirkwall Airport data 1950–2000.

The comparisons are more clearly illustrated in the following chart.

IMAGE: Line chart comparing 2010, 10-year average and 50-year average mean maximum and minimum temperatures by month. It shows especially low temperatures in January, February and December 2010, with July the warmest month.

As data from the Meteorological Office (taken at Kirkwall Airport) is no longer available, 2010 data and the 10-year averages are provided from the Loch of Hundland climate station, privately operated by Keith Johnson. The chart illustrates the much colder than average temperatures experienced during both the early and the later months of 2010 where both the maximum and minimum temperatures fell well below the recent norm with the average minimum temperature, unusually, dropping below zero celsius during January, February and December.

Highlighting the unpredictability of Orkney’s climate, both the average minimum and average maximum were in excess of one degree lower than the 2009 averages which closely matched that of the ten-year period prior to 2009.

Rainfall & sunshine hours

Sources: 2010 data: Loch of Hundland climate station, 10 year average, period 2000–2009: Loch of Hundland climate station, 50 year average: Kirkwall Airport data 1950–1999.

Rainfall and sunshine pattern

IMAGE: Line chart comparing rainfall and sunshine in 2010 with 10-year and 50-year averages. Rainfall is especially high in May and September to November, while sunshine is highest in May and lowest in December.

In total, unsurprisingly given the temperatures experienced during the winter months, 2010 was much drier than average and 20% lower than in 2009. Rainfall during June and July displayed extreme variations from average with June exceptionally dry but July comparatively wet. The total hours of sunshine in 2010 was lower too, some 15% below the 2009 number, although much closer to the 10 and 50-year averages.

IMAGE: Photograph of a bright blue sky with the sun shining through white clouds.