Annex A
NOTE ON IMPACT OF DECLINE IN PHARMACEUTICAL
MANUFACTURING ON TRADE BALANCE—SUMMER 2006 UPDATE
This annex reports on an update to the estimate
of trade exercise undertaken in 2006
IMPORTS
Changes in demand for imports can be seen as
being determined by two factors; growth in demand in the market
and the ability of home production to satisfy this demand.
For the PPRS period the UK market is predicted
to grow 6.5% per annum. This is below longer term growth rates
(8%).
The UK, in common with other pharmaceutical
markets, exhibits a skewed distribution of market share. The top
ten products have 15% market share by value and 50% of the market
is satisfied by 110 products. The share of these leading medicines
being produced in the UK will significantly influence the proportion
of demand being satisfied by home production. Evidence from the
ABPI UK manufacturing survey indicates that this share has declined
and will continue to decrease in the future. This evidence is
supported by the value of imports as a proportion of the UK market;
a lower ratio would suggest that a higher proportion of UK demand
is being met by UK production[17].
The ratio has increased from 66% in 1995 to 92% in 2004.
In the 10 years to 2005 imports have grown by
211% (compared to 148% for exports).
EXPORTS
If home production becomes less import for the
home market then the relationship between demand from abroad and
the level of home production is more vital. If the UK is less
frequently chosen as the site for manufacturing leading medicines
then the value of export demand will decline for the same reason
as its share of home consumption falls.
Production in the UK has become more reliant
on exports. Exports as a share of output have increased from 50%
in 1995 to 80% in 2004 (the last year for which production statistics
are available). Demand for pharmaceuticals in the traditional
UK export markets, the EU and US, is slowing. In combination an
increasing reliance on poorly performing export markets for a
decreasing range of major products can be expected to lead to
a fall in home production as export demand weakens.
The ABPI UK manufacturing survey revealed that
many UK pharmaceutical manufacturers were planning to decrease
production in the UK between 2002 and 2005, compared more positive
figures between 1997 and 2002. Official statistics on production
are available to 2004 and show a decline in 2003 of 1.2% over
2003.
TRADE BALANCE
SCENARIOS
IMPORTS
Base case
The forecast for imports was derived by inflating
the home market by 6.5% for 2006-10 as given by the market forecast
undertaken during PPRS negotiations and adjusted for 2005. It
is assumed that the ratio of home market to imports remained the
same as in 2005. This is a conservative estimate as the trend
has been upwards. By multiplying the estimate for the market by
the ratio a value for imports was derived. The level of imports
by 2016 based on these assumptions will be £16,888 million
(2005 imports £8,758)
Worst case
If assume that the UK home market grows at the
historical levels of 8% and that the ratio between the home market
and imports grows between 2005 and 2009 to 97% and holds steady
for the rest of the period then the level of imports will be £19,596
million.
Best case
If assume that the UK home market grows at low
level of 4% and the ratio between the home market and imports
falls to 2000 level by 2009 and then hold then the level of imports
by 2016 will be £10,731 million.
EXPORTS
Base Case
Assume that production will continue to decline
at 1.2% per annum and that the ratio between production and exports
remains at 80%. The ABPI Manufacturing survey reported that many
companies were planning to reduce production between 2002 and
2005, and for major companies the share of world production in
the UK would fall from 4% to 3%. Exports by 2016 will be £10,137
million (2005 £12,272 million)
Worse case
A decline in export demand creates a fall in
production of 5% p.a. Production ratio remains at 80%. In effect
this is an assumption that export demand falls more rapidly than
in the base case. Exports by 2016 will be £6,902 million
Best case
Production remains constant and ratio increases
to 85% over the period. Exports by 2016 will be £13,045 million.
RESULTS
The charts below plots the UK trade balance,
exports and imports to 2016 using the base, best and worse case
scenarios.
September 2006
17 Care should be taken when comparing values from
UK market statistics with UK trade statistics, as prices and quantities
used are different. This is the reason why one cannot simply assume
that home market equals reported figures for imports plus home
production less exports. This point does not undermine the conclusion
made here. Providing each is measured consistently then conclusions
drawn from the ratios will hold. Back
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