By Josh Martin
In November 2023, I had the pleasure of visiting the Thatchers Cider site in Somerset. While there, my mind turned, as it often does, to economic measurement. As many in the measurement community do, I spend most of my day working with data, and sometimes forget about the real businesses and people those data represent. This blog reflects a few thoughts on economic measurement that I had while learning about one such real business.
(Before continuing, I should hasten to add that this is in no way a promotion for the business or its products, and I am not being paid for writing this blog.)
To start the tour, our guides told us about the history of the company. Thatchers is a family business, having been led by four generations of the same family since 1904 (which also makes it fairly old business). Family businesses are a well-researched phenomenon in economics (and I learnt more about that literature while participating in Family business research conference in May 2023), but often have the dubious reputation of being poorly managed. Indeed, data from the Management and Expectations Survey (a business survey run by ONS with support from ESCoE) has found that family businesses (both family-owned and family-run) have less structured management practices on average than non-family businesses, replicating findings in the US. And since management practices are important for productivity, that suggests family businesses are usually less productive. While that might be true on average, Thatchers seems to be an exception, being a successful and growing business.
As well as history, our guides introduced us to the intricacy of apples as we stood amongst some apple trees. There is far more to apples than I had realised – enough, in fact, to conduct research and development (R&D) on them. Research into fruit took place at the Long Ashton Research Station near Bristol for many decades, and the third generation of the Thatcher family was heavily involved. I had imagined R&D into ‘new’ food products, but never considered fruit and vegetables would see the same research. When research into fruit at the site ceased in 1985, many of the apple trees and varieties developed were bought by Thatchers for an “Exhibition orchard”. This orchard preserves historic varieties and variants of apples, and as well as yielding apples for cider making, I see it as also producing services as natural capital. One of the reasons that people value natural capital is a “bequest value” – a value for passing natural capital onto future generations.
The history of the business also tells us something about industry classification. When it was founded, Thatchers was focussed on farming, with cider making only for consumption by the family and workers (output for own final use, and payment in kind, respectively). Later, cider became a secondary output – sold to nearby pubs (market output), but still overshadowed by farming. Later, cider became the dominant activity of the business. At this point, the industry code of business should have changed from agriculture to manufacturing of alcoholic drinks – under the current UK Standard Industrial Classification (SIC) 2007, this would be division 01 to division 11.
Today the business is primarily a cider-making business, but does make some “secondary outputs”. Dry apple pulp called “pomace” is a waste product from processing the apples for cider, which Thatchers sell to be made into animal feed. Similarly, yeast used to make the drink alcoholic is siphoned off and sold. These secondary outputs are “off-diagonal” activity in the supply and use framework – output of a different product than that primarily produced by the industry to which an economic unit is classified. Of course, the tour that I took is also a secondary activity!
The cider-making process is a very capital intensive one. On the tour we saw a wide range of capital assets, including apple-pressing machinery, warehouses, factories, storage tanks, packaging machinery, and forklift trucks. Most of the machinery was controlled by computers, so there was also IT hardware and software in use. There was also many intangible assets evident – the various cider recipes the result of R&D and product design, the branding on the cans and packaging, the training of the staff, and the organisational capital that allowed the business to run so smoothly. Of course, the apple orchards are also capital assets – so-called “cultivated biological resources”. They also benefit from natural capital that enables their trees to grow – land, soil, water, sunlight, clean air.
Their various capital assets are utilised to different extents at different times. Some machines that process newly-picked apples operate for only a few months of the year, and stand idle the rest of the time, on account of the availability of the raw materials. Other assets, such as the machines and equipment for bottling, are used year-round but only on weekdays, reflecting the current level of demand for this type of product. Yet other assets are used continuously, including the machines that produce cans of cider and the storage tanks. In research on capital utilisation, we account for different patterns of capital utilisation for different assets, but I had not considered the intricacies of these ‘real-world’ patterns.
One important but uncertain part of the measurement of capital stocks is how long assets are expected to last, and the rate at which they depreciate. In work to update assumptions in official estimates in 2019, we made use of ‘real world’ information in company financial accounts, as do other countries. On the tour I learnt that some of the oldest storage tanks were well over 100 years old – far longer than the official assumptions, though of course those have to apply to a wide range of assets across the economy. The cider recipes used, a type of intangible asset, date back in part to the 1970s. Clearly capital assets can have very long lives.
A final topic was on international and inter-regional trade. Thatchers is based in the South West of England, and they report that most of their sales are in the South West. After that, their biggest markets are Wales and the North East – trade between regions of the UK – with relatively less sold in London. They suggest these patterns likely reflected different consumer tastes across the UK. They also do some exports to countries where many Brits go on holiday, such as Spain, Portugal, and Australia. I was interested to note that the business could identify these patterns very easily, while international trade by region and inter-regional trade are difficult at aggregate-level given data challenges.
Overall, I greatly enjoyed the experience, and linking what I learnt to economic measurement and my research. I’ve been fortunate to also visit some businesses as part of visits with the Bank of England’s Agent network. Visiting real-world businesses is something I’d recommend for anyone working in economics or economic measurement.
Josh Martin is an economic adviser at the Bank of England.
ESCoE blogs are published to further debate. Any views expressed are solely those of the author and so cannot be taken to represent those their employers, of the ESCoE, its partner institutions or the Office for National Statistics.
Photos kindly provided by Thatchers Cider. This blog is not an endorsement of Thatchers Cider or its products, and does not represent the views of Thatchers Cider.