Industry Update September 2024

Welcome to Scotland Food & Drink’s Industry Update - a regular round up of the key issues across Scotland’s food and drink landscape. This edition covers strategic and policy developments, as well as events and other activities we hope you will find useful. There is a lot going on, so please scroll through the headings and read whatever is relevant for you. If you have any questions, please contact our Policy Manager, Joe Hind.

A new delivery plan shows the work underway to deliver Scotland’s food and drink industry strategy: Sustaining Scotland, Supplying the World. The strategy is designed to enhance the resilience, growth, and sustainability of our industry and all the food and drink businesses within it, ensuring we remain competitive and robust in the face of future challenges.

A summary of the workstreams and key aims is below, and more information will be made available soon to show how businesses can get more involved with this work.

1. Market Growth - Support the volume and value growth of Scottish food and drink businesses across Scotland, the rest of the UK, and in international markets.
2. Policy & Regulation - Ensure the operating environment supports industry growth while maintaining Scotland’s global reputation for high standards in food safety, animal welfare, and quality.
3. Supply Chain Security - Create resilient supply chains that enhance national food security and respond effectively to supply chain shocks and volatility.
4. Innovation & Digital Technology - Harness innovation and digital technology to improve productivity, competitiveness, and sustainability in food and drink.
5. People & Entrepreneurial Skills - Position the food and drink industry as a career of choice, attracting and developing talent to drive sector growth.
6. Net Zero & Environment - Establish Scotland as a global leader in sustainable food and drink production, helping the industry meet its Net Zero targets.
7. Access to Capital - Improve access to investment capital for food and drink businesses to pursue growth opportunities.

We fed into the new Programme for Government (PfG) through our work within the New Deal for Business group co-chaired by Scotland’s Deputy First Minister, Kate Forbes. Our input to the PfG can be found here.

The PfG was published recently and economic growth was one of the four priorities outlined, with several relevant statements by the Scottish Government:

• Scotland is open for business and investment. By working together with businesses, we will make Scotland a more prosperous, dynamic, innovative, and inclusive country.
• [We will] improve how businesses and government work together by delivering the commitments set out in the New Deal for Business. We have heard from business and regulators on the cumulative impact of regulations and recognise the need for certainty, phasing, and effective implementation of regulations.
• [We will] deliver our programme of support through our enterprise agencies to help businesses to start and scale, be more productive, access finance and attract investment, develop new products and services, enter new markets, and positively impact on their communities.
• We can only build a more productive and innovative economy if we invest in infrastructure critical to the economy, such as transport and digital network – ensuring our communities and businesses are connected, and the benefits of growth are shared.”
• We have hugely talented people who are critical to our economic success. Despite a near record high of payrolled employees, challenges remain – in economic inactivity, an ageing population, and skills shortages. To grow our economy, we must make full use of our potential workforce and remove barriers to employment.
• Recognising Scotland’s distinct demographic challenges, [we will] make the urgent case for tailored migration routes – including a Rural Visa Pilot which could support rural employers across the public and private sectors to recruit the people they need.

Our thoughts now move to the budget in the Autumn and we will continue to make case for managed investment into the industry as well as direct co-investment into individual food and drink businesses, which operate at the heart of their communities, providing jobs in all our communities, and building the tax base which will help sustain Scotland for the longer term. We also continue to highlight the potential impacts of regulation that diverges from the rest of the UK on Scotland’s food and drink businesses, 96% of whom are SMEs.

It feels a long time ago that the Labour Party secured a sizeable majority and formed our new UK Government. We have since been focusing on the various policy measures that could be used to support the government’s stated priority of economic growth. We continue to make the case for prioritising food and drink as a critically important industry for investment (both directly into businesses and into the range of infrastructure that supports it), given it is so well established, is connected so closely to communities, and still has considerable growth potential even within our committed journey towards Net Zero.

We are working with sectoral partners across the Scotland Food & Drink Partnership to develop an evidence-based Policy Prospectus to highlight opportunities linked to both Scottish and UK Government policy areas which will help Scotland’s food and drink businesses reach their potential, no matter what their size. This will be published in late November 2024.

It is undeniable that trade with the EU is more challenging than it used to be. Many businesses have overcome those challenges and are successfully exporting, but in key sectors the reality of EU trade is lower trading margins, increased costs, complexity and checks, including veterinary checks on animal products.

The Scottish Government has published a statement on this situation, arguing for closer trading arrangements, which we support.

We recently met Ian Murray MP, the new Secretary of State for Scotland, at a dinner organised to discuss how we can ensure Scotland has a bright future on the international stage. Achieving a stronger global platform for our food and drink is a strategic priority for us, as exports remain a significant growth opportunity, alongside our domestic and UK markets. The discussion was productive, and the Secretary of State confirmed his commitment to supporting economic growth and jobs in Scotland, which we welcome.

We continue to work closely with the Scotland Office and will be meeting key officials in the coming weeks to discuss issues that are reserved to the UK Government, including the National Wealth Fund, to explore where there are possible points of collaboration.

One potentially exciting new development from the new UK Government is GB Energy, a publicly owned energy company, designed to “drive clean energy deployment, boost energy independence, create jobs and ensure UK taxpayers, billpayers and communities reap the benefits of clean, secure, home-grown energy”. Time will tell how this approach will benefit businesses in Scotland, but we will be watching closely, and engaging those involved to see how it can support our much- needed journey to Net Zero through grid energy. 

The UK-wide trade body, the Food and Drink Federation, has published their Q2 State of Industry report, which shows a mixed picture when it comes to business sentiment.

Confidence within the industry remains relatively low, especially among SME businesses. Businesses of all sizes have concerns about policy and regulatory uncertainty, and non-tariff barriers which impact export competitiveness. Health certificates are an export barrier for 40% of businesses, administrative costs are an issue for 54% of manufacturers, and half of the industry regard an improved relationship with the EU as a top priority.

On a more positive note, “nearly nine out of ten food and drink manufacturers expect to maintain or increase investment levels over the coming year”.

To ensure economic growth and long-term food security, businesses have identified priorities including an effective industrial strategy; creating the conditions for further investment (rebuild eroded margins); working in partnership with Government; advancing innovation; and adopting new technologies.

It’s not always easy to understand greenhouse gas emissions from businesses, or what we can go about them, especially in food and drink where there are so many variables including how ingredients are produced, how final products are made and packaged, and how they are stored and transported, and prepared for consumption. To help with this, a new tool has been published by Scotland Food & Drink Partnership’s Net Zero programme to help your business navigate the language and landscape of Net Zero, which remains a critical requirement for our industry and all businesses in the coming years.

Red Meat plays a significant role within Scotland’s food and drink industry, influencing land management, rural economies, and domestic and international supply chains. Our partner, Quality Meat Scotland, has produced a deep dive report into how the sector is doing, including with sustainability as well as in markets at home and around the world. Relevant for all stakeholders of the sector, it also provides insights into cross border trade policy and other strategic concerns.

We attended a stakeholder meeting to discuss the Scottish Government’s plans for Public Health, which was chaired by Jenni Minto, Minister for Public Health. We were advised that the HFSS consultation responses are still being analysed.

Whilst we don’t yet know what will be taken forward, or when, we will continue to advocate for Scotland’s producers to be protected from any disproportionate impacts – a defining principle of Better Regulation which is being championed within the New Deal for Business Group, which we are a member of.

At the meeting, which was also attended by Public Health Scotland and representatives from the third sector (including British Heart Foundation and Cancer Research UK) we were introduced to a new Public Health Framework which will see a wider group of stakeholders exploring the many areas of Public Health, including employment, healthy workplaces, access to local, healthy produce, the role of education, and more. As an important part of life in Scotland, we all need to play our part in combating the public health challenges, including obesity.

We are involved in a Food Sector Resilience Group chaired by the Scottish Government which includes relevant organisations and government departments. The forum is a useful way to hear from others and to raise issues that might affect the future resilience of the industry, whether in primary production or along the supply chain in processing and manufacturing.

A point we continue to make is that Scottish food and drink businesses face several critical and unique challenges that can impact resilience and viability. Adverse weather conditions can disrupt the availability and pricing of key inputs. Energy prices remain a concern due to the energy-intensive nature of processes such as distilling, baking/boiling, and chilling/freezing. Transport is another concern, especially for rural and coastal businesses, as timely movement of goods is crucial. Labour shortages, exacerbated by location and seasonality, further strain our viability and growth potential. When we combine this with thin profit margins and unequal value distribution along the supply chain, it leaves many businesses vulnerable to cost pressures. The perishability of products like meat, fish, and dairy heightens the risks when there are delays in the supply chain, including overseas.

A new report by the UK Government explores food security across key metrics. It mentions that “a wet winter and spring in 2024 poses significant challenges to some domestic production”. Whilst many of the metrics suggest things are “broadly stable” we think more could be done to zoom in on certain areas and ensure supplies and businesses are protected.

Future Economy Scotland and the Institute for Innovation and Public Purpose have published a report called A Mission-Oriented Industrial Strategy for Scotland within which they highlight food and drink as a sectoral strength, noting that it offers Scotland a “comparative advantage”. They argue for a shift in government investment into industries away from “lender of last resort” to “investor of first resort” – taking an active role in market shaping.

As we wrestle with the challenge of how to ensure success for Scotland and look to collaborate more with others around how we deliver shared outcomes for the economy and society, it is interesting to consider how this kind of work might inform strategic investment and priorities.

Scotland Food & Drink is actively involved in the Strategic Leadership Group for Manufacturing which aims to identify key strategic opportunities for (and threats towards) the long-term growth, resilience, and wellbeing of the Scottish manufacturing sector. We will champion the role of food and drink as a key manufacturing sector right across Scotland, one which embraces new technologies and which can deliver benefits through our diversity and range of needs, whether farm based or along the supply chain.

The group is co-chaired by Kate Forbes, Deputy First Minister and Cabinet Secretary for Economy and Gaelic, together with Dr Hamid Mughal OBE, an ex-Global Director of Rolls Royce who now acts as a Special Advisor to the Principal of the University of Strathclyde on issues relating to Advanced Engineering and Manufacturing. 

We’ve been informed about a possible new route between Rosyth and Dunkerque which has the potential to simplify export processes, cut journey times and costs, as well as allowing for consolidation at both ends of the journey meaning partial or smaller consignments can be handled for both exports and imports. Journeys could start as early as 2025, subject to start up funding, and we are interested to hear from you if you think this might fit with your export plans to the EU. The project team is keen to understand load sizes, types, frequency etc. so get in touch with us and we can connect you.

Industry Leadership Groups exist for each of the main industries in Scotland. Scotland Food & Drink is the ILG chair for food and drink. Alongside the other ILG chairs, we have planned a conference to bring together business leaders from across Scotland to connect and hear from key speakers on important topics, such as skills. It’s also a chance to share your views on the future of Scotland, and how we ensure each of our industries delivers effectively to reach our potential. There is a strong political line-up, including a roundtable discussion.