Written evidence submitted by Associated British Foods (ABF) (FS0016)

Call for Evidence: Food Security

About Associated British Foods (ABF)

ABF is a diversified international food, ingredients and retail group.  Our purpose is to provide safe, nutritious, affordable food and clothing that is great value for money.  Our Group is split into five segments, Grocery, Sugar, Agriculture, Ingredients and Retail. ABF and its businesses are one of the UK’s largest food producers. Our UK grocery business to consumer brands can be found in 9/10 households and include Twinings, Kingsmill, Patak’s, Dorset Cereals, Ryvita and Silver Spoon sugar while Westmill supplies the foodservice sector with Indian, Chinese and Thai foods including noodles, rice and flour. British Sugar, part of AB Sugar, is the sole processor of UK sugar beet and AB Agri is the UK’s largest supplier of animal feed. More than 50 years ago we founded Primark, the UK’s largest clothing retailer by volume and we now have more than 190 stores in the UK and some 400 globally. We employ more than 42,000 people across our UK businesses and we are proud of the contribution we make to the British economy. 

1. What are the key factors affecting the resilience of food supply chains and causing disruption and rising food prices – including input costs, labour shortages and global events? What are the consequences for UK businesses and consumers?

Firstly, it’s important to acknowledge the resilience of the food system which was demonstrated during the COVID-19 pandemic when collaboration across supply chains and a good partnership with DEFRA kept shelves stocked and people fed. This wouldn’t have been possible without many highly dedicated people working tirelessly across the supply chain, including in our businesses, but also without the decades of investment in infrastructure and automation, supply chain capabilities, and the UK’s ability to process and grow crops effectively, alongside sourcing ingredients from around the world.  

However, the sector is now facing a wide range of significant cost and availability challenges. These challenges which are outlined below create a risk to the viability of the UK food sector from farm to fork and it’s therefore critical we have the right strategy to ensure future resilience and food security.

Current challenges

Energy prices: Current energy prices are making the cost of doing business almost impossible with many actors across the industry being forced to stop production altogether. This ranges from small scale farmers who cannot afford to plant crops for next year, to the UK’s only manufacturer of Ammonium Nitrate fertilizer and ammonia and a major producer of CO2, which has ceased CO2 production and will now rely on imported ammonia. These high energy prices directly impact production costs of many food products such as bread, cakes, biscuits and cooking sauces, and also has an indirect impact on packaging and logistics costs and we therefore welcome the recently announced energy support for businesses. We also note that there is no formal prioritisation process for energy to be allocated to the food sector in time of shortages.

Conflict in Ukraine: Supply constraints from Russia and Ukraine, and a lack of alternative supply options has led to increased costs of key inputs and ingredients that the food sector relies on, including fertiliser, timber, wheat and sunflower oil. Reduced availability is also causing shortages across supply chains and in extreme cases, no supply. The price of substitute products such as rapeseed oil and palm oil have also increased, as well as price increases in other agricultural industries that use these inputs, including meat and dairy. This crisis in particular underlines the need to diversify our sourcing options, as well as increase domestic production of key inputs.

Labour shortages: The combination of the Covid pandemic, the conflict in Ukraine and the UK’s exit from the EU has led to shortages across the labour market, which has been particularly significant in seasonal agricultural workers and across the logistics sector.

Climate change: Extreme weather patterns across the globe have resulted in multiple individual instances of crop shortages, including mustard from Canada and olive oil from southern Europe. The very hot summer in the UK has impacted yields of many vegetable crops. Changes in climate are also increasing the incidence of some plant and animal disease, including avian influenza.

Trade disruption: Covid has had a significant adverse impact on long-distance trade, with capacity restrictions and significant cost increases. The UK’s exit from the EU has also introduced new administrative burdens on exports to the EU and to a lesser extent on imports from the EU. Rules of origin have resulted in some tariffs being imposed on UK-EU trade.  We are also now seeing some minor delays and cost increases from port closures due to industrial action.

Protein costs: Much of the UK’s meat, dairy and egg production relies on animal feed that contains imported protein such as soya, which is more cost-effective than domestically produced alternatives such as peas and beans. Global demand for this protein is increasing while supply is constrained by the need to avoid deforestation, resulting in higher prices.

Domestic regulation: Despite food inflation now standing at over 13%, Government is continuing to add further cost and complexity to business through rushed regulation without adequate business consultation. This leaves us unable to plan and mitigate costs and will add to inflation.

Current regulatory costs:

• UK Emissions Trading Scheme: there is a Carbon Price Floor of £18 per tonne of CO2e levied on top of the market price.
• Restrictions on use of certain agri-chemicals before alternatives are available: while benefiting the environment, these restrictions have in some cases resulted in reduced yields and higher costs.
• Plastics packaging tax: while companies want to switch to more environmentally friendly packaging, there is currently insufficient availability of food grade recycled plastic, which forces many food businesses to pay this new tax. The structure of the tax also results in a high administrative burden.
• Planning restrictions: for example, wind turbines are effectively banned even on existing industrial sites.

Future regulatory costs:

• Extended Producer Responsibility: as currently proposed the scheme will add £1.7bn per annum to the cost of consumer goods from 1 January 2023, just when inflation is expected to peak. Despite consultation with industry, Government now looks to be implementing a ‘tax and spend’ model which risks inefficiency, providing no incentive for local authorities to constrain costs or improve recycling rates, which will prevent the whole system change that is so badly needed.
• Food waste reporting: additional administrative costs and time resource imposed to comply with regulations despite our business already complying with a government-endorsed voluntary scheme.

2. What is the outlook for UK food price inflation in the short and medium term? What policy interventions should the Government consider to manage these pressures?

Price inflation is widely expected to increase in the short-term as many businesses have delayed passing their increasing costs through the supply chain. This partly reflects the benefits some businesses have seen from longer term purchase contracts or price hedges, and partly their reluctance to pass inflation on to consumers. This is not sustainable as replacement purchase contracts are negotiated at higher prices, hedges expire and margins remain unsustainably low. The recent weakness of Sterling will add to the pressure on input costs.

The medium-term position is harder to forecast – there is a risk that very high prices for fertilizers result in lower agricultural yields and that labour inflation becomes embedded, resulting in ongoing higher prices. Recent years have also seen an increase in adverse weather conditions impacting harvests around the world. Depending on how the situation in Ukraine evolves, these cost pressures may or may not be offset by declining energy prices.

We fully support the Government’s objectives on health and the environment and want to work together to find solutions, however, as currently designed and at a time of such inflation, proposed policies should be delayed to allow business time to manage short- and medium-term cost pressures. More importantly, it will mean the Government avoids the unintended consequences of adding further pressure to the cost-of-living crisis.

To manage these pressures Government could:

• Temporarily suspend or reduce carbon prices, improving productivity and ensuring British businesses remain competitive.
• Ensure the necessary support is available for critical industries, such as the food sector, once the six-month Energy Price Guarantee scheme to support businesses ends.
• Delay the implementation of the Extended Producer Responsibility (EPR) scheme for packaging, until a time where business can better manage the costs which could be passed through to consumers. As it stands, EPR is set to operate as a tax replacement for current local authority funding rather than provide the whole system change which is needed to achieve the stated policy outcomes. A delay would provide the time needed to ensure that the scheme is implemented in the most efficient and effective way.

• Pause any other cost-increasing regulation until this cost-of-living crisis has passed.
• Facilitate meaningful dialogue with businesses in the food supply chain to understand the pressures at play.
• Provide clarity on future energy supply options – including alternative fuel supply, timings and costs of switching.
• Consider ways to support an increase in domestic production of protein for animal feed to protect supply and affordability. This could include low carbon UK-produced proteins such as peas and beans for both animal feed and human consumption.
• Continue to advance technological and scientific innovation opportunities. For example, modern plant breeding techniques, including gene editing, have the potential to improve farm yields, protect food security and enhance sustainability without extra costs for consumers. It could also play a significant role in finding solutions to plant diseases such as the Virus Yellow disease which affected 40% of the UK’s sugar crop in 2020. Rapidly implementing the Precision Breeding Bill would unlock significant opportunities across the food sector.

3. How are the rising cost of living and increasing food prices affecting access to healthy and nutritious food?

Rising costs are forcing consumers to make critical choices on where they spend their money. Data from the Food Foundation showed a 57% increase in the proportion of households cutting back on food or missing meals altogether between January and May 2022, which is before the worst of the inflation hit. According to research by Savanta, 59% of those surveyed claimed the cost of healthy food was the main reason why they see themselves as unhealthier.  

4. How will the proposals in the Government’s food strategy policy paper affect:

• the resilience of food supply chains?;
• the agri-food and seafood sectors?;
• access to healthy, nutritious food?

We were pleased to see that the Government’s food strategy recognised the importance of UK food producers to our national resilience and the vital role the industry plays in levelling-up. We also welcome its comments on the importance of affordability and security, which should be prioritised alongside health and environmental imperatives.

While we believe the direction of the strategy is right, we are waiting for detailed policies on how the strategy will achieve its objectives. As these policies are developed it’s vital that they are designed in partnership with the businesses which will be responsible for implementing and delivering them (and which understand the operating market), and that any new policy proposals are assessed against their impact on affordability, food security and the prosperity of the sector.

5. Is the current level and target of food self-sufficiency in England still appropriate?

Covid and the Ukraine conflict demonstrate the critical importance of UK food producers to our national resilience. Providing the nation with a secure supply of affordable food cannot be taken for granted. We would therefore like to see a gradual increase in the UK’s food self-sufficiency, including primary processing and food manufacturing. Improved international trade is also important however, and we are supportive of free trade, so long as it is fair and delivers significant benefits to UK businesses and consumers through better access to overseas markets, lower prices or increased choice.

To safeguard the UK food supply chain against future shocks we recommend that the Government publishes its food security report annually to ensure we are on track and the right policies are in place to meet the target.

6. How could the Government’s proposed land use strategy for England improve food security? What balance should be struck between land use for food production and other goals – such as environmental benefit?

A multifaceted approach to land use is needed which balances land use for the provision of productive agriculture, alongside the creation of wildlife habitat and carbon sequestration. Getting the balance right is important to ensure we use land as productively as possible, maintain food security and affordability, while ensuring biodiversity can be maintained or improved by optimising the provision of natural habitats on UK land, as well as preventing trade imbalances that might result in UK producers importing foods from overseas that may have a greater environmental impact.

To that end, it is important that Government clearly understands how its policies will stimulate or impede private sector investment in food production.  The provision of state subsidies for extensive wildlife habitat creation on land that would otherwise be commercially productive can block food producers from also investing in those farms.  For example, a farm that previously supplied our cereals business is now part of trials under the ELMS programme and is no longer able to supply our business with commercially grown cereals. If this happens on a wider scale there could be a significant impact on domestic food supply, increasing our reliance on imports, which in many cases could have adverse environmental impacts if these imports originate from countries with lower environmental standards.  

It is also important that the land use strategy is considered alongside existing regulation and consultations that are underway across DEFRA and other departments, to ensure they are complementary and practical for businesses to implement. 

September 2022