Written Evidence submitted by Quality Meat Scotland (FS0075)

QMS is the public body responsible for helping the Scottish red meat sector improve its efficiency and profitability, and maximise its contribution to Scotland's economy.

We market the PGI labelled Scotch Beef and Scotch Lamb brands in the UK and abroad and promote Scottish pork products under the Specially Selected Pork Banner.

Our internationally recognised assurance schemes cover more than 90% of livestock farmed for red meat in Scotland. They offer consumers in the UK and overseas the legal guarantee that the meat they buy has come from animals that have spent their whole lives being raised to some of the world’s strictest welfare standards.

Scotland’s beef, lamb and pork producers make an important contribution to the country’s rural economy, contributing over £2.1 billion to the annual GDP of Scotland and supporting around 50,000 jobs in the farming, agricultural supply and processing sectors.

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?

1.1 Input costs

1.1.1 Agriculture input inflation has been at decades’ high levels for several months, peaking at 30% in May. July estimates put Agflation at 23.5% annually, more than double that of agricultural outputs (10.1%). When Agflation is plotted against output prices (food inflation and general economic inflation now stand at 12.8% and 10.1% respectively), it becomes apparent that there is a cost of farming squeeze taking placei. [i]

1.1.2 In the months preceding June 2022, agricultural output prices generally rose in parallel with Agflation, albeit at a slightly lower rate. However, since then, these indexes have diverged considerably. Whilst recent falls in commodity grain prices have been the main driver, it also suggests that consumers are struggling to afford rising food prices and, that retailers and food service providers are reluctant to pass on further increases. With energy prices set to rise further towards winter and the Bank of England projecting that inflation will rise to 13% by year-end, the extent of the challenges facing the UK economy are stark. [ii]

1.1.3 Livestock prices, generally up 10-19%, are not rising as quickly as Agflation, and the sector has been struggling in terms of profitability. Additional inflationary pressure on inputs will stretch working capital resources further. [iii]

1.1.4 If farmers are unable to get higher prices for their outputs, many will be severely squeezed in the months ahead. Difficult decisions will need to be made on cropping and enterprise viability. This will have direct implications for food supply, coming at a time when severe droughts are being experienced elsewhere, particularly in Europe.

1.1.5 The future gas price does not look like it will improve, and the recent change in price indicates its volatility.

1.1.6 The cost of energy has had a massive impact, with Scotland Food & Drink estimating that many businesses are seeing a 400-500% increase from the already high levels reached earlier this year. For one small business, the annual energy cost will rise from £180k to £900k, and for a larger one it will rise from £2 million to £9 million.

1.2 Labour shortages

1.2.1 Towards the end of 2021, processors indicated they were working with an ‘absenteeism rate/staff shortage rate’ of around 15% - much of this was due to high rates of transmission of Covid-19. Whilst the cause of staff shortage is no longer Covid-19, the issue still remains.

1.2.2 High job vacancy rates mean that many post farm gate suppliers are struggling with processing plant capacity, and workers are also having to work ‘out of position’.

1.2.3 This has led to a reduced capacity to buy and process animals, the results of which has been seen in the oversupply of pigs, for example.

1.2.4 Brexit has also had an impact on labour shortages with EU nationals returning home once Covid-19 restrictions eased and not returning.

1.2.5 Reports indicate that since the EU referendum and the end of free movement of labour, processing businesses have found it much harder to replace leavers and maintain their workforce levels as the UK is a less welcoming environment for workers from overseas.

1.2.6 A challenge to recruiting new EU workers is the points-based immigration system, under which the main visa routes are for high-earners, with almost no route at all for so-called ‘low-skilled’ workers.

1.2.7 Furthermore, it is costly for firms to hire employees via the skilled visa route, and not sustainable long-term

1.2.8 High street butchery businesses are reporting challenges in accessing skilled workers. Many are having to operate with fewer staff members than normal, while wages are rising significantly due to the high level of competition for a limited supply of workers.

1.2.9 There is a critical shortage of vets, particularly Official Veterinarians (OVs).

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?

2.1 The Government’s recently announced Energy Bill Relief Scheme for businesses is welcome. As this scheme is currently scheduled to run for six months, a longer-term solution is needed to protect the future supply and price of energy for businesses, perhaps in the form of regulation.

2.2 The reintroduction of the Fuel Rebate in the interim would allow the food and drink supply chain to use red diesel, which would have a significant operational cost benefit.

2.3 Whilst we welcome the UK Government’s stance towards seasonal workers, a wider and more comprehensive version of this scheme would provide support for other businesses in the food supply chain that are struggling to meet demand due to chronic labour shortages, which domestic labour is not able to relieve.

2.4 CO2 is vital in the food supply chain and the safeguarding of CO2 provision is crucial to ensure that there is continuity of supply.

2.5 Any support that can help business cashflow would be of significant benefit, such as the deferral of government loan repayments. .

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

3.1 In the 12 months from June 2021 to June 2022, 90.6% of Scottish households bought unprocessed red meat. [iv]

3.2 Unprocessed red meat is bought by more than 9 out of 10 households in Scotland and for an average of 21.7 times a year, which makes it a staple category.[v]

3.3 However, the number of shoppers that are struggling financially jumped 5 percentage points in the last year (April 2021-April 2022) across Great Britain. To combat the increase in prices, buying lower volumes of red meat is currently the most effective coping strategy for consumers, followed by choosing cheaper products, such as mince rather than steak.[vi]

3.4 In the 12 months from April 2021 – April 2022, we have seen double the number of shoppers in Great Britain opting for a lower quality of red meat product, with this figure now standing at 18%.[vii]

3.5 Prices of red meat are increasing across all ranges. Across value ranges over 12 months (June 2021-2022), unprocessed beef has increased 17%, unprocessed lamb 11% and unprocessed pork 1 %. This could indicate that consumers will find it increasingly difficult to purchase unprocessed red meat, which is high in nutritional value.

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

4.1 the resilience of food supply chains?;

Our food supply chains must be ‘shock-resistant’ in order that global events do not have a significant impact on input costs and product availability. As many of the proposals relate to devolved matters, we cannot comment in detail.

4.2 the agri-food and seafood sectors?;

It is essential that FTAs are not to the detriment of UK producers, and offer our farmers a real opportunity in terms of export potential. As many of the proposals relate to devolved matters, we cannot comment in detail.

4.3 access to healthy, nutritious food?

We have no comment

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

We have no comment as this is a devolved issue.

How could the Government’s proposed land use strategy for England improve food security?

We have no comment as this is a devolved issue.

What balance should be stuck between land use for food production and other goals – such as environmental benefit?

We have no comment as this is a devolved issue.