FDF Submission to the Environment, Food and Rural Affairs (Efra) Committee inquiry on food security

 

Introduction

 

1.      The Food and Drink Federation (FDF) welcomes the opportunity to respond to the House of Commons Environment, Food and Rural Affairs Committee’s call for written evidence on food security. The FDF is the trade association for the UK food and drink manufacturing sector – the largest manufacturing sector in the UK, accounting for almost 20% of the total manufacturing, with companies and sites in every parliamentary constituency across the country. Food and drink manufacturing turns over more than £112bn per annum, resulting in over £30bn in GVA, and employs 475,000 people across the UK.

 

2.      The food and drink that our companies make is essential to people's everyday lives, supporting our physical and mental health.  It brings pleasure to millions, it’s the centre of our social occasions, and it’s deeply embedded in our history and our culture.  Our relationship with food and drink goes way beyond its intrinsic nutritional value; eating and drinking and the occasions that surround them are part of what defines us, as individuals, families and as a society.

 

3.      UK food and drink manufacturing is fundamental to ensuring the supply of safe and affordable food and drink to the country.  The food and drink industry is rightly recognised as part of the UK’s Critical National Infrastructure, and is a strong and resilient part of our the UK’s economy. Our supply chain is complex and interrelated, relying on multiple businesses, small and large, across a wide range of disciplines – farming, fishing, aquaculture, imports/exports, logistics, packaging, chemicals and of course manufacturing.  It is critical to view this supply chain through the lens of food security.  There are many factors which can affect the resilience of the industry. 

 

4.      The role of government in food security is to provide a supportive policy and regulatory framework which:

 

5.      We have worked closely with the Department for Environment, Food and Rural Affairs in managing and navigating successive shocks to the food and drink supply chain – including the impact of the Covid-19 pandemic and the Ukraine crisis and the ongoing uncertainty of the implementation of import and export controls after exiting the European Union and with Northern Ireland. Ongoing dialogue between the government and industry is imperative to a resilient food and drink supply chain. Groups such as the Food Resilience Industry Forum, the Food and Drink Sector Council and the ‘F4’ have been important in this. However, it is important that policymaking affecting UK food and drink is treated coherent and consistently across Whitehall too, given the varied issues affecting the supply chain.

 

6.      It is critically important too that the UK Government and devolved administrations work together constructively and appropriately to ensure industry resilience throughout the UK’s four nations.  The potential for complexity in policy and regulation across the four nations, and the costs associated with this, is a very real concern to businesses across our sector.

 

Response

 

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?

 

Food price inflation

 

7.      Food and non-alcoholic drink inflation rose to 13.1% in August 2022 compared to August 2021, just shy of 13.2% which is the highest rate since 1989. This has been driven by rising costs of ingredients, international and domestic transport, packaging and raw materials, energy and wages.

 

8.      Our industry has a responsibility to deliver a full range of products at affordable prices to retail and food service across the UK. Food and drink manufacturers are doing all they can to cut costs and to bear down on price rises – for example by reducing advertising and marketing spend, cutting back on innovation and planned investment, and finding energy efficiencies wherever possible.  Some too will make savings by cutting back on their range of products by producing fewer lines. But there are limits to this, and costs will have to be passed on, especially as some companies will find it hard to stay in business otherwise.

 

9.      Rising energy prices make up a large component of food price inflation. Companies are seeing contract price rises in the region of 500% and for some manufacturers even higher depending on the duration of their previous fixed term contract and the time at which it finished. These challenges are compounded by the prohibitively high security deposits and bank guarantees requested to secure new contracts, exposing a greater number of manufacturers to volatile variable contracts.  The UK Government’s energy relief package has provided critical support over the winter period and has been warmly welcomed by businesses.  That aid, the complexities of the food and drink supply chain – and the critical importance of the sector – must be recognised.  If the support only lasts for 6 months and energy prices remain high (as is predicted) then some businesses that form critical links in the chain will be vulnerable.

 

10.  Indeed, an ONS survey[1] found that 63% of food and drink businesses (including manufacturers, wholesalers and retailers) reported in March 2022 that energy prices had already had an impact on production and/or supply. That compares to 38% across all UK sectors. These pressures add to the challenges and debt burden from the Covid pandemic as well as individual supply chain challenges, for example on the security and price of CO2 supply, where surcharges increased 7-fold in September.
 

Burdensome regulation

 

11.  Forthcoming regulation from both UK Government and devolved administrations will further increase the cost of doing business, worsening rising inflation. Food and drink manufacturing is a highly regulated sector, for good reason, but that regulation needs to be put in place with care and attention and in close consultation with business. The industry’s experience of regulation post-Brexit has been of more red tape, not less. We’re very concerned about the costs of some current and upcoming regulation, which is overly complex and/or where the regulation risks failing to meet its stated aims.

 

12.  It is also clear that regulation being taken forward in different parts of the UK has had and will have the effect of breaking up the UK internal market, with implications for businesses.  At this stage there is legislation in place for a Deposit Return System in Scotland, with proposals for different systems in England and Wales.  There are different proposals for the cost model of Extended Producer Responsibility in England, Scotland and Wales.  There is regulation in England to restrict promotions of High Fat, Salt and Sugar (HFSS) food and different proposals for regulation in Scotland and Wales.  All of this adds costs for producers and manufacturers, reduces efficiency, shrinks range availability in different parts of the UK, and raises costs for consumers.

 

Labour shortages

 

13.  Following the pandemic, businesses of all sizes are experiencing sustained and severe labour shortages.  Rising wages are raising the cost of food and drink production, and/or where labour cannot be accessed competitively, some companies are paring back production. Vacancies have now reached 6.3%, around 50% higher than in other manufacturing sectors and more than double typical levels pre-pandemic. At any one time there are around 30,000 good jobs available, at all skills levels. Shortages are reported in different roles at all skills levels from entry level jobs through to technical and specialist roles. There is a particular shortage of production and operational manufacturing roles (production operatives, machine operators, forklift drivers, electricians, food packers), specialists (bakers, flavourists, butchers) and more technical and leadership roles (engineers, team leaders, compliance and documentation, health and safety, HR).

 

14.  While employers have made concerted efforts to improve recruitment by offering competitive wages, benefits and flexible hours, the pressures of being in perpetual recruitment mode places particularly heavy burdens on smaller businesses and can lead to the loss of orders, increased waste and slowed production. The FDF recently responded to the House of Commons Business, Energy and Industrial Strategy’s call for evidence to its inquiry on post-pandemic growth: UK labour markets. More information about the state of the labour market in the food and drink manufacturing sector, and its challenges, is available here.

 

Fragility of supply

 

15.  The Covid-19 pandemic, uncertainty around changing trading relationships with the EU and Northern Ireland and global price/supply difficulties affecting ingredients, energy and shipping have affected resilience in the supply chain. The invasion of Ukraine added further pressure on supply chains across a range of food and drink ingredients and commodities.  For instance, it’s put huge pressure on supplies of sunflower oils and other vegetable oils, as well as other products.  Because of the seasonal nature of farming, the food and drink impacts of Russia’s war could impact for months and even years to come.

 

16.  Supply is also heavily reliant on SMEs who are feeling increasingly squeezed from all sides, often bearing the burden of rising costs from both their suppliers and the retailers they supply to. There are also ‘hidden’ companies in the supply chain – e.g. vital ingredients manufacturers – who provide an essential source of supply into larger companies. Yet businesses across the industry, large and small, are now at the sharp end, and any business failures impact the choices available to shoppers and consumers, as well as the good jobs these businesses provide in every part of the country.

 

17.  We welcome the government’s ambition in having a full digital overhaul of the border as part of the ‘2025 UK Border Strategy’. This presents useful opportunities to simplify, streamline and digitalise processes via the development of a Customs Single Window system that can help to remove the unnecessary duplication and added costs that businesses currently face when trading internationally. However, the greatest benefits can only be achieved if digital solutions are matched at the physical border by delivering a single physical government presence designed to benefit businesses that currently struggle with competing and conflicting demands and requirements from Border Force, HMRC, FSA, Defra, and Port Health Authorities.

 

18.  More broadly, we believe the UK’s global growth ambition can only be achieved by driving improvements in UK container port performance. We have seen a rise in container ships bypassing UK ports and instead offloading UK-bound cargo in EU ports. This undermines the functioning of our food and drink supply chains and creates enormous difficulties and adds significant cost to businesses that unexpectedly have to find alternative routes to bring those products to the UK. We would urge the government to work with the ports and their users to build an ambitious but practical UK-wide freight strategy that will ensure we have world-leading ports and related infrastructure that best supports our shared ambition to drive growth through international trade.

 

Environmental impacts

 

19.  The resilience of food supply chains has also been tested over 2021 and 2022 with the extreme weather events in the UK and overseas, such as floods, droughts and fires.  These present a growing vulnerability in crop yields, which Defra recognised as the greatest medium-term risk to UK food production in their food security report published in December 2021.  The momentum behind building a sustainable and resilient food system into the medium and longer term has therefore never been greater, with pressure to not only reduce environmental impacts but focus on restoration in nature and biodiversity. FDF members are working hard in this area, and we will be reporting on latest industry progress in our annual report of our Ambition 2025 to be published in Spring 2023. 

 

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?

 

20.  The longer-term outlook for food price inflation is difficult to assess. But, given the costs experienced by producers today will only be seen in final consumer prices 7-12 months later, we consider that food price inflation will continue well into next year. There are three things the UK Government could do to help us weather the crisis and emerge stronger: 

 

Work with us through the current crisis

 

21.  We strongly welcomed the UK Government’s 8 September announcement on the Energy Price Guarantee for families and businesses, alongside action to reform the energy market. The support to households will be important as everyone grapples with domestic bills as well as across the broader economy, and the 6-month energy bill freeze for companies will be very important over the winter. 

 

22.  We are working closely with the Department of Business, Energy and Industrial Strategy (BEIS) as they work out the details of the business support and how, for example, this will apply to different fuels and to combined heat and power plants which may export some electricity.  We are also keen to engage with the 3-month review which is critical to helping businesses plan for 2023. 

 

23.  The crisis is impacting businesses across the food and drink supply chain, which tend to be vulnerable to energy price rises and price shocks given our products are low margin (which is key to their affordability) and that the resilience eroded by successive crises must be built up again. Beyond heating through the winter period, energy costs can actually go higher for many food and drink businesses, especially for those reliant on refrigeration and freezing. Given our sector is rightly viewed as critical for UK security, our businesses – and the pressures they are under – must be front of mind for support beyond the initial six months.

 

Help us tackle productivity and boost growth

 

24.  Our industry is a sleeping giant in productivity terms.  While the very largest food and drink businesses are global productivity leaders, 97% of the businesses in our sector are SMEs, which have not been investing consistently in advances in automation, digital and technology, and green energy.  This is largely because businesses in our sector operate on short-term, often precarious, low-margin contracts with retailers. 

 

25.  However, soaring energy costs and a tight labour market have changed the investment equation.  Companies now have a strong business case for investment. Adopting modern equipment and new technologies would ease demand for labour, and would increase the number of higher skilled, better paid jobs. It would also enable companies to grow their customer base, including through exploring or expanding export markets. But the current economic situation weighs against decisions to raise finance for investment.

 

26.  We believe that an industry-government partnership to boost growth and improve productivity across businesses and sites in our sector would be well-timed and would pay dividends right across the UK.  It would also act to ease labour shortages, grow company order books, grow exports and provide higher-skilled roles across our industry’s UK-wide footprint. The UK has long been a favoured destination for international investment in food and drink, and there are opportunities to further cement the UK’s position, including through stable business taxation, by incentivising companies to invest for growth and through a more flexible apprenticeships levy.

 

Work with us to create better, smarter regulation

 

27.  Food and drink is a highly regulated sector – and for good reason.  Our industry takes environmental sustainability very seriously – it’s important for consumers, for our own teams, and for our shareholders and owners.  We know we must act as responsible stewards for the world’s resources. But we need smarter regulation in the environmental space, where industry’s expertise and experience is not being harnessed.

 

28.  While we fully support the objectives behind the development of the combined policies of Extended Producer Responsibility (EPR), the Deposit Return Scheme and the Plastic Packaging Tax, current government designs risk adding billions of pounds in costs to businesses in the food and drink supply chain. Ultimately, this risks higher and consumer prices at a time of already soaring inflationThe UK has the opportunity to create an innovative, modern and world-class recycling system in EPR and DRS that draws upon the best international comparisons, with all the benefits this will have for the UK economy in terms of investment, jobs, and growth. It’s good for the environment, for our businesses, shareholders and our consumers are demanding that packaging is minimised, sustainable and recyclable.  But we do not believe that this is what current government policy will deliver.

 

29.  On EPR specifically, we have seen over many months that industry’s concerns and expertise have not been taken onboard. For example, whereas the best performing EPR schemes in Europe have integrated packaging producers (for example, in food and drink and personal care) into the planning and execution of their schemes, the UK has opted for a Scheme Administrator based in the public sector with industry placed at arm’s length in terms of meaningful influence over the key levers of the system.   The countries around the world with best Scheme Administrators in contrast all draw directly on the expertise of producers which are experienced in managing highly complex supply chains and logistics.  This in our view will lead to sub optimal outcomes that won’t fully deliver on the environmental goals of government nor producers in the most efficient and cost effective way.

 

30.  The proposed changes by BEIS to the current Climate Change Agreements (CCA) is a further example of government policy not supporting the green transition and moves across industry to decarbonise. CCAs offer financial support (through a reduction to the Climate Change Levy) to increase the implementation of energy efficiency measures – more vital than ever in light of rising pricesYet, BEIS have proposed changes which could reduce food and drink sector eligibility by 85%, and do not incentivise decarbonisation. We would like to see a two-year extension to the current scheme so government can properly consider the proposed impacts and alternative proposals, given there is now only three months before the current phase closes and for any changes to be implemented by industry.

 

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

 

31.  The poorest 20% of households spend a higher proportion of their income on food[2]. Increasing food prices, especially when coupled with rising fuel prices will inevitably put further pressure on these households and make it more difficult for them to buy and cook the food required to maintain a sustainable healthy diet.

 

32.  Food and drink manufacturers recognise the important role they play in providing a range of healthy options at all price points to support sustainable healthy diets. Many companies also support communities across the UK from providing healthy breakfast clubs to school children, to redistributing surplus food in commercial outlets at discounted prices, and via charitable means to those that need it most through organisations such as Fareshare and Community Shop. FDF’s Celebrating Food and Nutrition report describes how companies have helped to tackle food poverty with pioneering projects within local communities across the UK.

 

33.  Over many years our companies have worked hard - and invested heavily - to reformulate products (to reduce fat., salt and sugar) and provide healthier and smaller portion options at affordable prices. The Celebrating Food and Nutrition report highlights some of the innovation that companies – large and small – have been investing in, such as the Kingsmill’s 50/50 Multi-Seed loaf with a 50/50 wholegrain flour base; and Dolmio 7 Vegetables pasta sauce which contains two ‘five a day’ portions of fruit/vegetables in each serving.

 

34.  We believe there’s also more to do to support innovation in reformulation and healthier product development across all sizes of business. For example, a one stop shop where companies and industry bodies could see proposed and funded UK research and Innovation (UKRI) projects would help join up academic research with company innovation. For small businesses who are likely to need practical help, we have found the Scottish Government funded Reformulation for Health Programme has successfully helped support engagement and delivery of recipe changes in line with public health goals.

 

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

 

a)      the resilience of food supply chains?;

 

1.      The FDF welcomed the Food Strategy report and are looking to work in partnership with government to alleviate pressures across the UK food and drink supply chain to help build greater resilience in our supply chains.  Our key asks for the UK Government to ensure the resilience of supply, include:

 

2.      Tackling acute labour shortages – the FDF welcomed the independent review on tackling labour shortages as announced in the Food Strategy, but we still feel there are immediate pressures on the workforce that cannot be solved quickly enough, given the tightness of the labour market.  While seasonal agricultural schemes are beneficial for the wider food and drink supply chain, they do not work for manufacturing. We would ask that the UK Government looks to widen the Youth Mobility Scheme or offers a temporary pause to the Immigration Skills Charge, as well as reviewing the Shortage Occupation List more often. Greater flexibility within the Apprenticeships Levy would also help businesses develop their talent pipeline and boost skills where this is needed most.

 

3.      Accelerate the update of automation and technology in the sector to boost growth we want to explore with government how we can help more businesses invest in automation, robotics and digitalisation, as part of the adjustment to a changed labour market and increase green jobs and technologies as part of decarbonisation efforts.

 

b)     the agri-food and seafood sectors?; and

 

4.      Agricultural, aquaculture and seafood supply chains – both within the UK and where needed in imports – are of critical importance to food and drink manufacturers.  The UK Government must ensure that food security actions ensure robust, economically sound and thriving sustainable supply chains to ensure our food and drink industry remains strong and successful.

 

c)      access to healthy, nutritious food?

 

5.      The Government’s Food Strategy has rightly focused on bringing forward measures to increase access and affordability of food and drink for children and families on lower incomes. We wholeheartedly support the Government’s decision not to take forward further taxes on food and drinks, which are unlikely to reduce obesity[3] and would penalise poorer households further.

 

6.      The FDF welcomed the recognition that there is a shared responsibility to identify solutions to tackle obesity, including by industry, Government and individuals. Food and drink manufacturers are committed to working in partnership with Government to tackle obesity and poor diets. Ove many years our companies have worked hard to reformulate products (to reduce fat., salt and sugar) and provide healthier and smaller portion options. FDF member products now contribute 10% fewer calories, 12% fewer sugars, and 16% less salt to the average shopping basket than they did four years ago.

 

7.      FDF’s Celebrating Food and Nutrition report describes some of the innovation that companies – large and small – have been investing in. Our report also sets out the commitments food and drink manufacturers have made to help bridge the fibre gap as part of FDF’s Action on Fibre initiative (with 27 participating brands); to tackle food poverty with pioneering projects within local communities across the UK;  and to help consumers achieve more sustainable diets on the road to Net Zero.

 

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

 

8.      Much of what UK food and drink manufacturers produce is made locally, but we are nonetheless rooted in global trade, with both importing and exporting an essential part of what we do. Our industry’s balance across imports and exports adds to the robustness of the UK’s food security and ensures that consumers enjoy a wide range of choice at competitive prices.

 

9.      It is important to focus beyond ‘self-sufficiency’ for its own sake, but more widely on the impact the food we eat has on climate change. Local should not be used as a proxy for better health and improved sustainability, as Henry Dimbleby noted in his National Food Strategy report, that the “food mile” only accounts for only 13% of the food system’s total carbon footprint.

 

10.  At the same time, imported ingredients and raw materials complement local produce in added value products that offer more sustainable export opportunities than commoditised trade. Imports help ensure security of supply for producers (and for consumers), enabling them to manage the inherent risk and uncertainty of seasonal production, disease and variable climate conditions.

 

11.  Imported ingredients provide a competitive spur to innovation and productivity in the UK food production sector. They provide access to products and raw materials that are not produced in the UK, especially tropical ingredients and they help extend the UK availability of produce outside of their growing season in the UK. This ultimately contributes to food security as it helps food and drink manufacturers manage the inherent risk and uncertainty of seasonal production and variable climate conditions.

 

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?

 

12.  The FDF recognises the need for agricultural and land use policy to balance a wide range of goals including food production, the environment, recreation, tourist activity and housing. It is important that agricultural and land use policy recognise the need to support robust, economically sound and thriving sustainable supply chains to ensure our food and drink industry remains strong and successful.

 

13.  Indeed, the proposed land use strategy will play an important role to enhance environmental sustainability in UK food production and in setting the foundations for initiatives around nature restoration and biodiversity, such as for environmental markets as proposed by the Financing Nature Recovery UK initiative.  This is an area of increasing interest across all food system stakeholders looking to improve supply chain resilience in light of climate change but also to reduce the embodied environmental impact of the food we eat. 

 

 

Food and Drink Federation                            Page 9

 

 


[1] ONS: Recent challenges faced by food and drink businesses and their impact on prices

[2] DEFRA UK Food Security Report 2021

[3] A Public Health England review notes the lack of evidence on the long-term effectiveness of taxes and understanding of compensatory behaviour. The independent McKinsey Global Institute report found that a 10% tax on high-sugars and high-fat products in the UK would be ten times less effective than reducing portion sizes and eight times less effective than reformulation of products.