Written Evidence submitted by Quality Meat Scotland (LS0026)

Quality Meat Scotland is a Non-Departmental Public Body. This advice is provided under the Quality Meat Scotland Order 2008 Schedule 1 point 18 ’  Advising on any matters relating to the red meat sector (other than remuneration or conditions of employment) as to which the Scottish Ministers may request Quality Meat Scotland to advise, and undertaking inquiry for the purpose of enabling Quality Meat Scotland to advise on such matters ‘.

What is the extent and nature of labour shortages currently being experienced in the food supply chain?

• In Scotland, red meat processing businesses have reported significant staffing challenges.  It varies from week-to-week, but shortages of up to around 20% have been reported.
• Across GB, the situation has been particularly acute in the pig sector.  Latest census data for England from June 2021 points to a significant increase in pigs available for slaughter this year (+6%) while the December census in Scotland pointed to a large increase going into 2021.  As a result, processing sector output has needed to increase this year to keep up with this growth in supply. 
• While Defra slaughter data has shown a strong increase in GB abattoir throughput so far this year, climbing 4.3% over 2020 in the first eight months, the cumulative total had been 6% higher in the first half of the year.  Over July and August, slightly fewer prime pigs were handled than last year, leading to a backlog building on farms.
• Data from the GB price reporting abattoirs pointed to little improvement in the first half of September.  Although pig throughput did then pick up more strongly in the final fortnight of September, they were barely above the year-to-date average and will have made little inroads into the backlog.  Slaughter then slipped back in the opening week of October.
• In the pork sector, labour shortages are believed to be more significant in butchery than in slaughter, limiting the ability of processors to break carcases down into a range of cuts and maximise overall carcase value.
• Labour supply challenges have also affected the slaughter of unproductive breeding pigs.  At GB level, the sow kill had been 7% higher than 2020 in the first half of the year, but mounting labour challenges have resulted in the apparent prioritisation of prime pigs, lowering sow throughput by 2% in July and then 35% in August.
• So far this year, the labour supply challenges have been less significant in beef and lamb processing as there have been reduced numbers of cattle and sheep to process.
• However, in cattle processing in Scotland, there is evidence of labour supply challenges beginning to restrict output, resulting in a backlog of cattle on farm.  Delays of around two weeks in getting cattle (and sheep) processed have been reported. 
• As we have seen in the USA during the pandemic, and in the pig sector in Britain, a surplus of livestock over and above the operational capacity of the processing sector can lead to a backlog of slaughter-ready animals on farm, pressuring the price paid for them, irrespective of the level of consumer demand. Extra time on farm leads to additional production costs and carcase quality may be affected.
• On a five-year average basis, prime cattle slaughter has increased by around 10% between September and the pre-Christmas three-week peak between mid-November and early December.  Availability of cattle increases as the calves born in the spring of the previous year begin to reach slaughter condition. 
• During September, numbers averaged 1.7% higher than in August, compared to a rise of 3.5% on average over the previous five-years. 
• Moving into October, slaughter numbers at the price reporting abattoirs (around 90% of prime cattle slaughter) did not increase from late September, remaining around 6% below the five-year average.
• In the sheep sector, on a five-year average basis, data from auction markets points to a potential lift in supply of around 20% between September and the three-week pre-Christmas peak in England & Wales, and a lift of around 10% in Scotland.
• Knock-on impacts of labour shortages are being experienced by end users, with the usual product offer having to be reduced by around 20% in some areas of public procurement.
• High street butchery businesses are also reporting challenges in accessing skilled workers.  Many are having to operate with less staff than normal, while wages are rising significantly due to the high level of competition for a limited supply of workers.  At the same time, prices paid for beef and lamb carcases are well above the five-year average, squeezing margins.

1. What are the factors driving labour shortages in the food supply chain?

• In the red meat processing sector in Scotland, access to adequately skilled staff has been an issue of concern and risk for a prolonged period of time.  However, over the past year, these challenges have become acute, and are beginning to limit output.
• In some areas of Scotland where red meat processing businesses are located, employment rates are high, leading to strong competition for staff.  Local workers tend to seek out opportunities in other parts of the labour market and processing businesses have become highly reliant on workers originating in the EU to meet their staffing requirements. 
• One challenge is the working environment within meat processing plants.  Even when companies manage to recruit workers with the right skillset and offer competitive pay, they then struggle to retain staff as people look for alternative options in cleaner and warmer working conditions. 
• At the current time, there are very few skilled workers available and applications are generally coming in from people who would need to be retrained, which will take time (it takes 2-3 years to take a butcher from first employment through to being fully qualified) and thus recruitment now does not resolve immediate challenges.
• Companies are constantly reviewing pay structures in order to remain competitive and fair, with limited success in retention and attracting new staff.
• Annual surveys of the processing sector reveal a wide variation in levels of dependence on EU workers.  In some businesses, mainly located in the west of the central belt, relatively few EU workers are required.  However, other processors with operations in the central belt still rely on a majority of staff who have originated outside the UK.  Some companies based north of the central belt have reported a significant majority of workers originating in the EU.  On net, survey results point to around half of the sector’s workforce being EU workers.
• 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.  The rebalancing lower in the value of sterling in 2016 has also made it less attractive to move to the UK for work since then. 
• Meanwhile, the end of the furlough scheme has not yet led to an increase in domestic workers applying to work in meat processing.  However, meat processing companies will be working hard to recruit from this pool of newly redundant workers in the coming weeks.
• Data from the ONS shows that across the UK, the ratio of vacancies to unemployment had already fallen below pre-pandemic levels by the May to July period of 2021, with the June to August ratio then matching the 2019 low of 1.5. For July to September, the number of vacancies then rose by another 6.4% compared to June to August (Source: Table 20 in ‘Summary of labour market statistics’).
• This year, some businesses have reported that the relaxation of covid-19 restrictions this summer resulted in some EU workers returning to their originating country, where they have remained since.
• A challenge to recruiting new EU workers is the points-based immigration system.  In many Eastern European countries, English is not a main language and many lack formal English language skills.
• However, even businesses that have reported very low levels of EU workers compared to the industry average have had to manage considerable staffing shortages this year, leading to reduced output in some weeks.
• A perception that meat processing plants are a higher risk environment of contracting covid-19 may also be limiting applications.
• Meanwhile, there have been continuing cases of covid-19 amongst workers in meat processing and this can lead to the need for a significant number of staff to isolate until PCR test results come through.
• There are examples of meat processing companies offering financial relocation packages and ‘refer a friend’ incentives to try and find new staff, with limited or no success.
• Apprenticeship schemes aimed at recruiting young people who have grown up in the local area have had some success, but not to the extent needed to reduce current shortages.

2. What is the outlook for the labour shortage situation in the coming months and years? 

• The labour shortage situation is not expected to improve and has the potential to deteriorate further going forward. 
• It is hard to maintain workforce levels due to the natural churn process, with leavers difficult to replace.
• As the economy recovers from the pandemic, this is only likely to become even harder as ‘quit rates’ and competition for staff increase further.  Meanwhile, the points-based immigration system makes it much more challenging to recruit from overseas. At the same time, we have an ageing population in the UK, potentially reducing the pool of available workers.

3. What other issues are affecting the food supply chain?

• In addition to challenges in the processing sector, in some instances, a lack of labour resources in transport and distribution has led to problems with moving animals and meat.  At the height of the fuel shortages in late September, some animals were unable to be moved to the abattoir.
• In addition to labour, the rising costs of raw materials, components and parts have also been of concern in the processing sector, with pent-up demand and backlogs at ports across the world leading to rising goods and raw material costs.  These pressures have been compounded in September by a fall in sterling against the US dollar. 
• At farm level, input cost inflation has also been surging.  Defra’s agricultural input data shows that by July, energy costs were around 20% higher than last year, and fertiliser by around 50%.
• For cattle and sheep finishers, the cost of buying calves and lambs for finishing has risen above 2020 levels this autumn; cattle by roughly 5-10%, and lambs by 15%.
• Red meat processors have been paying more than last year for finished cattle and lambs, but often have limited power to pass these price rises on to their customers.
• Meanwhile, a tight global market for arable crops pushed up grain and oilseed prices over the winter of 2020/21 and, while now below their previous highs, prices remain elevated above autumn 2020 levels and past inflation will still be passing through from commodity prices to compound feeds.  Defra data for July placed the cost of compound feed 7% above year earlier levels for cattle and calves, by almost 10% for sheep, and 15% for pigs.  
• A concern for the year ahead is that rising fertiliser costs this autumn and winter could have an impact on the area of land used for wheat and barley production, resulting in tight supply next year, leading to further pressures on feed costs in livestock production.

4. What impact will the timetable for introducing physical checks at the border on food and live animal imports from the EU have on the current issues being experienced by the UK food supply chain?

• Red meat exports to Europe have been more costly and burdensome since start of this year, resulting in a large reduction in export volumes.  EU imports will be free to enter the UK unchecked until July 2022. This means our EU competitors can continue to import to the UK quickly and with lower associated costs, placing UK companies at a significant commercial disadvantage.
• Government must seek to achieve a level playing field with pragmatic and equitable checks on imports and exports, failure to do so places UK producers at a continued competitive disadvantage with EU producers.
• A delay to controls on EU imported products will do little to address production and supply chain problems, mainly caused by a lack of workforce availability, nor the long-term trade frictions companies are experiencing as a result of EU exit.
• The delay in import controls also delays the point at which both the UK and EU are subject to exactly the same SPS checks.  It is widely regarded that only when we reach this point will the UK & EU negotiate long term solutions to ease the additional burden and costs of border controls.
• There are concerns that the UK does not have the numbers of Official Veterinarians to manage the import checks that are due to be enforced from July 2022.
• There appears to be no guarantee that UK Border Control posts will be ready for the July 22 deadline and there may well be further delays in the introduction of border controls for agri-foods products entering Britain.  This will further undermine the trust and confidence of our exporting businesses.
• African Swine Fever has moved across Europe in recent months and is an extremely contagious pathogen that when it is found in pigs, means they have to be culled. The route that modelling suggests ASF is most likely to find its way into the UK is through contaminated pork products which can also carry the pathogen.
• If ASF was to be detected in the UK, it would likely lead to the suspension of pork exports to a number of important markets.
• Import checks would provide a strong first line defence against ASF coming into the country, as is expected of our red meat products going outbound to the EU.
• It has been suggested by some that there is a risk of WTO infraction because imports from the EU are now being treated differently from imports from the rest of the world.
• It has also been highlighted that Scotland would be within its legislative rights introduce its own food safety checks on imports, as food safety is a devolved area.

5. What measures has the Government taken to alleviate the problems being faced by the food supply chain this year? To what extent have they been successful?

• The narrative communicated by the UK government has been challenging, with responses akin to ‘there is no problem but even if there was - it is not the Governments job to fix every problem’.

• One “solution” they may quote was the offer of up to 5,000 visas to allow Europeans to come over to the UK until Christmas Even to work in poultry processing and as haulage drivers.  The incredibly small take up (circa 150 people) demonstrates that the UK is no longer an attractive place to come and work for Europeans.

6. Does the Government need to take further steps to support the food supply chain?

• Given that there is an immediate problem of staffing shortages, some at least temporary relaxation of immigration policy is necessary to maintain production and keep the wheels turning on supply chains.
• Investment in apprenticeships in the red meat industry would be useful and starting this investment now will help to protect against future challenges for the red meat industry.
• Promotion of careers in the meat industry within the education system would also be of use given the long-term challenges faced by the sector.

October 2021