Written Evidence submitted by Arla Foods UK (LS0031)

 

 

Introduction

 

  1. Arla Foods is a dairy cooperative owned by approximately 9,900 farmers across several European countries; around 2,300 of our owners are in the UK, representing around 30 percent of all dairy farmers.  We are a leading supplier of fresh milk, butter, spreads and cream, as well as the country’s largest cheese manufacturer. Our much-loved brands include Lurpak, Cravendale and Anchor butter, as well as Lactofree, Skyr and Arla Protein. 

 

  1. Our turnover in the UK is just over £2 billion.  We employ around 3,500 people at our ten processing and logistics sites in England and Scotland. Arla is the third biggest food company in the UK, and also the third largest cooperative in this country.

 

  1. Our business depends significantly on being able to access people with suitable skills and experience and, at least as importantly, the right attitude.  The same applies to our farmer owners as well as to our partners who provide logistical support.  We are therefore acutely conscious of recent shortages of qualified people in the labour market and the impact this has been having, and we welcome the opportunity to contribute to the Committee’s inquiry.

 

 

Labour market shortages in processing and logistics

 

  1. In common with many food and drink manufacturers, Arla is heavily dependent on the haulage sector.  In our case we utilise approximately 900 drivers in our inbound fleet with responsibility for collecting milk in tankers from farms.  Of these around half are employed directly by Arla.  In our outbound fleet we have around 1,070 drivers across trunking and direct to store deliveries.  The difficulties we have faced this Summer have been in outbound, where we have seen shortages of around 7.5% overall, with a much higher figure in some locations at certain times.

 

  1. For us the peak of our difficulties was in mid-August when we were unable to deliver to around 10% of the 2,400 stores we service directly in London and the South-East (rising to 25% at the weekend).  As a result, there were shortages of products and empty shelves in some stores.  We also faced disruption internally as we redirected milk into products such as milk powder and butter

 

  1. However, even before we faced those extreme difficulties we had already taken steps to stabilise the situation:

 

    1. Increased rates of pay and signing on bonuses particularly for weekend drivers
    2. Introduction of drivers’ mates
    3. Better facilities at all of our sites (including new and revamped well-being rooms)
    4. Rolled out Driver Academy programme to all of our sites
    5. Greater focus on recruiting apprentices; and on upskilling drivers from Class 2 to Class 1

 

Over time these measures have helped, and we are not currently facing serious issues.  However, we are acutely conscious that the problem is not solved for the sector as a whole: many of our new drivers have come from other operators who will now presumably be facing shortages of their own.  We recognise that what is needed is a concerted effort to bring new drivers into the industry and to retain those already within it.

 

  1. In that context the Government’s approach in recent weeks has been welcome.  Efforts to cut the backlog of driver tests resulting from the pandemic are crucial.  The new commitments made to supporting training are also important.  And the decision in the end to set up a new temporary visa scheme for foreign drivers and to try to bring qualified drivers who are no longer driving back into the industry was helpful; we have been calling for visas for lorry drivers for many months.  Whether the visa scheme will be successful remains to be seen, but we do see it as a positive step by Government to address the short-term challenges faced.

 

  1. However, in spite of the measures taken by the Government and the response of industry it is still the case that we face two distinct labour market challenges.  In the short term (in other words, over the next six months) it is clear that there is an on-going acute shortage of drivers.  The Government should stand ready to do whatever it takes, including further relaxation of visa rules, to tackle this problem in order to avoid shortages of products and price inflation. 

 

  1. In the long-term more needs to be done to attract drivers into the industry.  There is an important role for Government in coordinating efforts to improve facilities, step up training and attract new and more diverse recruits, including in schools and via job centres.  We are committed to playing our part too in addressing these long-term issues.

 

  1. The shortage of lorry drivers is just the most prominent and immediate manifestation of a wider problem of restrictions in the supply of labour.  Back in 2019, long before the end of the Brexit transition period and the impact of Covid-19, we told the Government in a consultation on the new immigration regime that we were already finding it challenging to find qualified workers.  The Time to Fill (TTF) measure for engineering technicians at that time stood on average at 67 days; we cited an example of it taking 171 days to find a candidate for a position at our Settle site.  We said that team leaders were also hard to find, with the average TTF in that case then standing at 62 days, and one case of it taking 89 days to fill a post at Westbury.

 

  1. The situation since then has worsened and the outlook is now bleak.  This is particularly true in skilled engineering roles.  One issue is the loss of engineering contractors from the industry altogether due to changes to the IR35 tax rules.  At one site alone we lost 9 contractors.  This is part of a broader picture of an ageing population of engineers: it is widely accepted that by 2026 the UK will lose 120,000 engineers due to retirement.  At our most heavily automated site, where engineering skills are especially prized, we have 11 engineers over the age of 55.  Succession planning is very difficult when there are simply no suitably skilled people available.

 

  1. Another problem is the rapidly rising cost of housing near many of our sites.  Even in rural areas such as North Yorkshire and Devon this has exacerbated existing pressures to increase salaries to make a total job package seem attractive to persuade potential recruits to remain in or move to an area.  Coming on top of the issues of attrition and reductions in the supply of labour already mentioned this is driving up costs very significantly.

 

  1. There is no reason to believe that these challenges will get better in the medium-term.  The only solution is to bring new people into the industry, but we have consistently struggled to attract sufficient numbers of recruits from the indigenous population, and there is little evidence of a pool of workers currently sitting idle who have the skills and attitude we need.  We are therefore keen to work with Government on an industry-wide campaign to promote the attractiveness of careers in our sector in order to attract new and more diverse recruits.  This should include sustained efforts to increase understanding of and support for farming and food in schools, as part of the Food Strategy White Paper.

 

 

Labour market shortages on farm

 

  1. As the driver shortages issue has grown in prominence in recent months our farmers have also made us aware of difficulties they have been facing with the labour market.  There have been a growing number of anecdotal reports throughout this year that many farms have been unable to fill vacancies when they have arisen.

 

  1. In order to substantiate this anecdotal evidence we decided to poll our farmer owners and ask them about the state of the labour market from their perspective.  We invited all UK Arla farmers to take part in an online survey during September 2021.  330 of them responded (around 15% of the total). 

 

  1. Our findings suggest that farmers are very concerned about the state of the market in which they are having to find labour for their farms.  Amongst other points:

 

    1. Two-thirds of farmers say that by comparison to two years ago it is “somewhat harder” (24.8%) or “much harder” (42.1%) to find staff to work on-farm

 

    1. More than a third of farmers have had a vacancy to fill since 1 July 2021

 

    1. Of those seeking to fill a vacancy since that date, half (70 out of 142) told us that very few applicants had the right skills, whilst 30% said they had received no applications from people with the right skills or no applications at all

 

    1. Nearly three-fifths of farmers (58.8%) agreed that over the next 12 months access to labour would be one of the biggest difficulties facing their business

 

    1. More than half of our respondents identified labour market shortages as a severe issue, with 36.7% saying it is a major risk that will inevitably lead to higher costs and a sizeable 18.8% noting that it is a serious concern that will make them consider leaving dairying altogether.

 

  1. It may be of interest to the Committee that there are some notable differences between the regions of the UK.  Far more farmers in Scotland (45.8%) reported at least one vacancy since 1 July, compared to the South-West (33%).  Very few applicants for jobs in Scotland have had the right qualifications: 90% of those looking for staff say that few applicants or no applicants have had the right skills or they have had no applications.

 

  1. Farmers north of the border are most concerned about the financial implications of staff shortages, with 62.5% saying they believed that labour market issues are a major risk that will inevitably lead to higher costs.  But it is farmers in the West Midlands (27.7%), Wales (25%) and Yorkshire (20%) who are most likely to say they could be forced out of dairying by this issue.

 

  1. It is very worrying that farmers are finding it so hard to find new staff, and that so few applicants for jobs have the right qualifications.  Our survey has clear implications for food price inflation as well as food security and the success of the rural economy.  If nearly one-fifth of dairy farmers did leave the industry this would be devastating for many communities.

 

  1. The Committee may also wish to note reports from our farmers that many agricultural suppliers are also facing considerable difficulties as a result of being short-staffed.  A typical example is a farmer in the East of England who told us that:

 

    1. a bale chasing contractor was unable to meet a booking for harvest time because staff had failed to turn up;

 

    1. another key contractor was 30% down on headcount; and

 

    1. at the time of the conversation there was considerable uncertainty over the maize harvest because the contractors involved were being diverted to road haulage.

 

  1. The farmer in question had been obliged to hold more than two months of stocks to ensure security of supply for feed stuffs and chemicals, with obvious implications for working capital.  He was also very concerned about the supply of time critical parts for milking machinery.  The situation in the wider agricultural supply chain and the impact it is having on farming is something that would merit further investigation.

 

  1. Shortages of people willing to work in farming are likely to prove to be lasting.  Our farmers have consistently told us that they see no evidence of a pool of workers ready and waiting to enter their sector with the skills and attitude needed, and labour shortages elsewhere in the economy are likely only to make the situation worse.  Meanwhile the average British farmer is well over 50 years old.  Bringing new people into farming is vitally important for the health of the rural economy and for our food security.  This underscores the importance of the industry-wide campaign mentioned above to ‘market’ the food and farming sector, including efforts to increase understanding of farming and food in schools as part of the Food Strategy White Paper.

 

 

Other matters including the border operating model

 

  1. Arla has not so far been overly affected by the new trading and customs rules introduced following the end of the Brexit transition period.  This is because for now at least we export relatively little from this country to the European Union.  Our concern has focused on the implementation of the new border operating model that will govern imports from the EU into Great Britain and the impact that this might have on our ability to bring in products without disruption and delay.

 

  1. We have welcomed the Government’s determination to make sure that the new import regime operates as seamlessly as possible, and the repeated delays in introducing new controls until the appropriate processes and technology has been put in place and tested.  We continue to be in dialogue with the Department of the Environment, Food and Rural Affairs over the detail of how the new controls and certification will work: we have a particular concern about the handling of Export Health Certificates for Products of Animal Origin brought into the country as unaccompanied loads.  However, provided the final wrinkles in the new regime are ironed out we do not currently believe that new EU-GB import controls will cause significant disruption to the UK food supply chain.

 

  1. The Committee should also be aware of other issues that are causing concern, particularly with regard to their likely effect on food price inflation.  One of these is disruption to fertilizer production as a result of higher gas prices: we are receiving growing numbers of anecdotal reports that farmers are facing much higher prices or are unable to source fertilizer at all.  In addition to adding to their costs, this may force them to plant different crops and feed their animals in different ways, which ultimately could affect milk production and consumer prices.

 

  1. Another issue is rising energy costs, which are a serious concern both to our farmers and our processing and logistics businesses.  Dairy farmers are heavily reliant on electricity for milking and refrigeration, as well as for lighting and so on.  Although many farmers now have renewables on their farms it is inevitable that higher energy prices will have a very significant impact on costs.  When it comes to our sites the most recent review of our expected energy costs led us to the conclusion that despite having put CHP in place at several sites we will be facing millions of pounds in additional costs for energy over the next 12 months.

 

 

Conclusion and summary of recommendations

 

  1. There are a number of reasons why the UK food and farming sector is facing disruption caused by shortages of labour.  It was perhaps inevitable that ending free movement of labour when this country effectively enjoys full employment would lead to shortages; these pressures have been exacerbated by Covid-19, changes to tax rules and other relatively short-term factors.  But there are long-term issues at play here too, with an ageing population amongst farmers and lorry drivers, to name but two professions.  Attracting new people into our sector is an urgent priority for the coming years.

 

  1. Our conclusions and recommendations to achieve this objective and address the current issues in our sector are as follows:

 

We recognise that what is needed is a concerted effort to bring new drivers into the industry and to retain those already within it.

 

In the short term (in other words, over the next six months) it is clear that there is an on-going acute shortage of drivers.  The Government should stand ready to do whatever it takes, including further relaxation of visa rules, to tackle this problem in order to avoid shortages of products and price inflation. 

 

There is an important role for Government in coordinating efforts to improve facilities, step up training and attract new and more diverse recruits, including in schools and via job centres.  We are committed to playing our part too in addressing these long-term issues.

 

We are therefore keen to work with Government on an industry-wide campaign to promote the attractiveness of careers in our sector in order to attract new and more diverse recruits.  This should include sustained efforts to increase understanding of and support for farming and food in schools, as part of the Food Strategy White Paper.

 

Our survey has clear implications for food price inflation as well as food security and the success of the rural economy.  If nearly one-fifth of dairy farmers did leave the industry this would be devastating for many communities.

 

The situation in the wider agricultural supply chain and the impact it is having on farming is something that would merit further investigation.

 

Bringing new people into farming is vitally important for the health of the rural economy and for our food security.  This underscores the importance of the industry-wide campaign mentioned above to ‘market’ the food and farming sector, including efforts to increase understanding of farming and food in schools as part of the Food Strategy White Paper.

 

Provided the final wrinkles in the new regime are ironed out we do not currently believe that new EU-GB import controls will cause significant disruption to the UK food supply chain.

 

  1. We hope that this evidence is useful to the Committee.  We would be very happy to provide any additional information that would be useful. We also believe that as a farmer-owned cooperative we have a unique perspective on labour market challenges right across the supply chain, and that therefore we are ideally placed to give oral evidence if that would be helpful to the Committee.

 

 

 

October 2021