Written Evidence submitted by The Country Land & Business Association (CLA)(LS0032)
The Country Land and Business Association (CLA) represents 28,000 farmers, landowners and rural businesses in England and Wales. This membership supports a wide variety of businesses including agriculture, forestry, tourism, hospitality, retail and residential lettings. Labour supply is crucial to the commercial success of many of their respective businesses.
A combination of the UK leaving the EU and the Covid-19 pandemic has led to a position where there is increasing pressure on the domestic food supply chain as a result of labour shortages. Analysis from CBI and others suggest that this is largely due government policy in introducing a far more restrictive immigration regime as a result of Brexit in addition to issues faced by migrant labour in entering the country due to Covid-19 restrictions. We saw in 2020 the impact labour shortage has on the food sector where we estimated that the UK was at least 50,000 migrant workers short in the agriculture sector which was only alleviated through a flexible furlough programme and a somewhat belated temporary migrant worker scheme.
It is also the case that as the UK economy came out of Covid-19 lockdown, it was being overstretched with demand for labour outstripping supply. We find ourselves in a position where labour, as well as material, shortages are beginning to have a debilitating effect on growth. This has the potential to reduce output which could lead to risks to the sustainability of a number of agricultural enterprises.
A number of trade associations, including the Road Haulage Association and the National Pig Association have reported reductions in labour availability across the food supply chain with shortages in areas, including:
There remain severe labour shortages in the pigmeat sector in addition to there being mass vacancies in the abattoir sector. When the shortage in haulage capacity is factored in, it has been estimated by the National Pig Association that some 100,000 pigs are on-farm that cannot be slaughtered within the food supply chain. This means that pig farmers face rising costs of feed, housing, energy and the prospect of on-farm culling with no compensation. Even with the Government now accepting the need for temporary visas for butchers from the EU, this may be too little and too late for many in the pig sector.
We believe the main factors to be the combined negative effects of Brexit and the pandemic, together with a long-term trend of jobs in the food supply chain not being regarded as attractive by domestic workers. This combination of factors is unlikely to be resolved quickly and it is important to understand that the food supply chain does not act in a vacuum but rather, as a series of links. When shortages in haulage, veterinarians and workers occur, we face a situation currently being experienced by farmers.
Irrespective of whether the agrifood sector is a low wage economy (and there is sufficient evidence to the contrary) it will take time for the sector to recruit domestically and/or adopt new technologies. The food supply chain requires far greater investment but if labour shortage has the effect of reducing farm profitability it will also reduce the likelihood of that investment.
We believe that increased automation is crucial, particularly to the productivity of agriculture. We fully support the National Food Strategy’s recommendation for a £1bn investment in transforming the food system. This includes £500m in research and continued investment through UKRI, including the £90m Transforming Food Production programme and a commitment of £50m over 10 years to develop and operate a What Works Centre for farming.
Indeed, one way forward would be extending the Research & Development Tax Credit from Corporation Tax to Income Tax to assist innovation in agriculture as a sector of unincorporated businesses (which most farms are). At present, this relief is only available to incorporated businesses. The change would give all farm businesses an incentive to invest their profits in R&D to support improved productivity and a more innovative mindset.
There are other factors that affect the availability of domestic workers. These include: knowledge of opportunities and perceptions about the nature of the work; a lack of housing near farms; and a lack of transport infrastructure to take workers from where they live to the rural areas where the work is. Unless these challenges are resolved, there will remain labour shortages in a sector that is simply not seen as attractive to the domestic workforce.
However, it is also important to recognise that there are labour shortages in other parts of the rural economy. The tourism and hospitality sectors, for example, are experiencing significant labour shortages following the end of Covid-19 lockdown. We have examples in the South West where hospitality venues have been sharing staff and having to operate on a part-time basis as a result of the inability to find adequate staff. Indeed, the labour challenges being faced in the food supply chain are mirrored by shortages through the rural economies of the country.
Based on the available evidence, we believe that the labour shortage challenge is not short term. The government has adopted a very restrictive immigration policy which is negatively impacting on sectors such as food supply, that, in the past, have tended to rely on a flexible flow of migrant labour. In the short-to medium term at least, without a policy change towards more flexible immigration, there will remain labour shortage.
In its Levelling up manifesto for rural areas (https://www.cla.org.uk/documents/368/Levelling_up_Final.pdf), the CLA sets out a number of proposals which will contribute towards making the rollout of innovation and technology easier, as well as attracting more domestic labour, but none of these changes, even if they were implemented quickly, would bear fruit immediately. A big push, with Government support, is also needed to make the opportunities available in the sector more visible, and make sure vocational training is available. Again, benefits will not be seen instantly.
A significant challenge facing the food supply chain is that of skills, none more visible at the moment than in the processing and abattoir sectors. It takes time to train staff and for them to begin to work productively. Moreover, businesses in the food supply chain need to have the capacity to train staff. Many simply do not. We see difficulties for agriculture businesses to be able to exploit IT technologies, at a time when digital awareness among small businesses is still limited.
This is not helped by the approach to skills taken by government and the definition of skilled and unskilled workers. The CLA and others have consistently said, for example, that butchery is a skilled profession. However, the minimum wage levels for migrant workers being a fundamental requirement for entering the UK could exacerbate shortages. There is the view that increasing wages will correct labour shortages. However,- assuming the wage costs can be passed down the chain, which has hitherto not happened because of the relative market power in the supply chain and has fuelled the reliance on foreign labour - this also leads to higher prices for consumers which inevitably leads to increases in inflation. Bank of England forecasts of inflation at 4% by the end of the year may indeed be optimistic with the ongoing rise in food prices.
In practice, increasing costs in the food supply chain lead to pressures on food businesses whether they be farmers, abattoirs or food processors. It has the effect of reducing the profitability of business and places additional pressure on sustainability. Therefore, in a situation where costs are increasing – energy, food, haulage and logistics – but cannot be passed on, it is inevitable that there will be consequences on supply. Government needs to take this into account and address the issues in order to alleviate some of the impact on the food supply chain and the wider economy.
Originally, the Border Operating Model for EU food goods was to be fully introduced on 1 July 2021. This was delayed to October and has been further delayed until 1 January 2022. There is no guarantee that the revised timetable will be met.
Regarding how this delay will affect the current situation a number of issues need to be considered. Firstly, there will still be shortages of certain staff, such as veterinarians and customs agents, at the time we expect the Border Operating Model to be in place and functioning. This will mean that there could be serious delays in the delivery of food products to the consumer. If the problems experienced by UK exporters to the EU in complying with the EU Sanitary and Phytosanitary (SPS) regulations are replicated by EU exporters, it is likely that there will be ongoing logistical issues.
Secondly, this is compounded by the fact that the UK is not self-sufficient in the vast majority of food products. Initial problems with implementing the Border Operating Model, which we would expect, could lead to supply problems of staple food goods. Economically, reductions in food imports will reduce available supply and could have a negative short-term impact on food price inflation.
Thirdly, it is very possible that, initially at least, a lack of staff at border posts will impact food supply logistics. We have seen no guarantees from government that borders will be fully staffed to allow for the effective movement of goods within the UK. This will mean that difficulties experienced by EU exporters could lead to product displacement and the very real possibility that current EU exporters will look towards the far larger EU internal market with no limitations.
The Government expanded the Seasonal Agricultural Workers Scheme (SAWS) for 2021 to 30,000 visas for migrant workers. This was targeted to edible horticultural products only. Although this has been welcomed by the sector, there have been a number of issues. If the level of migrant workers in 2019 was 75,000 to 80,000, there is still a substantial shortage in available labour. Therefore, the Government needs to expand the scheme substantially and include all agricultural products, both edible and non-edible. For example, shortages in labour for the ornamental horticulture sector that provided £24.2bn towards the UK’s Gross Domestic Product in 2017 has had the damaging effect of reducing producer returns and the sector’s contribution to the economy. We believe that if there is no expansion of SAWS, the problem of labour shortages in agriculture as well as negative economic effects, will continue.
The government also needs to recognise the continuing damage being caused to the food supply chain by the current crisis. We do not believe that short term measures, such as temporary visas for poultry workers up to Christmas, address the structural problems that are clearly apparent. As such, there needs to be greater understanding of how the food supply chain works.
As we have made clear, the present labour shortages are the result of a combination of factors – Brexit, Covid-19, the imbalance between supply and demand. Whilst we recognise that this can be considered a “perfect storm”, it can be argued the reaction from government has been underwhelming. It is unfortunate that the actions taken so far have been reactive, rather than focusing on the need for a pro-active approach.
The government needs to recognise the economic imperative of a stable labour supply for food businesses. Given the widescale nature of the current problems, the government needs to firstly put in place measures that will resolve the short term challenges, that include temporary visas for workers in the pigmeat and abattoir sectors. However, the government also has an opportunity to reset labour supply by introducing a more sustainable policy towards migrant labour in addition to introducing measures that will encourage domestic workers into the food supply chain. Our concern is that if the present policy continues to be pursued, labour shortages will remain as a drain on the UK economy.
 Horticultural Trade Association: https://hta.org.uk/resourceLibrary/the-economic-impact-of-ornamental-horticulture-and-landscaping-in-the-uk-pdf.html