Written Evidence submitted by the Provision Trade Federation and UK Seafood Industry Alliance (LS0033)

Introduction

The Provision Trade Federation (PTF) is a food industry body, representing processors and traders in a range of staple dairy, meat and fishery products, sourced from the UK, EU and international supply chains. PTF also provides the secretariat for the UK Seafood Industry Alliance (SIA). This includes seafood members of both PTF and the Food and Drink Federation (FDF) but does not cover the interests of the UK catching sector.

Collectively these products account for roughly 20% of UK household expenditure on food (around £24 billion a year) and support some 130,000 jobs.

Executive Summary

• Food and drink are literally the essentials of life. Properly functioning supply chains are vital to the physical and economic health and well-being of the nation as a whole.
• In recent decades the UK has enjoyed year-round access to a range and choice of safe, secure, nutritious and affordable products unparalleled in our history – and at prices showing a steady trend decline in real terms.
• So much so, that the industry’s competitiveness, efficiency and resilience have been taken as a given both by its customers and by Government, leading some to overlook the fact that the chain as a whole – from farm to fork and from sea to plate – now constitutes the UK’s largest manufacturing sector, employing a total of over 4 million people in a variety of roles across the entire country.
• From the onset of Covid-19, the industry’s truly exemplary performance in continuing to provide an essentially normal supply of most products to most people has, if anything, confirmed the Government’s view expressed in response to the Committee’s first report on the pandemic that “the expertise, capability and levers to plan for, and respond to, food supply disruption lies predominantly with the industry”.
• But this misses the point that Covid-related shutdowns in other parts of the economy reduced pressure in areas like HGV driver and lorry availability, as well as releasing people to work in food chain jobs either while on furlough from other sectors or as an alternative to what they were previously doing.
• The collapse in demand from the closure of the hospitality sector also released domestic supply to compensate for disruption to trade flows, either as a result of Covid-19, or Brexit, or both.
• It is therefore only now that the UK – and other economies – are starting to rebound from the effects of the pandemic that the underlying stresses and strains within the system have become both more visible and more acute.
• Prior to both Covid and Brexit, UK food and farming had a relatively higher proportion of non-UK labour than many other sectors. This reflected both the seasonal nature of some of the roles on offer, but also relatively higher rates of pay (for both skilled and unskilled roles) which many were able to earn here, particularly compared to conditions in some eastern European countries.
• Evidence suggests that many of these returned home during the pandemic and have neither returned nor been replaced by others wanting to work in the UK for the first time (many of these patterns of employment were previously cyclical rather than on a permanent basis). It is difficult to avoid concluding that post Brexit immigration controls may have contributed to this.
• It nevertheless remains the case that food and farming are probably the sectors most heavily impacted by the UK’s departure from the EU, including in respect of trade as well as freedom of movement.

Specific Questions

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

Labour shortages are now evident across the entire value chain, from primary production on farm through to manufacturing, distribution and retail and those in the hospitality sector who serve food and drink ‘at the table’.

These impacts can also be cumulative. Food very rarely moves straight from producer to consumer, or even A to B in terms of delivery. Modern supply chains are highly complex, with sophisticated ‘just in time’ logistics designed to maximise available shelf-life and ensure that products reach their destination in peak condition, with no loss of quality or value. Many are also heavily integrated with suppliers and customers in other countries, notably the EU, from where we still source around 40% of our total needs.

Farms need inputs to produce raw materials for processing. Processors need skills and labour to add value. Finished products need to be moved into a network of distribution channels, for retail, hospitality, food service, public sector or direct sale. Transport is essential for all these intermediate stages, as well as for final delivery. And if there are not enough process workers (including for slaughter) animals are not able to move off farm to enter the chain in the first place. The same applies to the harvesting of crops, fruit and vegetables. Gaps on supermarket shelves are only one symptom of an entire chain under severe pressure. If these problems remain unaddressed, there will be impacts across the whole system, with serious economic implications for the UK as a whole.

An industry-wide survey conducted in August by Grant Thornton on behalf of a consortium of food trade bodies (not including PTF) estimated potential vacancies across the whole value chain at around 500,000. Other data from the road haulage sector suggest that there may be up to 100,000 HGV driver vacancies.

More anecdotally, many PTF members are indicating that they are anything between 10% and 15% short of the staff they need.  68% of members are reporting shortages of staff in picking and packing, with 37% reporting acute shortages in cutting and boning skills.

But numbers alone do not tell the whole story. Depending on the particular production or business model, it may be possible to maintain near full output, even with reduced staffing levels. But if the vacancies are concentrated in areas of critical skills (such as butchery) the impact on production could be very much more dramatic. In short there is not a linear relationship between staff numbers and output. And while short term gaps can be made up by overtime working or changes to shift patterns, such solutions are not sustainable in the longer term, quite apart from any cost implications.

If current difficulties cannot be resolved – or at least bridged – in the next few months, we are likely to see scaling back of production and increased substitution of home grown produce with imports. In the meantime, delays, lost orders, reduced availability and shorter shelf-life will increase costs, even without having to pay more to attract new staff or compensate for the pressures on those already employed, all eroding profitability and competitiveness, thus undermining the business case for the new investments, in people, skills and machines, which will be needed for a high wage, high productivity future.

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

It is estimated that some 1.3 million foreign born workers have left the UK since the pandemic with little evidence to suggest more than a few are likely to return.

The ending of free movement after Brexit also suggests that it is unlikely that others will seek to come here to replace them. Although there are many other EU citizens who have remained and/or have settled status, there is no reason to believe that those who already have other jobs would be ready or willing to switch to the food sector.

Covid restrictions have also had a significant impact on normal recruitment processes, notably for HGV drivers because of a shortage of test and training slots. In a survey in August, PTF members stated that it can take 1 – 6 months to fill a job vacancy with many emphasizing that a large proportion of their workers were previously from the EU – up to 35% overall. In a peak period, this can be considerably more with members stressing the importance of migrant workers to their business model.

Peak periods for PTF members typically fall between September and November with 55% of members reporting this to be where there is the highest demand for workers, followed by the period December to February where demand continues to be elevated.

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

It is becoming clear that the basis on which many existing business models have been built is unlikely to remain viable in months and years to come, implying the need for a radical rethink of how the industry operates. 

But this kind of transformational change will take both time and money, as well as changes to the way consumers value food and what they are prepared to pay to maintain high animal welfare and environmental standards, especially in comparison to imported products, which may themselves become cheaper as a result of the new global trade deals which the Government is seeking to conclude outside the EU. In the meantime, industry needs to remain profitable in order generate both the funds and the confidence to invest in new ways of working, including increased training, the creation of better skilled and better paid roles, as well as automation and other forms of innovation.

These issues go to the heart of the National Food Strategy review recently concluded by Henry Dimbleby, to which the Government has yet to respond. Simply paying more to attract new workers as a short-term fix is not necessarily going to drive the improvements required but may potentially prejudice the business case for investment to do things differently in future.

Left to themselves, market forces will seek to restore a new equilibrium as quickly as possible, without factoring in the opportunities for genuine strategic change. The result may be that we see a smaller but more highly paid industry, with reduced export potential and ceding significant parts of its domestic market to cheaper imports produced to lower standards.

In the more immediate term, of the 2.3 million EU citizens working in the UK on permanent basis, only one fifth are currently in the food and drink sector. Many of these are now expressing uncertainty around their rights to live and work in the UK, which will continue to impact the labour shortage situation in both the near and longer term.

The coming months will see reduced growth and investment put on hold, increased workloads on existing staff, inefficiencies due to lack of experience and potential closure of businesses.

The industry still suffers from negative perceptions based on misconceptions that most jobs are low skilled and consequently low paid when the reality is that the industry is diverse and broad with many opportunities. The fact that food supply has been taken for granted by so many people for so long may also colour views as to the importance and relevance of the sector, potentially discouraging new UK entrants, who have little or no understanding of what is involved.

There may also be geographical mismatches between rural vacancies and urban unemployment, compounded by living and travel costs for those seeking to relocate.

In respect of HGV drivers, the introduction of new the IR35 regulation has been commonly referenced in survey insight as a key contributing factor to the UK’s current shortages and associated supply chain disruptions, along with unsocial hours, poor working conditions and a lack of respect or esteem for the work done.

What other issues are affecting the food supply chain?

Figures for the first half of 2021 show continuing major impacts on the UK’s trade with the EU, particularly for dairy, meat and fish. In addition to the obvious losses of volume and value, especially compared to 2019 as the last normal base year, many PTF members have experienced significant delays and additional compliance costs, as well as lost business, substantially reducing profit margins.

The impact on import levels is particularly surprising given that the UK Government has not yet introduced any new post-transition checks or controls. The reasons for this are not fully clear, but likely to have a lot to do with wider disruption to logistics and transport routes, including for export traffic from the UK.

Obvious though it may seem, it is effectively the same lorries which undertake journeys in both directions, taking UK exports out and bringing imports from the EU in. It is that system of ‘backloads’ which contributes substantially to the efficiency of the system as a whole and helps to reduce unit costs for haulage, in both directions.

Disruption to UK exports in the early months of the year (as a result of both Covid and EU controls which were introduced in full from day 1 at the beginning of January) meant that many lorries travelled outwards with either partial loads or no loads at all, before being able to complete fully laden inward journeys on their return. Even though operators are now more familiar with the new EU procedures, it is often no longer possible to combine loads (also known as ‘groupage’) meaning that maximum carrying capacity is still not used. And some EU based haulage companies have proved increasingly reluctant to service the UK market, both because of sub-optimal efficiency and the continuing risk of random and unpredictable delays on their journeys back out of the UK.

Even with a full complement of lorries and drivers this would be difficult enough. But in a situation where both are in short supply – on both sides of the Channel – the knock-on effects are compounded for UK businesses, their suppliers and their customers.

We understand that it was largely because of this that the Government announced in September that it would be further delaying controls on imports into the UK to avoid exacerbating an already difficult situation.

Even if trade with the EU does build back to more normal levels in months to come, it will higher cost and lower margin than in the past, potentially leading to both UK and EU businesses seeking more profitable customers closer to home and resulting in further reductions in the longer term.

At the same time, the Government’s plans for new third country trade deals outside the EU, especially with large agricultural producers like Australia, New Zealand, Brazil, India or the USA, risk exposing UK farmers to much higher levels of external competition than they have faced during years behind the protectionist tariff walls needed to support the EU’s Common Agricultural Policy.

UK food and farming therefore face the dual challenges of a higher domestic cost base (both in terms of labour and other operating costs) and greater competition at home. If the industry were to downsize as a result of this, that could prejudice the chances of developing new export markets further afield, especially where competition in those markets were to come from lower cost producers much closer to those new customers.

These effects could be compounded by new environmental, welfare and other policies adding further to the costs of production in the UK, especially if accompanied by the withdrawal of all production or land-based support payments which have up to now accounted for nearly half of average UK farm incomes.

This again reinforces the case for the Government to come forward with a fully joined up National Food Strategy (including external trade) at the earliest opportunity to provide a framework for long term planning and investment decisions.

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?

The further delay announced by the Government pushing back pre-notifications until 1 January 2022 and fuller checks and certification requirements until 1 July 2022 should avoid adding further to existing pressures this side of Christmas. But in the short term it will perpetuate the cost differentials being experienced by UK producers as compared to their EU counterparts, further postponing the point when they are able to compete on what should be a level playing field under the new Trade and Cooperation Agreement (TCA) principles.

Full details of what will be involved from either date have still not been set out in consolidated new guidance – including a long overdue update of the overall Border Operating Model. The Government’s history of last-minute changes may also make some businesses reluctant to undertake further preparations now, while they are in the middle of trying to ‘save’ Christmas in face of all the other pressures they are facing. These uncertainties, including in relation to the as yet unresolved issues relating to the Northern Ireland Protocol, may in turn lead companies to adopt a ‘safety first’ approach of withdrawing from both import and export trade with the EU and using those resources to service domestic markets.

But there is unlikely to be any ‘one size fits all’ response, which will in turn make it more difficult for everyone to take longer term investment decisions.

Even when there is something closer to parity in terms of the cost of trading across the UK-EU border, it is possible that EU producers will still enjoy a competitive advantage from the flexibilities which freedom of movement will continue to allow them within the Single Market.

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?

Although many of problems now being experienced have been a long time in the making, the extraordinary success of the food industry in overcoming challenges in the earlier phases of the pandemic seems to have led Government to assume that the same resilience and innovation would remove the need for specific support measures.

The first wave of mitigating measures was therefore very limited in both scope and time, essentially in order to allow supplies to maintained in the run-up to Christmas through the introduction of visa waiver schemes for 5,500 poultry workers and 5000 HGV drivers for the food sector as a whole. Subsequent changes extended the original end date of 24 December for both schemes and further modified the HGV scheme to allow a small number (300) of tanker drivers to be fast-tracked to deal with the fuel shortage. A very short-term operating subsidy was also agreed to support the main UK supplier of CO2 for a three-week period.

At the time of writing, it is not clear how many people have actually been recruited under the visa schemes or when they will be available to start work. But the longer this takes, the less impact it will have on the supply situation in the run-up to Christmas.

A successor arrangement to the CO2 scheme has also just been announced which relies on a substantially higher market driving sufficient production to allow the system to become self-sustaining in the New Year. But it is not clear what will happen if that does not turn out to be the case.

A further limited measure has now been announced to allow up to 800 pork butchers to enter under the existing seasonal worker scheme, though operational details are still not available.

The general industry consensus appears to be that these are too little, too late, but that failure to recruit sufficient numbers in the time available should not be taken as indicating any lack of need, simply the practical difficulties of putting such arrangements in place so close to Christmas.

More generally, the Government has introduced both a kickstart and an apprenticeship scheme. The kickstart scheme provides funding to employers to create job placements for 16 – 24-year-olds on universal credit who are at risk of long-term unemployment with the aim of boosting confidence and motivation to gain sustained employment. The apprenticeship scheme allows employers to apply for financial incentives to create an apprenticeship role.

Businesses themselves have used a variety of other recruitment and retention methods: social media campaigns, engaging with local schools and colleges, attending local job and careers fairs, sponsorship of local clubs, friends, and family referral schemes, lowering minimum age for workers, promoting business amongst local economies, re writing job descriptions and an increased investment in automation.

But despite some modest success, many businesses are still unable to recruit or retain sufficient levels of staff. There is a growing recognition that substantial wage increases are not sustainable in the long-term unless there is an acceptance of higher food prices from supermarkets and customers.

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

Yes, the UK Government does need to take further steps to support the food supply chain. Specifically:

• The sector asks for Government to introduce a 12-month Covid-19 recovery visa that would enable all involved throughout the supply chain to recruit to critical roles and significantly reduce the labour shortages currently being seen across the UK.

• There needs to be a revision and expansion of the seasonal worker pilot scheme – beyond the very limited changes just made for pork butchers.

In the longer term there is much to be done on the skills front. It is clear from PTF member feedback that having more flexibility in the use of the apprenticeship levy towards general training and retraining would be hugely beneficial to the businesses that we represent.

Skills training needs to be readily available even in hard-to-reach locations in order that there is a match between skills training demand and supply.

Addressing these challenges should allow businesses to reverse the decline in apprenticeship starts.

More investment in automation and technology is needed, a joint industry and government industrial strategy is vital to ensure productivity improvement are realized in food and drink.

Specific actions include:

• A review of the migration advisory committees (MAC) shortage occupation list (SOL)
• The introduction of tax breaks to hauliers, including Vehicle Excise Duty relief for those engaged in the transportation of essential foodstuffs and dairy based ingredients.
• LGV testing for trainee drivers needs to be prioritised to overcome backlogs
• A review of CPC licence requirements
• The combination of HGV tests into one short examination

October 2021