Brexit standards for Scotland's food and drink
Food and drink - credit Holyrood magazine
International trade and exports from Scotland are more in the spotlight than ever before, thanks to uncertainties and opportunities surrounding the UK’s exit from the European Union.
With new trade arrangements set to be wrangled among world leaders, recent figures from the Scottish Government’s Export Statistics Scotland (ESS) revealed Scotland’s international exports rose by a billion pounds last year, from £27.7bn in 2014 to £28.7bn in 2015. Around 43 per cent of that is thought to go to the EU.
And the largest industry for exports is the manufacture of food and beverages, worth £4.8bn in 2015, 16.8 per cent of all international exports.
Work with us- food and drink is a fundamental part of the economy
Opportunities and challenges for Scotland's food and drink sector
Whisky accounted for a whopping 80 per cent of this figure in 2015, at £3.8bn.
The Scotch Whisky Association (SWA) seized on the figures, producing its own report to coincide with Burns night, calling for a cut in excise duty from the Chancellor.
The report claimed that without whisky the UK’s trade deficit in goods of £115bn would be 3 per cent larger.
“We are calling on the UK Government to cut excise by 2 per cent in next month’s Budget, supporting a great Scottish and British industry at a time of uncertainty, giving us a stronger domestic platform from which to invest and grow to make a success of Brexit,” said SWA acting chief executive Julie Hesketh-Laird.
But while the good ship whisky sails on as Scotland’s biggest and most famous export, much focus has been placed on growing the rest of the country’s food and drink fleet.
Last year Scotland Food and Drink signed a collaboration charter with the whisky industry to capitalise on what chief executive James Withers calls “a phenomenal asset”. The agreement means the whisky giants will share international contacts and experience in foreign markets to benefit other Scottish products.
“Someone said to me whisky has built the runway into many countries, we now need to work on landing our products there. It’s definitely a huge opportunity to work much more closely with the whisky industry,” Withers tells Holyrood.
That other famous Burns night ingredient, the haggis, is also enjoying growth, according to the manufacturer of the world’s best-selling haggis, Simon Howie Foods.
The firm reported this year’s Burns night was the most successful in its history.
Howie said: “Our delivered-in volumes of haggis have increased by an incredible 40 per cent on last year and we have sold 32 per cent more cases of haggis into the rest of the UK than the previous year. Indeed, now six out of every 10 haggis we sell are sold outwith Scotland to the rest of the UK.”
And Howie is not alone. The ESS figures also showed exports from Scotland to the rest of the UK dwarf the figure for international exports, at £49.8bn.
So in the current constitutional climate, as the Scottish Government lobbies for access to the European market for Scottish goods, it also faces accusations of plotting to erect barriers for those goods to the rest of the UK in the form of Scottish independence.
Scottish Secretary David Mundell said the figures “show the UK is the vital union for Scotland, and highlight the importance of maintaining the UK market and preventing any new barriers to doing business across the UK as we leave the EU.”
Keith Brown, the Scottish Government’s Economy Secretary, dismissed the claim.
“It is clear that since the vote to leave the European Union, we must continue to be seen to be a country that is outward-facing and open for business,” he said.
“The EU market is eight times the size of the UK market, which highlights the importance of remaining in the single market.
“I want to be clear that Scotland should not face a choice between exporting to the EU or UK. We can do both.
“We are working on an ambitious programme of internationalisation, including measures to broaden Scotland’s export base and to grow exports beyond our traditional markets.”
Trade envoys will be linked to new hubs in Dublin, Brussels, London and Berlin.
Food and drink is expected to be a major focus of this work, and a new trade board established by Brown includes Withers.
But Withers tells Holyrood the food sector is “hugely vulnerable” to the UK Government’s ‘hard Brexit’ strategy.
“I say food rather than food and drink because whisky is in a different, more robust position than the food industry,” he explains.
“The food industry is in a difficult position for two reasons, really. Eighty per cent of our exports outwith the UK go to the European Union, so we’re massively reliant on that market. Also, around 30 per cent of our labour force comes from the EU as well, so we’re really vulnerable.”
Many within the sector also see Brexit as an opportunity, though. George Lyon, the chairman of the National Farmers Union Scotland, told Farmers Weekly Brexit offered farmers an opportunity to displace imports.
The former MEP said: “There’s tremendous opportunity if we get the regulatory framework right to give us competitive advantage.”
For Withers, however, there are concerns about whether the sector is ready for Brexit.
“I don’t doubt there are real opportunities in potential new trade deals but any examination of the history of trade deals shows you they take a long time and are extremely complex. They are a mix of opportunity and threat in terms of agriculture and food,” he says.
“My concern about readiness is really we’re in the process of trying to develop Scotland’s international reputation and footprint of food products, but it is a work in progress and the danger of a hard Brexit, particularly if we default to WTO tariffs, would be a huge shock to the system.”
However, one area he describes as an “exciting opportunity” is whatever replaces the CAP system of funding farming, currently distributed through the EU.
“We could write an agri-food policy for Scotland which absolutely reflects Scotland’s needs rather than trying to tweak a system set by 28 different countries,” he says, adding the new system would need the same equivalent levels of funding. But while Scotland may be able to form new farming policy, depending on what powers repatriated from the EU are passed to the Scottish Parliament, trade negotiations will remain reserved to Westminster.
What then is the role of this new Scottish trade board? Withers says it can play a “critically important” role in making sure Scotland’s priorities are heard in trade negotiations.
“Farming, food and drink is a disproportionately large part of the Scottish economy. It’s our biggest employer in Scotland, it has a turnover of £14 billion which surpasses oil and gas sales last year of £13 billion, so it is a central industry in Scotland.
“We need to make sure food and drink is not seen as some bargaining chip in future trade negotiations but an absolute priority in unlocking new opportunities, whether with the US or with Asia, wherever it might be.”
Another concern voiced about Brexit is the potential impact it might have on food standards. Angus Robertson, the SNP’s Westminster leader, put the concern to Theresa May during Prime Minister’s Questions.
“The United States,” he said, “wants to export genetically modified organisms, beef raised using growth hormones and chicken meat washed with chlorinated water.”
May replied: “We will be looking for a UK-US trade deal that improves trade between our two countries, that will bring prosperity and growth to this country and that will ensure that we can bring jobs to this country as well. I can assure the right honourable gentleman that, in doing that, we will put UK interests and UK values first.”
Withers says the concern is valid.
“I’ve heard already American beef farmers looking forward to the point where they can bring in beef into the UK from systems that would be illegal in the UK,” he says.
“To me, Scotland’s brand for food and drink is strong, it’s growing and part of that is because we can say we operate to world-leading standards.
“But we need to ensure farmers, for example, who are making those commitments to operate to those standards, do not have the rug pulled out from underneath them by an opening up of our market to producers who can produce food more cheaply for a reason.”
But while trade negotiations will be done by the UK Government, food standards have been recently devolved.
Food Standards Scotland (FSS) was launched in April 2015 to carry out the responsibilities previously held by the UK-wide Food Standards Agency. The new body remained independent of government – it reports to parliament not ministers – and said it would establish close collaborative relationships with the industry in Scotland.
Chief executive Geoff Ogle recognises food safety is essential to exports.
“The quality of your food safety systems is an essential selling point of an export market,” he tells Holyrood.
“For example, if you want to export to China, there is no point having a strategy where food safety is not prominent in your discussion, because after defence of the nation and economy, food safety is around third in terms of importance for them.”
Post-Brexit trade discussions, then, will inevitably feature food safety, which Ogle says forms part of what every government would call a prime responsibility – the safety of its citizens. It becomes “a red line” in any trade negotiations, he says.
“The European Union has quite deliberately said it wants a very high level of protections in food safety.
“The question for us in Scotland going forward, and actually for the wider UK, is what are the levels of food safety we want?
“The other fact, of course, in this is that if you are in an export scenario, you are required to meet the conditions that that third country expects you to meet, so if you’re exporting to the EU, you’ll have to meet EU standards.”
Withers agrees. “There are some who think coming out of the EU will be the catalyst for the unwinding of a huge amount of regulation. I think that’s a pipedream,” he says.
“I don’t think that’s a path we want to go down. The 96 per cent of our Scotch beef exports that go to the European Union, if we want that to continue, we absolutely have to abide to EU minimum standards. Frankly, our aspirations should be to surpass them.”
But tougher restrictions would be unlikely to be welcomed by industry. How does that fit in with FSS’s new collaborative ambitions? For Ogle, it’s about finding common ground.
“We’ve got an interest in protecting consumers. The food and drink sector has also got an interest in protecting consumers and ensuring their products are safe. If they don’t, they’d go out of business; their reputation would be damaged. So there is a very common basis on which you can move issues forward. The trick is identifying where the common ground is pretty quickly.”
There will always be businesses who see a regulator as red tape and obstructive, illustrated by the recent high profile example of Errington Cheese, an artisan ‘raw’ cheese producer in South Lanarkshire, who was hit with a sales ban in September after being linked to an E.coli outbreak during which a child died.
FSS found strains of the bacteria in the company’s Dunsyre Blue and Lanark Blue, but owner Humphrey Errington insisted his products were safe and successfully challenged South Lanarkshire Council in court.
Ronald Clancy QC, for Errington Cheese, told the Court of Session in Edinburgh there was no suggestion that the two products were responsible for the outbreak.
Although Ogle won’t comment on the court case, he tells Holyrood the epidemiological evidence is strong, and that subsequent testing has found “further issues”.
“There doesn’t have to be a causal link,” he says, explaining that both STEC – Shiga toxin-producing Escherichia coli – and other E.coli strains had been found.
“It doesn’t matter that testing did not identify a direct link to the illness. STEC reside in the intestines - guts - of ruminant animals, including cattle and sheep, and present a risk to food safety if the proper controls are not applied to prevent the food from becoming contaminated with gut contents or faeces throughout the production process.
“The detection of STEC verified that the controls at the business were not effective in preventing contamination and therefore that the cheese presented a risk to public health.
“As a public body, a scientific evidence-based body, we are required to deal with the evidence in front of us.”
The starting point for FSS relating to any business, according to Ogle, is the assumption every business wants to produce safe food.
“People start food businesses because they want to make a living out of it. They’re not going to do that if they produce poor quality food or unsafe food,” he says.
He dismisses the notion the organisation could be seen as a cog in ‘nanny statism’ which makes value judgements on what people should eat.
“We have neither the time, energy nor inclination to go round hunting out artisan businesses. That is not what we are here to do. We are here to protect consumers,” he says.
It goes back to the notion of common ground. “Unless you’re a criminal, there is nothing to be gained by saying, ‘what I’m trying to sell you is a dodgy, not-quite-safe, inferior product.’ No business is going to do that. Our premise is responsible business flourishing, and a regulatory environment which enables that to happen.”
Businesses get frustrated when non-compliant businesses are not tackled, he suggests, because it undermines competition and reputation.
But FSS was established with a widened brief which also included a public health aspect. While the quality of Scottish produce is extolled to trading partners, the quality of the Scottish diet is plain to see in health outcomes like the nation’s obesity levels.
While he says marrying the two is a challenge, Ogle says the FSS is well placed to take a long-term view as a non-ministerial body.
“Increasingly, it seems to me the alignment between the health impacts and the economic impacts are becoming more and more intertwined.
“So when we look at obesity levels of 40 per cent by 2030, that is not going to be a productive workforce enabling you to have a good functioning economy, it is going to cost you a fortune in health costs and you will have consequences in terms of what it means for your economic production. So the thing about diet, the risk is if we keep seeing it as a health issue rather than a health and economic one then we’re going to plough the same furrow.”
The burden of the extra cost of managing an unhealthy and unequal population will then come back to hit the food industry, he points out, because there will be an increased tax burden on either business or the consumer, or cuts out with the health budget.
And with 30 per cent of the workforce in food and drink currently from Eastern Europe, health is not the only challenge ahead for the industry.
Brexit and the subsequent messages surrounding the future of UK immigration is causing uncertainty for individual workers and for businesses.
Skills Development Scotland has produced a skills investment plan which highlights the need for investment to tackle the shortages faced by the sector.
Neville Prentice, Senior Director of Service Development and Delivery at SDS, said: “There is a growing demand within Scotland’s food and drink sector for the higher-level skills that will allow employers to boost productivity, improve efficiency and make use of new technologies.
“Workforce development is central to fulfilling this demand, and also to help employers deal with the uncertainties arising from factors such as Brexit.”
James Withers tells Holyrood it may not be enough to cover the gaps. “Immigration is not an issue that is a cause for concern in Scotland, as I see it,” he says.
“Immigration is absolutely a necessity if we want to grow. So we’re going to have to ensure that we’re sending messages of welcome and value to the existing workforce, and we will need a smart, sensible new immigration policy for Scotland and the UK which recognises we’ve got very clear gaps.”
Whatever positive messages are sent in Scotland, however, the UK Government may well have other ideas. As part of an increasingly tough-talking agenda on migrants, Home Secretary Amber Rudd told the last Conservative conference: “We have to look at all sources of immigration if we mean business.”
Withers challenges the assumption immigration is “inherently” a problem.
“I think the tone of the UK Government in the immediate months post-Brexit vote was abysmal,” he says, pointing out the repatriation of immigration controls has become the “red line” in Brexit negotiations.
“Yes, the rhetoric has been damaging, I think. And in the end, this is not an uncommon problem, and the solution is not rocket science. Where you have gaps in your labour force, create an immigration policy that recognises you have to fill those gaps, otherwise, you have an economy that is sliding backwards at a pace.”
David Thomson, CEO of industry body the Food and Drink Federation (FDF) Scotland, tells Holyrood the response to Brexit will be “critical” for manufacturers too.
“We need an immigration policy that supports those already working in the food industry and ensures a ready pool of candidates at all skill levels for the future,” he says.
“We must concentrate on developing current and new export markets to diversify where we sell our products – this means putting in place an export policy with effective administration that will support entry into new markets.”
Support from government will be key, he suggests.
“The ongoing development of a new Scottish food and drink strategy and Fergus Ewing’s appointment of FDF Scotland’s chair Archie Gibson as a food and drink champion for the agriculture strategy are very positive and will be important elements of support.”
Ogle says how other countries see Scotland’s food, its “flourishing” businesses and with a healthy, more productive workforce can be a “virtuous circle”. Understandably, he sees food safety as essential in securing and keeping big markets abroad by impressing foreign visitors who audit what Scotland is doing.
Withers is also optimistic, suggesting food and drink could become Scotland’s biggest industry in the next few years.
“We’re trying to write a plan for the food and drink industry for 2030,” he says. “We’ve got top quality products in a world that increasingly wants that. So we will be fine.
“We wrote our last strategy during a global financial crisis and it felt like the walls were falling in around our ears, and do you know what? We got through it and we built. And by 2030, Brexit may end up being the least of things we had to tackle.”