Opportunities and challenges for Scotland's food and drink sector

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Scotland may not often be characterised as a land flowing with milk and honey, but it certainly produces plenty of both, not to mention cheese, chocolate, whisky, beer, gin, biscuits, meat, fish, fruit and veg and more. The Scottish Parliament now even has its own beehives.

Former environment secretary Richard Lochhead told Holyrood earlier this year that the Scottish Government’s food and drink policy is about transforming Scotland into a good-food nation and building on the pride people feel in the food we produce.

“Our seafood is phenomenally successful, our berries, we produce high-end craft beers, of course, Scotch whisky is more successful than ever before, the beef, the lamb, the fine chocolates we’re now producing.

“You know, we’ve got something like 70 fine chocolate producers in Scotland. Not many people are aware of that,” he said.

Despite recent difficult export conditions, food and drink remains one of Scotland’s economic success stories – Lochhead has referred to it as “the toast of the Scottish economy”.

Targets set by the industry of £12.5bn turnover by 2017 were hit six years early when turnover reached £13bn in 2011, prompting a new target of £16.5bn by 2017 to be set, including exports of £7.1bn.

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The latest full year figures published by the Scottish Government show turnover for the food and drink sector hitting a record high of £14.3bn in 2013, up four per cent on 2012, and in 2014 Scottish food and drink exports reached a record 1.1bn.

In the Highlands and islands food and drink is the largest business sector, contributing significantly to the economy.

The SNP’s manifesto for May’s election committed to building on the success of the sector by implementing the Scotland Food and Drink Export Partnership’s plan for targeting 15 key international markets.

The manifesto also included a number of other commitments within food and drink such as a £5m fund to promote island regional food and drink brands and encouraging local authorities and public agencies to buy Scottish produce.

In addition, the party promised to take forward recommendations in the Overton report on Deepening Collaboration on Food and Drink in Scotland, in particular, the co-location of the main public sector and industry food and drink bodies at a national food and drink campus.

But despite the overall success of the food and drink industry, it hasn’t been easy for all parts of the sector. Dairy, in particular, has had a tough time, with milk prices dropping to less than 19p a litre for the majority of Scottish farmers, and some getting as little as 11p or 12p a litre. 

As farmers protested about milk prices last summer, Lochhead urged retailers and other buyers to get behind the industry.

“The public will understand the frustrations being expressed by farmers as it must be galling for them to witness massive promotion of imported cheeses, butters and yoghurts, whilst domestic milk secures, at best, a zero margin,” he said.

To make matters worse, last month, Müller UK announced it was to close its Tullos milk-processing plant in Aberdeenshire as well as its dairy in East Kilbride with the loss of 255 jobs across the two sites and affecting 43 farms in the North East.

Jean McLean, NFU Scotland’s milk committee representative for the North East, said: “Many businesses are not in a good place and this will leave them considering if they have a future in dairying.”

However, the farmers’ union is pushing back in an attempt to boost sales. Last month, NFU Scotland launched a campaign to persuade supermarkets to position milk in their stores as a healthy alternative to fizzy drinks, following a similar successful campaign in Devon.

NFU Scotland has written to Scotland’s four largest supermarkets – Tesco, Asda, Morrisons and Sainsbury’s – urging them to look at the Devon pilot and make milk available in front-of-store snack chillers.

NFU Scotland milk committee chairman Graeme Kilpatrick said: “As dairy farmers, we want to see shoppers given the opportunity to choose fresh nutritious milk over sugary soft drinks in supermarket chillers, selling it alongside sandwiches and snacks.

“That would be a positive development, at little or no inconvenience to supermarkets and, through the union’s ShelfWatch work, we believe there is ample opportunity to increase the availability of convenient milk products in Scottish stores.”

Food and drink exports also had a difficult year in 2015, with a strong pound making Scottish products relatively expensive in world markets. Salmon is Scotland’s biggest food export, making up 40 per cent of total food exports.

In 2014 salmon exports were worth £494m, but they fell by 22 per cent to £386m in 2015, with Scotland’s world market share dropping from 11 per cent to seven per cent over the last five years.

There are now signs of a bounce back, with the Norwegian krone strengthening, making Scottish salmon more competitive again, and Scottish Salmon Producers’ Organisation chief executive Scott Landsburgh has said he expects things to level out in 2016.

Although whisky had a good year on the domestic market in 2015, with a two per cent increase in the number of bottles of whisky sold, and nine new distilleries opening in the past two years, whisky exports dropped 2.4 per cent from £3.95bn in 2014 to £3.86bn in 2015.

There was, however, a sign of a slow-down from the previous year’s seven per cent fall and the total export value is still 56 per cent higher than a decade ago.  

Scotch Whisky Association chief executive David Frost said: “Scotch whisky exports continue to deliver and the fundamentals for future growth are strong.

“Whilst the last couple of years have been more difficult, the longer-term picture has been one of increased demand, new investment, and premiumisation.”

However, the SWA has stated that EU membership is vital to growing whisky exports, pointing out that around 40 per cent of the global whisky exports last year were exported to the European Union.

One potential growth area in both the domestic and export food and drink markets is gin. Gin is experiencing an international revival, with UK exports rising 37 per cent in the past five years and sales worth £1.76bn.

Between 2010 and 2014, 73 new distilleries opened in the UK, 56 of them in the past two years, and the number of gin brands has doubled since 2010.

Seventy per cent of UK gin is produced in Scotland, including brands such as Hendrick’s, Tanqueray, Gordon’s and London Dry Gin, as well as many small batch craft gins.

UK environment secretary Liz Truss has ambitions for it to match the success of whisky.

“I want to harness the ambition of our Scottish gin-trepreneurs, helping them to grow the UK’s reputation for quality gin both here and abroad. I want to see it up there with Scotch whisky in terms of global sales,” she said.

Earlier this year, the UK Wine and Spirit Trade Association launched its Scotland Gin Trail to encourage tourists to visit 17 craft distilleries across Scotland, from Shetland Reel Gin and Isle of Harris Gin to NB Gin in North Berwick, which ties in with another potential growth area: agritourism.

Research by VisitBritain and the Office for National Statistics found that 40 per cent of visitors who come to Scotland buy food or drink to take home with them and VisitScotland’s Scotland Visitor Survey found that 49 per cent of visitors want to try local food while on their holiday, 30 per cent want to visit a pub and 20 per cent a distillery.

VisitScotland Trends for 2016 insight report says: “The importance of food and drink to Scotland as part of the overall tourism product cannot be underestimated.”

Agritourism has the potential to add value to Scotland’s food, drink and farming industries.

In Italy agritourism is worth €1.2bn and the country has 20,000 registered farms. In Scotland it is currently estimated to be worth only around £100m.

Go Rural, an organisation founded three years ago to promote agritourism in Scotland, has suggested it could be worth another £200m to the Scottish economy by 2018.

Go Rural’s founder, Caroline Millar told industry organisation Scotland Food and Drink last year: “Most diversified agricultural businesses are slow to embrace the agritourism tag.

“However, by adopting a globally recognised sector with strong consumer understanding, we can capture foreign tourists who already buy into the offer.

“Food, farming and tourism open up so many opportunities for Scotland’s economy.”