Cabinet Secretary for Rural Affairs and Environment
Richard Lochhead
Scottish Agriculture: The present and future
Remarks at AgriScot, Royal Highland Centre, Edinburgh
16 November 2011
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Good afternoon, everyone.
It's a great pleasure to be here with you, at one of the premiere farm business events on these isles.
It's also great to be sharing a stage today with Nigel Miller, NFUS President.
The theme for this meeting is the present and the future of Scottish agriculture.
I'm very fortunate because, when I go around the country visiting farmers, farm businesses, processors and others connected with the sector, I get to witness the future of Scottish agriculture at first hand.
Just last Thursday, I opened the final stage of a £600,000 investment in Forfar mart, which now provides a twenty-first century facility for the local community.
And this morning, I attended the opening of the new Whole Foods store in Giffnock, Glasgow, - Scotland's first - and the company's first across these islands outside of London.
Not only will this store create 145 jobs in the area, it will increase demand for Scotland's fantastic produce.
They are helping set a new standard by stocking four hundred Scottish products from day one -
A clear commitment to provide customers with high quality, natural products which is a perfect fit with the Scottish food and drink brand.
So decisions like these, by a local company such as Lawrie and Symington, or an international players like Whole Foods, to invest substantially in Scotland confirms that our approach through the flagship National Food and Drink Policy continues to pay dividends.
It also proves that my recent decision to double the food and drink budget for next three years, even in these economically challenging times, was very much the right one.
Within our food policy, I'm proud to say we've really made it a priority to look at the dairy sector. It's a key sector in the Scottish food industry. And there have been plenty of issues to look at.
Dairy Sector
At last year's AgriScot, it was made crystal clear to me that milk producers were aggrieved with prices they received from processors and retailers - prices often below the cost of production.
In this very room I was handed a letter by Gary Mitchell, now the vice chair of the NFUS Milk Committee, which eloquently described the frustration of primary producers across Scotland.
One year on I hope you - and Gary - would agree that the outlook for dairy producers is more positive. Over the past months there have been a number of increases in the milk price paid to farmers, which is obviously very welcome.
As on-farm input costs rise, it is imperative that the marketplace reacts, to ensure producers remain viable. And the processing sector has acted positively in other ways, as well
Recent Investment
We have seen some major investments in the Scottish dairy sector in the last year.
As you will all be aware, Milk Link have announced a £20 million investment, to transform their Lockerbie Creamery into the largest dairy processing site in Scotland - and one of the largest creameries across these islands.
I was very pleased to be invited by Milk Link to visit Lockerbie when the formal announcement was made public. This investment will create a strong platform for the expansion of dairying in South West Scotland and beyond.
As well as securing vital jobs, the creamery expansion will provide a boost for farmers. I can assure you that your Government has been working behind the scenes with Milk Link, to help this project come to fruition. That included providing direct support through Scottish Enterprise.
And there are other positive examples.
Since 2007, the Scottish Government has made awards totalling £7.5 million to the processing sector under the food grants scheme.
First Milk has expanded its presence in Scotland, with its acquisition of the Kingdom Dairy in Fife. I visited the dairy in August and met with their Chairman, Bill Mustoe, and Chief Executive Kate Allum. I was delighted to hear that this acquisition will strengthen their presence in both the UK and international cheese markets by building alliances and partnerships with key players such as Nestle and Marks & Spencers.
And, with our support, First Milk are pressing ahead with the construction of a brand new creamery at Campbeltown. This will move the co-op into areas and new markets that are growing rapidly. And it will provide the business with a diverse manufacturing platform to support more growth in the future.
We have also seen other major processors - Wiseman and Graham's to name but two - continuing to upgrade and enhance their facilities, to improve their competitiveness. In fact, earlier this week Wiseman announced a joint venture with the New Zealand-based A2 Corporation to develop a new milk drink for the health market.
So innovation and new ideas are happening right across our dairy sector.
This is the type of bold and dynamic dairy processing sector our primary producers deserve here in Scotland. Because it takes all parts of the supply chain pulling in unison to achieve real and sustainable growth.
It is investments such as these that will help us reach our target of supporting the food and drink industry to grow to £12.5 billion by 2017.
Export Growth Potential
One key element of that growth will be through expanding our export markets. And of course the dairy sector has great potential there.
In Scotland, we have a very efficient dairy production sector, for both the cheese and the liquid milk markets. We have high animal welfare standards; around ninety per cent of our dairy farmers are farm assured.
That's a telling testament to the professionalism of the industry. We have a premium value added product in our cheese, with a strong transport infrastructure and established and reliable players in the market.
Inward Investment
So we are well placed to take advantage of the expected increase in world demand for dairy products.
That is why I was pleased to fund an NFUS delegation to attend the International Dairy Conference in Parma in October, to sound out investment opportunities on behalf of Scottish dairy producers.
I understand the delegation took full advantage, and made contacts with a range of international players who could be tempted to invest in Scotland.
I have also instructed Scottish Development International to actively engage across the food and drink sector, to attract inward investment here in Scotland and to exploit opportunities in the export market.
There are so many good reasons for companies to invest in Scotland, and we all have a role to play in ensuring the world knows that.
But we also need the right regulatory framework to govern the way the sector operates. I'll give you one small but telling and very frustrating example.
I was in Brussels at the start of this week, and on the plane home, I was served a not very delicious looking cheese and ham sandwich - (they spoil us Government Ministers you know!).
I immediately looked, as I always do, to see what the label said about where the product came from. On the label, the ingredients were listed. There was nutritional information. There was allergy information. That's all good, and important.
But there was not a word about the origin - not even where the sandwich was made, let alone where the cheese (or meat for that matter) came from!
But all not's lost! I found a label! It told you where the packaging came from - Bedfordshire - and the company used to supply the hat trade but now caters for the sandwich market if you are interested! So customers can trace the cardboard but not the sandwich!
Scotland has such a fantastic reputation for food - and quite rightly so - that we must continue pressing this issue of origin. Consumers want to know, now more than ever before, where their food's coming from (that's one reason why Whole Foods have blossomed into a $10bn business by the way).
That trend is in Scotland's interest, so we'll keep pursuing it. That's just one of the things I was thinking about this week!
Another part of the regulatory framework is the EU Dairy package.
EU Dairy package update
As you know, this came out of the recommendations of the EU High Level Group on dairying. It looks like we're now approaching a deal that will cover contracts, producer power and supply chain transparency.
It should give national governments some flexibility, to tailor the package to the needs of their own domestic industry. Gary Mitchell's letter last year made it clear to me that current dairy contracts are no longer working properly; that the bargaining power within the supply chain is out of kilter, and that primary producers are losing out.
The EU dairy package is designed to give national authorities the tools to tackle this kind of weakness. So we could probably take action in Scotland. But I don't want to impose more regulation on the sector unless it's absolutely necessary. I'm sure you agree.
We all want the players in the supply chain to be acting like partners, not adversaries. Thankfully it appears that processors and manufacturers have been listening. I know that DairyUK have developed a draft Voluntary Code of Practice for the industry, which they are discussing with union officials.
Early indications are positive, with processors recognising the need to act on producers' concerns. But actions speak louder than words, and I look to the processing sector to act on these concerns. Our primary producers shouldn't be condemned to sit passively as purely price takers.
So there's work still to be done. But we're moving in the right direction in the dairy sector. One way government has helped that is through support from the SRDP.
In Ayrshire, for instance, we have provided £7.5 million in grants to dairy farming businesses to improve their slurry storage capacity.
And in Dumfries and Galloway, we have supported the milk production sector by approving grants worth £24 million to 120 businesses for the modernisation and upgrading of facilities.
SRDP RPAC rounds in 2012
But we've now reached the stage where we need to think about our approach in the last couple of years of the programme.
We need to decide how to manage the money that remains in the budget. Of course, if the budget is getting used to support rural development, that's a good thing. The whole point of the SRDP is to get the money out there, into rural Scotland.
So I'd be more worried if the money wasn't getting allocated. We've already said that we can have a full agri-environment round under Rural Priorities next year.
Today, I'm announcing the arrangements for the other parts of Rural Priorities, the so-called Axis 1 and Axis 3.
Earlier on the programme, we deliberately brought millions of pounds of Axis 1 spending forward, as a response to the credit crunch.
That was the right decision - but it means that there's that much less Axis 1 money left in the pot. So for the Axis 1 round next year we're making two changes.
To focus on our top priorities, we are concentrating the round on food processing, new entrants, renewable energy and climate change, including energy efficiency.
And we're introducing a smaller cap on awards, to make sure as many businesses as possible can benefit from the programme.
But we're not in the business of moving the goalposts for people who've already applied. So for projects which have already been submitted, we'll process them on the basis of the rules at the time when they applied. It's important that farmers know all this, so they have time to prepare their applications accordingly.
And at this time of year, it's also important we get on with processing the Single Farm Payment.
Single Farm Payment Scheme
We have a superb track record on this in Scotland.
Once again this year, we'll be starting payments on time, from the first of December, the earliest date Europe will let us make payments.
Our aim is to continue our successful track record of paying at least seventy per cent of eligible claims in early December.
CAP Reform
On Sunday and Monday, I was in Brussels, meeting with Commissioner Ciolos and then at the Council of Ministers.
With the Commissioner, we had the chance to press some key issues for Scotland - like new entrants, activity, greening, excessive bureaucracy, a fair share-out of the budget, and so on.
That meeting convinced me, yet again, how crucial it is that we get the foundations right.
By that, what I mean is the hard work that officials and stakeholders do with Commission officials, explaining to them in detail the nature of our farm sector.
Because if they understand that, they'll understand what we need the future CAP to look like.
We've made definite progress. For instance, the activity definition is a clear example of where the Commission has understood our explanations, and is trying to solve the issue with us.
But there's a lot more of this to be done.
Last month, one minister in the Council said the proposals on direct payments had so many layers they were like a lasagne. At least a lasagne has some structure to it. My worry is that we'll end up with spaghetti, so mixed up that it's impossible to untangle - at it'll be years before we enjoy the benefits!
So much for simplification!
So it was good to hear some concrete themes at the Council discussion on Monday. The discussions were on direct payments in general, and greening in particular. We all understand the background to greening.
Direct payments account for the lion's share of the CAP budget, and the public who pay for them want to see more benefits delivered.
But in my view we need to look at that across the whole policy. We should be talking about greening the CAP, not just greening the direct payments - as if there's no link between that and the agri-environment schemes under Pillar 2.
It'll be about getting the balance right. Yes we need to deliver environmental benefit from this public money. But is it right to take land out of production when the global population is growing? So there's work to do there.
Another theme will be on capping. United Kingdom and Scottish governments have traditionally opposed capping, using arguments which still apply today. If farmers are given an incentive to split their business up to avoid capping, it doesn't help anyone except the lawyers and accountants. However, the Commission has proposed capping for a reason.
The general public does not like the idea of very big payments to individual farm businesses. And in fact many of the farmers I speak to, as I go around Scotland, acknowledge that. So here too we'll need to look at the whole picture.
How many businesses will really be affected, bearing in mind that the greening payment is exempt from capping? And crucially, what would happen to any money raised through capping? I'm not going to surrender money back to Brussels.
But under the Commission's proposal, maybe the money could be re-used in positive ways within Scotland. All these things will have to be taken into account when deciding where to spend our negotiating capital. Finally there's an important theme emerging, about the transition from old systems to new ones.
Brian Pack's report made it clear that those who are left out of the current system - new entrants and excluded sectors - have waited too long already.
They must be in the new system from day one. One way to achieve that is by changing from the current system to the new one in a single step. But some stakeholders have said the downside of that approach is the speed of the change.
And if the new system does a good enough job at dealing with new entrants and excluded sectors, then arguably the case for a big bang change is reduced. So, once again, a lot to think about.
I know these are major developments we're talking about. But we couldn't be working more closely with our stakeholders, and we'll work out the way forward together.
Engagement
I've already announced a five-point engagement strategy around this, designed to get your views on the future of CAP.
One strand of this will be a series of road shows around Scotland led by senior Government officials, to further explain the CAP reform proposals. They will cover the length and breadth of Scotland, starting on the sixth of December in Perth and the seventh in Inverurie.
The Scottish Government website has a new CAP Reform blog, Twitter feed and Frequently Asked Questions page. And there will be two public consultations. The first will cover mainly Pillar 1: the direct payments and the market support regime, plus things like inspections and monitoring. The second will cover the rural development regulations.
So there's a lot going on. As always, we want your input. As always, we are committed to working closely with you, the people most affected.
We've proved what we can achieve when we do that. We've done it on the CAP in general. And we're doing it for the dairy sector in particular, which is such a focus of AgriScot today.
Long may that collaboration continue, and I wish you all a successful day.