Opportunities and challenges facing agriculture

I am delighted to open this debate on the “Opportunities and challenges facing Agriculture”.

Agriculture matters hugely to Scotland:

• 98% of Scotland’s land is agricultural.
• it underpins our now £14 billion Food and Drink industry.
• it contributes to our environment: clean air and water, carbon capture, and rich and varied wildlife.
• and it generates jobs in the wider economy and supports communities and industries throughout the country.

Last year agriculture contributed over £3 billion to the Scottish economy, with around 40% coming from livestock production.

Our farmers are used to challenging weather and the vagaries of the market.

But this year they are facing challenges that are exceptional.

Right now the industry seems to be facing a perfect storm with local, UK , European and global factors all coming together.

Bad weather has had a huge impact on farming in some parts of Scotland this year, with heavy and prolonged rain, particularly in the north and north west of Scotland.

The first 6 months of this year have been the wettest in a century in Orkney.

The effect of continuous rainfall can be profound.

Ground becomes saturated and grass doesn’t grow.

Farmers have to buy in extra feed and straw for their stock.

Harvests have been delayed and we wait to see what yields are like and whether drying costs for wet grain will be higher.

We are working closely with the industry to identify what can be done to try to improve the situation for Scottish producers who have been most affected by the rain.

The euro:sterling exchange rate is another factor given it affects the value of farm payments.

In recent years, the exchange rate has seen payments at a higher level which has helped to buffer the impact of additional costs.

However, last year, a combination of the exchange rate and a smaller CAP budget meant that support fell by around 12% (or £70 million).

Then there is the wide international economic backdrop.

We hear about economic challenges in China that may slow down levels of growth - China is a big barometer for world trade conditions and a potentially huge market for Scotland’s so its economic prospects are very relevant.

And the Russian ban on imports from Europe is also having a direct and indirect effect on our sectors, including dairy given that produce that normally leaves the EU is remaining in our markets.

Of course, the challenges facing the dairy sector has occupied the headlines in recent weeks and some of our producers are receiving some of the lowest prices around.

Improvements in efficiency mean that the sector has managed to increase total milk production by 97 million litres since 2004.

Unfortunately, this has coincided with a global oversupply of milk and led to a plummeting price for many dairy farmers – a situation compounded by our over dependency on liquid milk rather than added value products.

There are some small signs that international dairy prices may be improving and Europe has made some extra funding available for milk and meat producers.

Times are also tough for many other livestock producers.

Beef prices this year are sluggish and rising costs in the beef sector over the last ten years have led to a real terms fall in the average net farm income of more than £6,000.

But some early analysis by one group of economists suggests that the decisions the Scottish Government took to have three payments regions and to use the maximum amount of coupled support will help beef cow numbers.

Turning to the sheep sector, lamb prices at the start of the season were disappointingly low, partly because of slow growth because of poor grass but there are now some signs of improvement.

And for arable, we have to wait and see what this year’s harvest will yield and how far it contrasts with last year’s, which saw the highest area of arable land since 1994; with Scottish farmers producing more than 2 million tonnes of barley and 1 million tonnes of wheat.

With the poor market situation many farmers are facing cash flow problems.

So, direct Payments are particularly important this year.

However, this year we are having to implement a completely new CAP – with the biggest reforms of a generation.

By the end of 2016 we will have launched or re-launched between 15 – 20 new schemes each needing its own programming.

And the time span between Europe agreeing the new CAP and when we need to make payments is incredibly short.

We have an excellent track record of making payments and we are pulling out all the stops to start making payments by the end of December:

We have registered over 20,000 customers into the new payments system and we have allocated around 400,000 fields into Basic Payment regions.

Our challenge under the new European policy is not being able to calculate rates of payments until we know exactly how many eligible hectares we have in each region.

Claims are now being checked and eligible areas confirmed so that the values of each farmer’s entitlements can be calculated – for 2015 and subsequent years.

However, we have the option of delivering part payments to get cash out the door to businesses and we will seriously consider using this option.

Europe has given some recognition to the industry’s cash flow issues and has brought forward a €500m package.

This includes €420m for direct aid – for milk and meat producers – and €80m for private storage aid and some promotional activities.

The UK’s share is €36.1m and clearly Scotland’s share will be very modest but now we do have to make sure that we get a fair share as the UK’s track record in being fair is not a good.

UK Ministers must acknowledge the serious challenges that I’ve set out that face Scottish farmers.

We need the UK to urgently right the wrongs done to Scotland when the external convergence uplift was allocated across the UK – and which resulted in Scotland’s farmers losing out on £145million.

This compounds the £1 million per annum that we are already losing out through the lost red meat levies which are needed more than ever.

Once we get our share of the EU aid package, Europe requires us to make the payments extremely quickly – in December!

So there is going to be a focus on pragmatism to make these payments on time.

So, in a range of sectors facing particular challenges we have stepped up to the plate and responded.

As we have done for dairy.

I launched our action plan in March which was designed to help ensure a viable future for the sector in the context of extreme price volatility.

Under the plan, we have:
• unveiled a new dairy brand
• supported dairy farmers through the dairy hub
• given £400k capital support to First Milk in Campbeltown
• taken steps to encourage serious investment in processing; and
• taken every opportunity to beat the drum with retailers and others.

And there’s no reason whatsoever why 70% of the dairy products we consume should come from outside Scotland.

We have been similarly active in the poultry sector.

And have also just established a sheep industry group to address once and for all key issues such as marketing and processing capacity.

And if anyone doubts how effective these measures can be, then they should look at our vigorous strategic intervention on pig meat in recent years has helped turned that sector round.

However, many of the causes are international. So must be many of the solutions.

That’s why I’ve been arguing very strongly at successive EU Councils for effective EU action.

That means short term measures that not only look like helping, but actually do.

It also means medium term action such as mandatory country of origin labelling and decisive action on supply chains.

But there’s so much more we can do at home, in Scotland and the UK.

All parts of the supply chain must play their part – in particular our retailers food service sectors.

Together they account for around £200bn of sales in the UK.

Let me make this real with an example.

Many parts of the retail and food service sector are booming, none more so than coffee shops.

Exponential growth is forecast to continue for years to come.

We spend £80,000 a day on coffee.

Yet, consumers will be shocked to learn that when they buy their coffee at Costa on Princes Street or at Starbucks in Dumfries, the milk in their café lattes will have been sourced from outside Scotland.

This is a missed opportunity at a time when many Scottish dairy farmers are facing enormous challenges and need support in their hour of need.

Consumers will have been equally shocked to see New Zealand product on Tesco shelves advertised as Scottish lamb in season.

But all is not doom and gloom. We are making real progress.

This morning I visited an Aroma café at the Western Infirmary, one of 25 branches in our hospitals owned by the NHS, to acknowledge their policy of sourcing 100% Scottish milk.

Moreover, our hard work with catering companies and retail sectors is beginning to pay dividends.

I was delighted to see Brakes announce last week their commitment to doubling their sourcing of Scottish products.

And to hear similarly positive noises from 3663.

And well done to The Crerar hotel chain that has just committed to 100% Scottish meat.

I could go on.

There is much more to do, but the tide is turning.

The backdrop we mustn’t lose sight of is the booming food and drink sector.

It generated a record turnover of £14.3 billion in 2013, up a staggering 28%.

It is growing at twice the rate of its counterparts elsewhere in the UK

And this growth is expected to continue going forward.

The sector is booming and well on track to meet the industry’s own target of £16.5 billion by 2017.

A recent Bank of Scotland report predicted that the sector will create an additional 14,000 new jobs as producers forecast an average turnover growth of 19% by 2020.

There is profit out there for the right product.

Next month I will be attending our second Showcasing Scotland event at Gleneagles where buyers from around the world will have the chance to buy our fantastic produce.

The last event generated an extra £20m worth of business for Scottish suppliers.

If I tell you that there is a long waiting list for buyers wanting to come, you will understand just how many of our products are in demand at home and abroad.

But these astonishing successes look very distant for many farmers.

The very producers without whom there would be no record breaking figures. who produce the raw material, take the risks, tend our landscapes, build our reputation.

We need to see more of the profit shared across the supply chain.

That is why I have been setting the pace with my UK counterparts in creating a Fairer Framework for farming.

At the summit I and the NFUS called for on 17 August, I stressed that we had an unprecedented opportunity to stand shoulder to shoulder with our farmers.

We can and must speak with one voice to put a clear ask of all players in the supply chain, especially UK retailers and the food service.

These include much clearer labelling, an end to co-mingling, commitments to develop local sourcing and real attempts to develop long term relations with local suppliers.

I repeated this call when I wrote to Liz Truss and at a further summit in Brussels.

I’m still waiting for her to step up to the plate and to join with devolved ministers and farming leaders in a joint approach to the retail sector so we can combine our influence, send a powerful message, in what would be an unprecedented show of solidarity with our farmers.

I will continue to do so pressing for tangible progress throughout these Islands on these vital real issues.

None of us need to sit idly by while an unfair supply chain causes untold damage to our primary producers.

We in the public sector will play our part.

That’s why we have given such a prominent role to food and drink in the context of the Procurement Reform Act (Scotland). Today’s visit to the Western Infirmary showed just how we in the public sector can, and should, set an example.

So far, the indications are that some of the main planks of our new CAP package are doing the things we wanted them to. They are targeting active production and tackling slipper farming. We are seeing a greener CAP.

At the Royal Highland Show I set out a vision where Scotland has a green, innovative and profitable agriculture industry, which is outward looking and resilient.

An agricultural industry which is supporting our economic growth, environment and communities and contributing to global food security.

The lively panel discussion at Turriff launched the start of the National Discussion part.

A toolkit has been published to help people set up their own meetings.

It is really important that people start to think about these things and officials will be present at a number of events to hear what you have to say.

I want government, industry and individuals all work together on this.

With each of us playing a critical part in the solutions that will deliver our vision that helps to support our environment, communities and wider economy.