EU FRUIT AND VEGETABLES REGIME: PRODUCER ORGANISATIONS UNITED KINGDOM S NATIONAL STRATEGY FOR SUSTAINABLE OPERATIONAL PROGRAMMES

Transcription

1 EU FRUIT AND VEGETABLES REGIME: PRODUCER ORGANISATIONS UNITED KINGDOM S NATIONAL STRATEGY FOR SUSTAINABLE OPERATIONAL PROGRAMMES Published December 2008 Page 1 of 134

2 Index Section No. Sub Section Subject Section 1 Section 2 Section 2.1 Section Section Section Section Section Section Section Introduction to (and duration of) the National Strategy Analysis of the situation in terms of strengthens and weaknesses and potential for development, the strategy chosen to meet them and the justification of the priorities chosen Analysis of the situation Introduction/Overview Situation report of the field vegetable sector Situation report of the vining peas sector Situation report of the top fruit sector Situation report of the soft fruit sector Situation in the protected edibles (salads) sector Situation report of the mushrooms sector. Section 2.2 The strategy chosen to meet the weaknesses Section 3 Section 2.3 Section 3.1 Section 3.2 Section Section Impact from previous operational programmes Objectives of operational programmes and instruments, performance indicators Requirements concerning all or several actions Specific action required for types of actions Actions aimed at planning production Actions aimed at improving or maintaining product quality (non exhaustive) Page 2 of 134

3 Section 4 Section 5 Section 6 Annex 1 Annex 2 Section Section Section Section Section Section Section 5.1 Section 5.2 Actions aimed at improving marketing Research and experimental production Training types of action (other than in relation to crisis prevention) and actions aimed at promoting access to advisory services Crisis prevention and management measures Environmental types of action Other types of actions Designation of competent authorities and bodies responsible The monitoring and evaluation systems Assessment of the operational programmes and reporting obligations for producer organisations. Monitoring and evaluation of the national strategy Miscellaneous provisions Table of Actions covering Sections to National Framework for Environmental Actions Page 3 of 134

4 SECTION 1. INTRODUCTION TO (AND DURATION OF) THE NATIONAL STRATEGY A.1. The EU Fruit and Vegetables Regime aims to increase market orientation among EU growers and to increase growers competitiveness in the supply chain, particularly in response to the continuing and increasing rationalisation of the retail sector. In order to achieve this, the Regime provides financial support for Producer Organisations (POs), which benefit from EU aid in respect of multi-year operational programmes. Producer Organisations are constituted by groups of growers who come together with the aim of planning production and promoting concentration of supply and improved marketing, and to promote the use of sound cultivation and waste techniques. Their operational programmes are essentially plans which detail the actions and measures that they plan to undertake in order to meet those aims. A.2. Following the major reform of the Regime which took place in 2007, the role of POs remains a central pillar of the regime. To ensure that aid for POs is used most effectively in ways which support the sustainable long term development of the fruit and vegetables industry, a requirement was set out in the Regulations for Member States to establish a National Strategy for Sustainable Operational Programmes. These Strategies would help guide the POs as to what types of actions/measures they should be including in their programmes but also includes elements for the monitoring and evaluation of operational programmes. A.3. The duration of the UK s National Strategy will be six years, running until The broader policy background A.4. The publication of the National Strategy for sustainable operational programmes in the fruit and vegetable sector takes place at a time when much attention is being given to the current and future context in which the farming, food and land management sectors will have to operate. Government administrations throughout the UK are working on renewing their strategic thinking for the sector, and for farming in general. UK-wide policy issues A.5. The topic of food security has come to considerable prominence in the wake of the steep increases/volatility in world prices of many food commodities that have occurred since In July 2008 a discussion paper entitled Ensuring the UK s Food Security in a Changing World was published. Among the principal food sectors, fruit and vegetables is that for which the UK has the lowest percentage level of self-sufficiency, and so the measures aimed at boosting the output and sustainability of these industries that are set out in the National Strategy will be of particular Page 4 of 134

5 significance in the context of safeguarding and enhancing the role of domestic production in meeting overall demand. A.6. The month of July 2008 also saw the publication of a report commissioned by the Prime Minister on the 21 st Century challenges for food in the UK, drawing together evidence about long term trends in food production and consumption, and the impact of food safety and nutrition on the health of the UK population. This report highlighted the gains, in terms of greenhouse gas emissions, that could be obtainable through changes in practice by farmers and growers and through reduction in food wastage at home. It also laid stress on the achievable gains in terms of public health that would flow from diets that met nutritional guidelines to a fuller extent than was currently the case, and gave special mention to the need for a new push on observance of the five-a-day requirement. This National Strategy will have a substantial role to play in bringing about the production and marketing changes in the fruit and vegetable industries that can help bring about the achievement of these objectives. A.7. In April 2008 the Competition Commission published the report of its Inquiry into UK groceries retailing, to which the Government published its response in late July. The report focused on allegations that had been made about anti-competitive practices within the grocery industry and the adverse consequences for consumers of such practices, and came up with a number of recommendations (with which the Government was, for the most part, in agreement) to address the issues that it had identified. One of the aims of the National Strategy is to strengthen the competitive position, the bargaining power of fruit and vegetable growers vis-à-vis the major multiple retailers, and their sustainability, and if successful these changes will lead to beneficial impacts on the operation and capacity of the supply chain, offering gains both to producers and consumers. A.8. In the last three months of 2008, the developing economic downturn and the credit crunch have overshadowed all other economic issues. While the effects of these factors on fruit and vegetable producers may be less far-reaching than is likely to be the case with other sectors of the economy, the credit crunch is bound to have some impacts on POs investment programmes, which will need to be monitored carefully. Policy issues in: England A.9. In November 2007 Defra held a Stakeholder Conference on the theme of Farming for the Future. The partner organisations that were involved in that conference began work with Government towards delivery of a long-term vision for farming in England, building on the foundations laid in 2002 by the introduction of the Sustainable Farming and Food Strategy. A.10. The long-term vision concerns three priority areas: climate change, securing a healthy natural environment, and bringing about a thriving Page 5 of 134

6 and competitive farming and food sector. The National Strategy for sustainable operational programmes in the fruit and vegetable sector will play a significant role in contributing the achievement of the objectives set out in the long-term vision in each of these priority areas. A.11. In December 2008, the Secretary of State announced the membership of a new Council of Food Policy Advisers to advise on all aspects of food policy. The Council will advise on issues ranging from production to retail, and from regulation and distribution to consumption, as well as on ensuring the UK s food supply, the affordability of food and the industry s environmental impact. The Council will work closely with the Department of Health and the Food Standards Agency. Northern Ireland A.12. The National Strategy for Sustainable Operational Programmes reflects the current situation in Northern Ireland, specifically in relation to the apple and mushroom industries there, within which its three Producer Organisations exist. The Department of Agriculture and Rural Development has a commitment towards sustainable development, and the National Strategy directs the continued development of Producer Organisations in ways that protect and enhance the physical and natural environment, and use resources and energy as efficiently as possible. Wales A.13 In Wales, the Welsh Assembly Government is consulting on a strategy "Farming, Food & Countryside - Building a secure future." The objective of the strategy is to achieve a more profitable future for farming and its associated food processing industry, which will sustain farming families whilst safeguarding the environment, mitigating climate change and maintaining the vitality and prosperity of rural communities in Wales. Scotland A.14. The Scottish Government has five strategic objectives - to make Scotland a greener, safer and stronger, wealthier and fairer, healthier and smarter place. Scottish growers can help the Scottish Government achieve its strategic objectives through sustainable agriculture, competitive in markets and contributing to local economies. The National Strategy has a role and will help Scottish growers in Producer Organisations play their part in helping to achieve these objectives. Our detailed objectives for the future development of producer organisations A.15. Against the background of the wider policy developments mentioned above, the Agriculture Departments have drawn up the following Page 6 of 134

7 detailed objectives for the future development of the PO system generally, and for the fruit and vegetables sector more generally, which it is hoped will be achieved via the implementation of the National strategy. (i) To encourage more growers to join existing producer organisations, so as to permit growers to reduce their costs of production and fixed costs on the farm by providing central services and group owned facilities, thus making the growers more cost effective in the marketplace. (ii) To encourage producer organisations to reduce supply chains, by taking on more direct marketing either singly or in collaboration with other producer organisations, thus enabling growers to take a higher price for their goods by supplying produce closer to the end customer. This is in line with the Government s policy of encouraging greater co-operation and collaboration among farmers and growers, expressed through the implementation of Measure 124 of the Rural Development Regulation (Cooperation for the development of new products, processes and technologies) in all parts of the UK and also via support for such bodies as English Farming and Food Partnerships. (iii) To encourage producer organisations to source non-member produce in order to be able to fulfil annual supply contracts. Encouragement for POs to trade fresh produce from all origins, whether grown in the UK, other EU Member States or southern hemisphere third countries, will strengthen their ability to be strong players in the market place and to become category managers. (iv) To promote the corporate brand of the PO, and its produce. The majority of producer organisations have up till now been reluctant to market themselves either to new members or to new customers. Branding is desirable to build robust businesses. (v) To encourage independent reassessment of the corporate governance of the organisations, and of the opportunities to increase margins for growers. Producer organisations can benefit considerably from external review of their structure, governance and financial arrangements. Independent analysis by specialist companies and implementation of appropriate measures offers the potential to improve the commercial performance and corporate capacity and sustainability of producer organisations, and the position of their members. (vi) To develop crop grading, packaging, storage and distribution facilities to meet customer requirements. As the market develops for ready-o-eat prepared products, the POs need to reinvest in additional highcare facilities. (vii) To further develop field to fork crop-racking systems. The recording and monitoring of product from planting to eating is piecemeal at present, and POs should be able to track the life of a product back from point of sale to Page 7 of 134

8 point of planting and have all inputs, handling and observations followed through the whole crop life. (viii) To develop electronic monitoring of crop growing environments in order to maximise crop production. Monitoring by instrument the environment around the crop for temperature, wind, moisture, CO2 etc., and using the data thus generated to forecast pest infestation, disease risk, irrigation need, heat/cold, offers the potential to optimise production. (ix) To encourage minimum input systems, including nutrient management and near organic pest control systems. Biological pest/disease management, nutrient input and offtake monitoring, should be given high priority. (x) To assess and reduce energy consumption during production, harvesting, grading, storage and marketing. POs should be supported in assessments of fuel usage and measures to monitor and reduce fuel consumption per unit of production. (xi) To optimise water usage according to crop need, by providing irrigation scheduling services, and where appropriate crop watering systems. (xii)to extend the storage and shelf life of fresh products, by investments in stores and developments in modified atmosphere storage of both the crop and the packaged product Page 8 of 134

9 SECTION 2: ANALYSIS OF THE SITUATION IN TERMS OF STRENGTHENS AND WEAKNESSES AND POTENTIAL FOR DEVELOPMENT, THE STRATEGY Section 2.1 Analysis of the situation INTRODUCTION B.1 The fruit and vegetable market in the UK has continued to evolve since the publication of EU Council Regulation 2200/96 in Many of the factors driving that change were present beforehand, but the pace of change has increased and new challenges have arisen. B.2. The soils and climate of the UK offer a spectrum of conditions highly suitable for the production of a wide range of fruit and vegetables. However, the tastes and preferences of an increasingly cosmopolitan and sophisticated population mean that there is a continuing need to bring new products to the market and to compete with imported products, including those which cannot physically or economically be produced here. Market Outlets B.3. Fruit and vegetable production is increasingly tailored to consumer demands, as the industry has sought to be more responsive to changing tastes and customer requirements, using ever more sophisticated approaches of how to meet them (e.g. market data analysis). The principal driver for this process has been the requirements of the supermarkets, whose market share has continued to prosper, now accounting for some 70-80% of virtually all fruits and vegetables marketed in the UK. The multiple retailers have achieved this through the provision of generally high quality, consistent products in a convenient format, at prices which have enabled consumers to spend an increasingly lower proportion of their disposable income on food items. B.4. It is commonly considered that the retail environment in the UK is one of the most sophisticated in the world with the major retailers representing 85% of grocery market sales. This in turn has driven acute competition between retailers, as they compete for improved market share. This concentration of retail market power has driven substantial change in the fresh produce industry as suppliers have had to adapt to reflect the requirements of their customers. The PO scheme has helped POs in this process. B.5. This concentration of buying power, coupled with the requirement for suppliers to be able to deliver large quantities of a given product to a precise specification over an extended period, has had profound effects on the structure and nature of fresh produce production in the UK, which still continue. B.6. The most notable effects for the UK include: Page 9 of 134

10 Concentration of supply Product price deflation Development of product range and specifications Introduction and evolution of crop protocols B.7. To facilitate ease of handling, administration and delivery of a consistent product to an agreed specification, multiple retailers have reduced the number of fresh produce suppliers they deal with. Over the years considerable numbers of middle-sized businesses have stopped production and their capacity has been, to an extent, taken up by remaining producers, which have increased in size. B.8. Accordingly suppliers to the multiple retailers are currently a mix of large independent producers/packers and Producer Organisations. Production and packing/marketing have become closely integrated operations. (These functions are, of course, a prime requisite for any recognised PO although under scheme rules there is the possibility that some of these activities and functions can be outsourced provided that the PO retains responsibility for carrying out that activity). These developments are a reflection of the market situation, in particular to ensure all year round supplies of produce from relatively few suppliers. B.9. Not all supermarket suppliers interface directly with their suppliers; the introduction of category management, whereby a supplier is appointed by a supermarket to fulfil their supply requirements for a crop or group of crops means that some suppliers act as a second tier, with the category manager organising supplies both UK and imported to their economic advantage. Existing supermarket suppliers are under significant pressure to perform well, to ensure their continued status as approved suppliers; even so competition in the market and further supplier rationalisation by supermarkets may result in delisting at relatively short notice, with the challenge of finding alternative markets a difficult one. B.10. Linked with supplier competition is the effect that supermarkets can exert on supplier prices. There has been a continuing drive to reduce these as supermarkets have competed with each other on retail price, and as they seek to increase margins. This has demanded responses from the industry in increased unit yields and greater efficiency and has required in many instances investment in machinery to help deliver lower prices, as well as meeting other supermarket requirements. The UK industry has been able to react positively to many of these challenges, with increased yields, improved techniques, value-added products and reduced costs, but an increased share of the market has become occupied by imports for many crops, particularly those of a commodity nature, e.g. round tomatoes; button mushrooms; and top fruit, as the lower prices at which these have been available have been preferred. Page 10 of 134

11 B.11. With few exceptions, UK producers grow for the home market only; although the range of opportunities is showing some signs of expansion here, e.g. through food service and public sector procurement. Exports tend to be undertaken in relation to one-off shortages occurring elsewhere, rather than being a regular feature of the sector. Numerous UK businesses and POs have overseas activities, which are important for them to enhance their offer and strengthen their activity. The UK s largest trade gap, amongst food commodities, by a long way, is in fruit and vegetables. Taking figures for fresh produce only (excluding potatoes) in 2007: The UK imported 1.5 billion in vegetables (the top three were tomatoes, sweet peppers, and mushrooms), and exported and reexported 46 million; The UK imported 2.1 billion in fruit (the top three were bananas, apples and grapes), and exported and re-exported 72 million. (source: Defra- Basic Hort stats 2008) B.12. However, it should be pointed out that some of this is likely to be accounted for by winter/out of season supply. B.13. In meeting retail customers needs, for example with added convenience or extended seasons, developing sales, introducing novelty and adding value, the supermarkets have needed new forms of presentation, varieties or new products. These are often trialled and introduced as a result of collaboration between grower or grower/packer and supermarket and can become very successful, e.g. bagged salads, tomatoes on the vine, asparagus, raspberries produced under polytunnels. These introductions are likely to entail the use of significant quantities of management time and subsequent capital investment on the part of producers, but can result in significant new business. B.14. The methods of production have also come under an increasing spotlight from the multiple retailers, who are in turn responding to the concerns of non government organisations (NGOs) and pressure groups. Each retailer has its own different requirements as the conditions of supply, which may comprise crop protocols (e.g. the Assured Produce Scheme or individual retailer bolt-ons) and individual business policies relating to such areas as health and safety, energy, the environment etc., as well as specifics for each crop and/or product. Businesses would normally be audited independently to demonstrate fulfilment of due diligence, and aim at more rigorous levels of achievement than compliance with legal requirements or good agricultural practice alone. B.15. Individual crop sendings need to be traceable back to the field, with full crop history known. B.16. These food safety protocols and audit trails are partly the result of inter-supermarket competition how they wish to be perceived by their customers -and partly due to their wish to minimise perceived risks and respond to expressed customer concerns. Hence supermarkets have been pressing suppliers further to reduce the levels of any pesticide residues which Page 11 of 134

12 can be found in crops at harvest. This requires revised strategies for pest and disease control and greater use of integrated crop management, where the appropriate tools exist. Food Standards are particularly high in the ready-toeat sector such as salads and soft fruit. B.17. The other principal market outlets for fresh produce, occupying 15-25% of the market together are the processors; wholesale markets; direct sales (farm shops, PYO and Farmers Markets); and public procurement/food service. For a few crops, such as peas, processing is a significant part of the UK s requirement for the crop. For other crops, such as brassicas, the processing sector provides a useful outlet for UK producers, particularly if they can be diverted from the fresh produce market at times of oversupply. In general, however, crop specifications for processing are not significantly lower than the fresh market. B.18. The offer of many wholesale markets has diversified as they have sought to cope with the effects of the supermarket trade, who purchase direct from suppliers. Increasingly they are becoming involved in added value activity, such as supplying the food service sector. However, they still fulfil a role in providing produce to independent retailers and to market traders, though the customer profile of these outlets tends to be an ageing one (although there are signs of increased interest from a younger customer base). In addition to acting as a conduit for imports, UK wholesale markets tend to be supplied regularly by smaller producers who prefer not to deal with the supermarkets, or who have no access to them. In addition, larger producers and POs may use wholesale markets on a regular basis for a proportion of the crop they pack which does not meet their regular customer requirements or, more occasionally, where supply exceeds demand at a particular time. B.19. Direct sales are principally the province of smaller operators, who have taken advantage of their location and adjacent population catchment to offer a wide range of crops via Pick-Your-Own or farm shops for local purchase. Some medium-sized growers are also involved with Farmers Markets, where sufficient take place within their local area. Direct sales offer the potential of premium prices being returned to the producers, although a good level of management skill is required for the range of crops and activities usually offered (on modern professionally-run units at least) and adverse weather can still have a major effect on customer footfall, purchases and economic results from year to year. Direct sales are likely to benefit from current consumer interest in local sourcing, although the overall effect on market segmentation is likely to be small, at least in the short-term. B.20. As mentioned earlier, supply for food service and for public sector procurement are relatively new areas being developed which offer opportunities of customer diversification for primary producers in the fruit and vegetable sector. B.21. The changes to rules on EU marketing standards which take effect from 1 July 2009 could lead to new possibilities for growers and POs Page 12 of 134

13 to be able to market a wider range of quality specifications of produce to their supermarket customers. For example, greater marketing of lower grade produce such as Class II or its equivalent rather than the Class I produce which is the current preference of supermarkets. The debate on the reform of the standards highlighted the fact that many consumers are not necessarily worried about the cosmetic appearance of produce and are happy to purchase lower grade produce, particularly if this may appear to be cheaper. Such marketing opportunities may also give rise to potential areas for new investment by POs, for example in new grading and packaging machinery. Consumer demand B.22. The UK market for fruit and vegetables is a vibrant one; for a number of products it has grown significantly in recent years and potential for further growth remains. In recent years the population has risen, creating an increase in demand, though its increasingly diverse background, coupled with greater experience of different foods, has also led to a demand for a wider range of fresh produce. B.23. Considerable effort by the Government and others has been put into campaigns to increase the consumption of fruit and vegetables and towards healthier diets in general and these may be anticipated to have a positive effect on future demand. Purchases of fruit and vegetables reached 4 portions/day in 2005/6; a further shift towards the Government target of 5 portions/day would have a significant effect on demand, even if some were fulfilled by imports. This may benefit fruit more than vegetables (consumption of the latter has been on a downward trend overall), as these crops are considered to be more convenient. However, reaching improved consumption targets is not guaranteed: consumption generally appears linked to income levels, so may be threatened by an economic downturn, and there is evidence that purchases and consumption are not synonymous. Household food wastage is known to be particularly high for fresh produce. Any significant reduction over purchasing/non-consumption, while environmentally beneficial, could reduce demand. B.24. Changes in consumer demand can offer opportunities for producers as well as challenges. Demand for organic produce has been growing rapidly in recent years. For some crops significant strides have been made in meeting the UK s requirement, but in others most remains imported. The supermarkets are the largest purveyors of organic fresh produce; but the erosion of price premia for their products does raise a question mark in the minds of some producers about economic viability when all the associated production costs are included. UK Organic Area Area (ha)* % of total Fruit & nuts 1, Page 13 of 134

14 Vegetables 15, Source: Defra, Jan 2007 * certified organic + in conversion B.25. The proportion of in conversion land for fruit and vegetables compared with that for fully organic is relatively low at 13% and 15% respectively, compared with 33% for cereals. There is likely to be further debate about the benefits of organic produce over conventional when measured by carbon footprint or with reference to pesticide residues when usage in conventional crops is declining. The current evidence from the market is that demand for organic fruit and vegetables is still growing. B.26. Surveys of consumers have shown that they have an interest in local (and ethical) sourcing but the reported level of interest is often not replicated by actual buying patterns. Whilst this may mean for some, increased purchases in local farm shops and Farmers Markets, it is likely to be more significant for existing producers and offer opportunities for new ones as supermarkets react by increasing regional branding of products and, in some cases, by procuring additional sources of supply. Other factors affecting the fruit and vegetable sector B.27. Increases in legislation and regulation on horticultural businesses have affected fruit and vegetable businesses and will continue to do so. These extend to many areas including employment, operations and the environment. Generally, the larger production units are more able to cope with the requirements of these measures, which often interact with information which has to be assembled to demonstrate compliance with customer protocols. The work involved is often given to specifically appointed members of staff and it is the larger units which can spread the cost of this more easily. B.28. The supply of labour has been a high profile issue within both the fruit and vegetable sectors in recent years and an adequate supply is necessary for businesses to function effectively. To a large extent the manual workforce has been supplied from Eastern Europe in recent years and they have provided a generally well-regarded source of labour because of their availability and work ethic. Many have progressed to supervisory and management positions, though the supply of the latter in particular is giving cause for concern in the industry, because of a lack of new entrants. Because of rising employment costs and the uncertainties surrounding future availability of labour, particularly seasonal labour, it is likely that opportunities to mechanise operations further, or to devise new production systems which use labour more effectively will be sought. B.29. Climate change in general has a long perspective in terms of describing the current situation, but the increasing threat of extreme weather events is one that businesses will have to deal with over the coming years. The importance of maintaining a flow of high quality produce as close to the Page 14 of 134

15 planned production as possible is paramount. This may require a range of measures to be adopted to help safeguard production and mitigate the risks caused by some of the weather events encountered in recent years. B.30. Of more immediate concern for the sector during 2008 was the volatility, including substantial increases, in the price of oil. The reaction to this - together with the impact of the current economic circumstances - is expected to be one of the dominant factors affecting the future development of the sector in the short to medium term. B.31. Further influencers and sector drivers are dealt with separately under individual sector descriptions. Page 15 of 134

16 Situation report of the field vegetable sector FIELD VEGETABLES UK Area (ha) 2006 of which Ha Production ('000t) UK Area (ha) 1996 of which Ha Production ('000t) 111,274 Roots 18, ,222 Roots 23, Field vegetables Onions o 10, Onions o 11, Brassicas 28, Brassicas 40, Legumes* 37, Legumes* 49, Others 16, Others 19, Defra Basic Horticultural Statistics O dry bulb and salad *excludes dried peas Page 16 of 134

17 1. Production trends B.a.1. The production of field vegetables accounts for over 70% of the total area devoted to horticulture (Defra June Survey (2006). As a generalisation, the production area for many vegetable crops has declined in recent years, though often production levels have been maintained due to technological advances and the concentration of production in fewer but more focused and efficient businesses. B.a.2. Amongst root crops, the carrot area has remained relatively stable, with only minor changes in production areas in recent years, but with more production in Scotland and Yorkshire. The British Carrot Growers Association has been very active in promoting the crop, with new products, such as Chantenay, having been developed, and which now account for over 10% of sales. Extending the season of home production continues to be a challenging and expensive operation. The increased variation in weather conditions is making winter field storage more uncertain, with warm dry spells putting the crop under stress and very mild autumn conditions leading to field temperatures too high for overwintering the crop without appreciable regrowth and loss of quality. B.a.3. Demand for parsnips continues to increase year-on-year, with the season being extended from a traditional Christmas crop to one from August through to the following May. B.a.4. Brassicas have shown a steady decline in area in the last 10 years, as their overall popularity has faded, though the reduction in cabbage has stabilised, and that for cauliflowers can be attributed in part to two difficult production years, where poor returns discouraged production of the crop. In England Brussels sprouts have also declined, by nearly half over the last 10 years though there are signs of stability, partly due to very active marketing by the crop association. In Scotland, there is a different situation as in the same ten years period the area under production has more or less doubled (341 ha in 1997 to 677 ha in 2006). However, the crop is now thought by many consumers to be only available for the Christmas period. In England, Calabrese (green broccoli) is a success story, with positive attributes, such as a healthy image and ease of preparation. Again in Scotland there is a different story where the area has reduced by a third in the past ten years. There are also opportunities for niche members of the broccoli family such as purple sprouting and Tenderstem. There is increasing consumer demand for prepared and semi-prepared convenience packs of cauliflower and calabrese. Page 17 of 134

18 B.a.5. The challenge for onion producers is reliable production of good quality crops at a competitive price. As production has become more concentrated on fewer holdings, the facilities for harvesting, storage and packing have improved, but bulb size and quality is still influenced each year by the weather leading up to harvest. Production area does fluctuate, depending on the profitability of the preceding season. Processing occupies a significant part of the market and lower-priced imports offer significant competition here. UK red onion production however is increasing by 5% per year. B.a.6. The leek area remains stable, with production, which is in relatively few hands, now being almost year round. B.a.7. Though the area of salads remains static, there has been growth in volumes of 25-30% over the last years as a result of greater production efficiency through innovation and R&D. The emphasis on type of crop being grown continues to evolve, with the dominance of Iceberg challenged by Romaine cos types and novelty types of lettuce. The campaign for a healthy diet is one of the factors helping sales and volume of bagged/ prepared salad mixes to increase. B.a.8. Minor or niche crops continue to show expansion with notable success for asparagus and herb crops, both actively promoted by publicity campaigns by the crop associations and other groupings. 2. Structure B.a.9. Even though there is a recent trend and much publicity for more local or regional sourcing, the vegetable industry continues to be very much based in the Eastern (33,394 ha) and East Midlands (37,005 ha) regions as together they account for 63% of field vegetable production in England. Production in Scotland is 11,778.4 ha. Page 18 of 134

19 Area (as a %) of vegetable production in England by region South West North East South East London North West Yorkshire And The Humber Eastern West Midlands East Midlands Page 19 of 134

20 B.a.10. The vegetable industry is increasingly dominated by a relatively small number of large scale players, often family-owned businesses, which are seeking to achieve economies of scale by amalgamating and merging. The major multiples are encouraging and in part driving the reduction in supplier numbers. This consolidation is becoming particularly marked in some crops, such as carrots and onions, where there is continuing reduction in the number of suppliers to the multiples. B.a.11. The rationalisation of numbers of suppliers to the multiples and the adoption of category management has meant that many individual growers no longer have direct contact with the retailer and are reliant on the Producer Organisation, packer or marketing agent or a combination of these for communication with the market and its buyers. A number of traditional style co-operatives have disappeared due to rationalisation and their perceived slowness to make commercial decisions compared to private companies. B.a.12. There is increased demand for local sourcing, met in part through acquisition of new suppliers and the adoption of regional branding by the multiples, by food hubs such as Taste of Anglia supplying independent outlets, and by direct sales through Farmers Markets, Farm Shops and PYO. Direct sales account for only a very small proportion of the population and of production. B.a.13. In other sectors of horticulture, the major field vegetable suppliers are predominantly a mix of large independent growers and Producer Organisations. The proportion of crop handled by POs varies significantly, depending on the vegetable group concerned. A detailed breakdown of the proportion of each crop group handled by POs is not available, but in most cases the majority of supply would appear to be handled by independents, at least compared with POs with active operational programmes. B.a.14. Most factors point to a continuing shift towards fewer, larger production units. Examples of these pressures are: the need to control internal and external costs by spreading them over an increased production base (i.e. economies of scale) the ability to keep abreast of and comply with changing legislation and the compliance requirements of major buyers access to capital for investment B.a.15. However, the challenges of staff recruitment (and retention) and consumer preferences expressed through new buying patterns may modify this trend. 3. Markets & supply chain Page 20 of 134

21 B.a.16. The main and, in some cases, the only outlet for vegetable produce is through the supermarkets. Depending on the crop grown, it is estimated that between 65% and 95% may be marketed in this way. For many producers, the wholesale market is now of little importance, although there are growers who have developed this relationship and who still find this outlet to be worthwhile, perhaps due to a lack of adequate volume for supermarket sales, or by growing a specialist range of niche crops. B.a.17. Meeting supermarket requirements is a major challenge. Cosmetic appearance remains important, and this can lead, in extreme cases, to as much as one third of edible produce being thrown away. Crop specifications and volumes required can change at short notice and great flexibility to respond to these demands is required. Customer service is of the highest importance, as de-listing by a supermarket can seriously affect the viability of a business. In response to their buying position and need for high volumes, independent growers and grower groups are getting larger (by acquisition etc.) to offer the service required, and seek further reductions in unit costs. These are necessary as it is generally agreed returns to the producer sector are not keeping pace with increases in input costs. B.a.18. The food service industry ( out of home eating and contract catering to schools, hospitals, prisons and other public bodies) is attracting more attention from UK suppliers, but can also be a challenging market due to its size, diversity and the wide range of potential customers looking for fresh produce. Volumes may be small and have to be sourced from a number of producers, but opportunities for co-operation exist and are potentially a natural activity for a Producer Organisation. However, some producers consider it easier to do business with one supermarket, either directly or through a category manager, rather than attempt to understand the complexities of serving the food service industry, despite apparent attractions such as less volatility and a more guaranteed market at a stable price. B.a.19. Direct sales have been mentioned already; volumes sold are very modest in comparison with those moved through supermarket chains. Vegetables are very much second fiddle to fruit on PYO farms. B.a.20. Defra figures show that organic and in conversion land for vegetable production stands at just over 3% of the total vegetable area for the UK (January 2007). Mixed enterprise holdings were traditionally associated with organic production, but there have been significant attempts to meet increased demand both by established and new organic producers and by entry of existing large- scale conventional growers into the market. There have been substantial increases in the volume of box schemes offered to consumers, and also in the amount of UK organic product on supermarket shelves. While demand for organic produce has undoubtedly been growing further in recent years, there have been a number of conventional growers who have entered the market and then left it again, finding that it was not economically sustainable, particularly as price premia for organic produce are tending to erode. The experience of some UK supermarkets last year has led Page 21 of 134

22 them to try to move towards 100% domestic supply for their frozen organic vegetables requirement. B.a.21. The proportion of market supply fulfilled by home production varies widely between crops. For example, UK production meets over 90% of the demand for carrots and cabbage, but just over half of the demand for cauliflower. With its substantial levels of imports from Spain in particular, home production of lettuce is at 44% market share. Onions, Calabrese (broccoli) and beans are also major import categories. This mixed picture is partly due to seasonal availability and partly product characteristics (e.g. mild onions from Spain). 4. Market drivers B.a.21. Numerous factors are influencing - or have the potential to influence - the UK vegetable industry, including: CAP reforms and applicability of agri-environment schemes Greater public & industry awareness of environmental issues including carbon footprinting Imports and food miles Labour availability, retention and succession Energy costs Requirement for high investment especially in processing vegetables such as vining peas Trend to local/regional sourcing Healthy eating initiatives Niche marketing opportunities including organic production More frequent weather extremes Legislative issues such as waste regulations. B.a.22. Consumers in supermarkets have often of late been described as making complex purchasing decisions, taking into account price, quality, environmental and ethical considerations. The multiple retailers compete with each other on many issues, but price remains a cornerstone, hence the continued drive for cost reduction and lower supply prices is a continuing fact of life for those supplying these retailers in the UK. This is being tackled in part by consolidation, as mentioned above, as a way of offering improved economies of scale. B.a.23. Quality is of great importance and so is customer assurance. All multiples have schemes in place to demonstrate their commitment to this process and to product traceability, though a close dialogue is still required with primary producers. Page 22 of 134

23 Interface with customers is important and this is being driven by multiples who all want to enhance their green credentials. This will increasingly impact on growers for example the reduced use of or even restriction on pesticides that can be used and a requirement for organic production. B.a.24. An important driver for the vegetable sector is encouraging consumption of fresh vegetables. Many of the individual crop associations have promotional activities in place, often linked to healthy eating. Government policy is also to encourage increased consumption. B.a.25. Labour is an essential aspect of vegetable production and can be the biggest single input. Potential lack of labour, both skilled and unskilled, and the need for staff retention are important drivers to plans for business development and cropping intentions. Succession planning for management and the supply of high calibre technologists is also necessary and important. B.a.26. More challenging weather patterns, assumed to be associated with global warming, are leading to some production difficulties. The prolonged periods of wet weather (2007) or hot dry conditions (2006) seriously disrupted production schedules, yield and quality for many vegetable crops. Shortages of product are not the only consequence; often, as for brassicas in 2007 and 2008, gluts can result as continuity programmes collide, and prices can be adversely affected or poor quality can mean that supermarket specifications are not reached and the crop has to be dumped. Alternative sources of supply from a global market are usually available; supermarkets and marketing companies have become adept at sourcing from around the world to maintain supplies in their stores. The challenge for UK growers is to develop production systems which mitigate the effects of these weather occurrences. The industry feels that the need for science and R&D at the applied level is paramount. B.a.27. Adequate availability of water is an essential requirement for many crops and situations, as insurance against periods without adequate rainfall and to provide the wherewithal for sufficient plant growth and crop yield and quality to meet the market specifications. The application of the Water Framework Directive may have implications on the area of land which can be devoted to field vegetables in certain catchments - see Environmental impacts section (section 5). B.a.28. The field vegetables sector is very dependent on an adequate supply of rented land. Estimates indicate that one third or more of cropping is carried out on rented land and for some crops the proportion is significantly higher. The availability of rented land and the price at which it is available will have a linkage with potential revenues that can be obtained from alternative crops by landlords. The recent rise in cereal prices is a reminder that the supply of this essential input land - is finite and, with the need for adequate water outlined above may affect the location of production and the ability to cultivate land in large blocks. As a consequence additional infrastructure and facilities may be required to support changing cropping patterns. Page 23 of 134

24 B.a.29. The combined effect of EU legislation on pesticides and their commercial availability and efficacy, the influence of accreditation schemes and pressures from the multiples and consumers are leading to a much closer look at the use of agrochemicals. The supermarkets may have their own list of pesticides which, though officially approved, cannot be used on crops destined for them and major efforts are in place to further reduce residue levels at point of sale. B.a.30. This may require different pest and disease control strategies to be adopted. On occasion, this can lead to trade-offs, for example reducing use of herbicides may mean more mechanical cultivations with increased energy use. 5. Sector analysis - synopsis B.a Strengths Businesses have developed strong customer focus. Proximity to market; can react more easily to local sourcing requirement and perceptions that produce is fresher and of better quality. Opportunities to add value to primary production. Consumption trends upwards, more healthy eating. Crop Associations & Horticultural Development Company funding promotional campaigns. Opportunities to widen customer base including. food service and public procurement. Demand for organic vegetables still increasing. Local sourcing initiatives proving popular and further development possible. Ability to develop minor crops and niche products, e.g. asparagus, fresh peas. B.a Weaknesses Labour - difficulty in attracting and recruiting young people to a career in the industry. Availability of seasonal labour uncertain. Dominance of main market by large retailers with downward pressure on price. inadequate investment in R&D by all parties. inadequate profitability to reinvest for the long term. Availability and cost of water for production and market preparation. Input costs, e.g. oil-based products, rising strongly. Page 24 of 134