'Brexit has resulted in £100m a year in lost sales'

Industry figures say more should be done to ensure Scotland makes more of the food it needs and relies less on cheaper imports from abroad. They are also calling for investment in logistics and transportation to ensure Scottish food and drink reaches markets more quickly and efficiently, and help the industry realise its net-zero aspirations.

There are grounds for optimism too, amid encouraging noises from the new UK Government about the importance of the sector to economic growth. Some in the industry are hopeful the UK can now forge closer ties with the European Union (EU), as pledged by Prime Minister Sir Keir Starmer, following the steep rises in costs and bureaucracy that followed the UK’s exit from the single market and customs union.

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Senior figures are unequivocal about the impact Brexit has had on the sector.

“It is clear Brexit has been a disastrous error for the UK in general and the food industry in particular,” said Bill Hazeldean, chairman of the new Macallan Food Group, which recently launched with the acquisition of steak pie and sausage maker Malcolm Allan and a controlling interest in haggis firm Macsween of Edinburgh.

“Scotland didn’t vote for Brexit, but we were dragged into it. My sincere hope is over the next few years the UK rebuilds a strong relationship with Europe, perhaps aspiring to a Norwegian-style agreement. Who knows, maybe in the fullness of time, we can rejoin the EU.”

Mr Hazeldean, a food industry veteran who is a former chairman of Northumbrian Fine Foods and Associated Seafoods, is not the only industry leader to express concern about the lingering impact of Brexit. Tavish Scott, chief executive of Salmon Scotland, which represents the Scottish farmed salmon sector, said of all the challenges the industry has faced “Brexit has been one of the most difficult”.

(Image: Salmon Scotland)

Tavish Scott, chief executive, Salmon Scotland

“Since leaving the EU in 2020, producers have been grappling with bureaucracy and paperwork that has added £3 million a year to the cost of trading to French and European supermarkets,” Mr Scott told The Herald Business HQ Monthly. “For salmon farmers alone, we estimate Brexit has resulted in £100m a year in lost sales.

“Despite strong sales growth in markets like Asia and the US, the EU remains our most significant export region, accounting for around 60% of our international sales. Brexit’s red tape and extra bureaucracy does hold back the full potential for export growth despite the hard work and investment by farmers to address these issues.

“There is huge potential to expand in key European markets like Spain, Italy, and Germany, where the demand for nutritious, low-carbon Scottish salmon is growing. The world-renowned quality of our produce gives us a strong foundation to build on, but we need more practical support to reduce the bureaucracy and red tape.”

One of the most profound ways Brexit has affected the industry has been to hamper its ability to recruit staff. The UK’s withdrawal from the single market ended the free movement of people between here and countries in the EU, choking off what been a vital stream of labour for the food and drink and other key Scottish industries.

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Iain Baxter, chief executive of Scotland Food & Drink, said the industry is “suffering a skills shortage” in common with other sectors, with the workforce continuing to lag pre-Brexit, pre-pandemic levels of legal migration that he said are “necessary for seasonal vacancies in particular”.

“Our soft fruits, food processing, and primary producers are particularly hard hit,” Mr Baxter said, adding his organisation’s 400-plus members believe that to attract and retain staff “we need to be seen as an industry of choice”. However, he said Scotland Food & Drink supports the introduction of a Scottish visa to help address staff shortages in the meantime.

“We need a strategic focus on skills and education to ensure a continued match between the wide variety of jobs available and people of all ages within Scotland who are looking for meaningful work. Whether that’s school leavers, apprentices, graduates or older people looking to re-enter the workforce or change careers, the food and drink industry has something to offer everyone.

(Image: Scotland Food & Drink)

Iain Baxter, chief executive, Scotland Food & Drink

“But we also need to recognise this will take time and, in the meantime, we need to avoid business closures in key sub-sectors. That’s why we do support a Scottish visa, with specific conditions to ensure it is not used to circumvent the domestic workforce, where this is available. We believe people in Scotland accept the need for migration in our ageing society to provide vital labour but, of course, this must be well managed and come with investment in local services.”

Martin Peel of family-owned Growers Garden, which produces vegan-friendly snacks based on vegetables it grows in Fife, suggested government should “incentivise” people in the UK to take up jobs in the food industry to help reduce its reliance on workers from abroad.

“Growers Garden are one step removed from primary agriculture and are very much aware of the dependence of foreign workers and lack of interest from the UK workforce in roles in agriculture,” Mr Peel said.

“There is a definite push in the UK to encourage children into further education and the role of manual skills is often portrayed in the wrong light, so much so that Scotland is often importing our workforce to produce our food. Perhaps rather than looking to the EU to form our workforce, the government could look inward and incentivise UK workers to take these jobs, therefore reducing unemployment, boosting producer volumes and allowing us to produce surplus stock for export markets.”

While the new UK Government has made clear it will not push for the UK to rejoin the single market and customs union, some in the food and drink industry hold the view it has the potential to improve the industry’s relationship with Europe.

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Mr Baxter said the new government’s focus on “improving our standing with our nearest and largest market in the EU is a positive statement of intent”, while Mr Scott declared it was “encouraging to see a willingness to discuss closer cooperation with the EU on key issues such as a veterinary arrangements, which would help reduce some of the regulatory and trade barriers we face”. Both have also been encouraged by the government’s support of "brand Scotland" and recognition of the importance of food and drink to the economy.

“It is great to see that our sector is being acknowledged for the crucial role it plays,” Mr Scott said.

However, both also highlighted steps the UK Government could take to boost to the industry. Mr Baxter underlined the benefit of investing in energy infrastructure while Mr Scott urged ministers to introduce a modern electronic export system, which he said would cut costs, reduce delays, and “attract more investment to the Scottish economy and create high-skilled jobs”.

“It’s a practical step that could make a significant difference,” he added.

Mr Baxter said: “Expanding renewable energy generation, especially into the grid, is vital and we believe that communities will be more supportive of visible infrastructure if they share in the benefits, including profits. The UK Government should also ensure trade deals support food and drink through easier exports and protection against imports where these undercut prices or standards. Investment in rural transport and processing infrastructure is critical to secure our long-term growth in sectors such as food and drink.

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“We would also like to see the Labour government continuing to prioritise domestic food production and processing – supporting security and business viability. Above all, Scotland must receive a fair share of any interventions at UK level.”

Boosting domestic production would be high on the agenda of Rory Stone of Highland Fine Cheeses, who argues Scotland should look across the Irish Sea for inspiration.

He said: “We are a very small player in the dairy industry, processing around two million litres out of a total available of 1.3 billion. However, when we see what Ireland has done over the past few decades, how they have grown their dairy industry so it not only makes up 40% of their food and drink exports but is their single biggest food and drink export [it gives food for thought]. Given we have a comparable climate then we have to ask why we have been stuck at 1.3 billion litres for the last decade.

“Ireland produces more than eight billion litres, an increase of five billion in the last 10 years and expected to break through nine billion by 2030. Do we lack ambition or support?

"We need government to drive the ambition and the best thing they could do at the very least is match the Irish by giving us a centre for excellence akin to the University of Cork. The Hannah Institute survives but without the likes of Auchincruive, our only dairy college, it’s unlikely we will inspire another generation of dairy farmers, cheesemakers and processors to develop Scotland’s industry into the world-class competitor it deserves to be.”

Yet, for all the challenges Scotland’s food and drink manufacturers currently face, confidence about the future appears to be improving.

Adam Hardie, head of food and drink at Johnston Carmichael, said a rise in optimism had been found in the latest annual food and drink survey carried out by the independent Scottish accountancy firm. Nearly seven in 10 of respondents said they were either optimistic or very optimistic about the future growth of their business, which Mr Hardie said is driven by the growth of UK trade and exports, and the power of the Made in Scotland and Made in the UK brands.

This growth has come despite the industry continuing to be plagued by the high cost of materials, energy, and labour, which has left producers with difficult decisions to make. Mr Hardie said: “The sector has been disproportionately hit by energy costs, which, even though they are reducing, are still greater than they were previously.

“The obvious solution to these rises is for producers to pass them on through price increases, but this also creates the risk of losing sales. It is a difficult decision. However, the world needs to eat, and producers must recoup their costs. There are clearly ongoing challenges for food and drink EU exports post-Brexit, and there is significant demand from industry for simplification of the red tape surrounding export.

“That said, manufacturing costs are 33% higher than three years ago, and the sheer number of unpredictable events has affected food availability. In response, British businesses have been looking to shorten supply chains by moving processes back to the UK, which could create new opportunities.”

Mr Hardie highlighted the impact of the new Living Wage [introduced in April] at a time when three-quarters of food and drink businesses had already seen labour costs rise by 20%, and commented on how the industry could deal with the skills shortages it faces.

“We must work harder to find and retain people and complete regular skills gap analysis to determine potential shortcomings. As automation becomes more affordable, it could also be a solution. Perhaps ministers could adjust grant funding to base awards on investment in automation rather than job creation. With regards to suggestions of a Scottish visa to tackle skills shortages, it may sound like a good idea but given Scottish food and drink manufacturers sell 60% of all they produce south of the Border, any initiatives that disadvantage one business versus another (in the same UK market in which we operate) would causes conflict and ultimately price increases for consumers.”

The whisky industry has concerns at home and abroad. As Chancellor Rachel Reeves prepares to publish the Labour government’s first Budget on October 30, the Scotch Whisky Association (SWA) urged ministers to reverse the approach to spirits duty set by their Tory predecessors that has been branded a “disaster”. The SWA says current duty policy is discriminatory towards Scotch compared with other alcoholic drinks.

Mark Kent, chief executive of the SWA, told The Herald Business HQ Monthly: “The previous UK Government increased duty by 10.1% in August 2023, a decision which has been disaster for the economy, and hit the industry hard.

“Spirits duty revenue has fallen by over £130m in the year since that tax increase was imposed, so beginning to reverse that damage and ensuring fair taxation for Scotch whisky over the course of the new Parliament should be a priority for the new government. This, along with action to support the industry in international markets like India and the United States, will show the government is serious about supporting Scotch, and supporting Scotland.

“The so-called ‘reformed’ alcohol duty system, introduced by the previous UK Government, taxes Scotch and other spirits up to four times more than other categories of alcohol per unit of alcohol. That policy clearly discriminates against Scotch whisky, and the 70% of UK spirits that are produced in Scotland.

“Consumers shouldn’t have to pay over the odds for responsibly enjoying Scotch whisky. As well as bringing in less tax revenue in the UK, the new system sends the wrong signal internationally. Scotch is taxed more in the UK than any other G7 developed economy, and we have seen the real-world impact of the new system, with the UK Government rolling back support for tax policy changes in key global markets – policies which would have boosted exports, created jobs, and grown investment in the UK.

“It is a shambles of a policy, and as well as reducing the tax burden on Scotch whisky, the new Chancellor should look seriously at unpicking the most blatant inconsistencies and illogicalities, and ensure tax fairness and maximise tax revenue for the government.”

William Dobbie, director of R&B Distillers, owner of Isle of Raasay Distillery, which is planning to build a new distillery in Campbeltown, echoed Mr Kent, stating: “It is clear the UK has needed change in general for some time now and the same goes for government support of the Scotch whisky industry, particularly with regards to spirits duty where the UK has one of the highest duty rates. We hope the mandate for change set out by the new Labour government sees its way to how we think about spirits duty in the UK holistically.

“As a new producer in a capital-heavy industry, we would more than welcome at least a continued freeze on UK spirits duty, if not a reduction. One of our main goals as a business is to provide long-term, inter-generational employment to the island of Raasay on Scotland’s west coast and ultimately also Campbeltown with our Machrihanish Distillery. The more costs outwith our control that burden our business, the harder and harder it is to sustain employment in these rural parts of Scotland.”

Meanwhile, there is concern within the whisky industry that Donald Trump will reintroduce import tariffs on single malt in the US, should he win the election in November. A 25% import tariff applied during Trump’s term in office, which had its roots in a trade dispute with the EU over subsidies given by Brussels to Airbus, is understood to have cost the industry more than half a billion pounds in exports.

The tariffs were paused in March 2021, shortly after President Joe Biden entered the White House, before being suspended for five years in June of that year.

Mr Kent said: “With the clock ticking to the end of the five-year suspension, and US elections later in the year, the industry is increasingly concerned about tariffs being reintroduced.

“The tariffs, which were levied for 18 months between October 2019 and March 2021, were hugely damaging, with £30m a month in lost exports. That, and the impact of the loss of market share as the industry became less competitive in a very competitive spirits market, means the industry is still working hard to build back from the damage.

“We need the UK and US administrations to work together to ensure permanent removal of tariffs, which are damaging for the US whiskey industry as well as Scotch, given the close collaboration between the two industries. This must be the top transatlantic trade priority between the UK and the US over the coming months.”

Mr Dobbie warned: “Tariffs in such a key market make it disproportionately harder for the smaller and newer producers, and a reintroduction has the potential to further stifle growth, innovation and entrepreneurship in the industry.”

Mr Kent added: “Away from domestic excise duty, clearly supporting the industry on the world stage should be a key priority for the new government. We are pleased the Department for Business and Trade has signalled it will reopen negotiations on the trade deal with India, which will seek to reduce the 150% tariff on Scotch whisky in that market.

“Our modelling suggests a deal which makes it easier for producers of all sizes to export to India would increase exports by £1 billion over just five years – a big win for Scotch and the concept of 'Brand Scotland', at the heart of the UK Government.”