AHDB PESTLE Analysis and Outcomes 2014/5

Background Looking ahead, the AHDB Board and Senior Executive Team held a strategy day to look at AHDB priorities to support levy payers over the next five to ten years. The output was that AHDB should work to five core priorities and that future business plans would be structured around delivering against these by helping levy payers: 1. 2. 3. 4. 5. Improve productivity and cost management (resource management, climate change, soils and water, managing market volatility). Prevent and manage disease. With trade development (export development, promoting and differentiating assured quality products, market information and analysis). Understand and respond to the regulatory and policy environment. With the labour market and skills development.

This following PESTLE analysis helps identify the key factors likely to affect the industry and hence the factors which need addressing in the business planning process to address the priorities listed above. PESTLE In our 2013 planning process (for 2014/15), we have considered the key challenges and opportunities facing the UK agriculture and horticulture industry through a PESTLE analysis. (Political, Economic, Sociological, Technological, Legislative and Environmental). Given that the six commodity sectors we work with are affected by the factors listed below to varying extents, we provide a brief description of the impact in the short-term and long-term. This PESTLE analysis is a planning tool (at a single point in time) and occasionally significant changes can occur quickly which will result in changes to the activities of AHDB, even though the PESTLE has not been formally reviewed.

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Political

GREEN GOVERNMENT
Green Government/Climate Change Mitigation will seek reduction in GHG emissions The Coalition Government has stated it wishes to be the greenest Government ever. Government sees economic opportunity for the UK from the development of new markets for low emission products and services supported by investment in innovation. The 2008 Climate Change Act requires GHG emission reductions of 80% by 2050. The UK Government and devolved administrations continue to review how this will be achieved and over what timescale. A Voluntary Action Plan (GHGAP) to achieve GHG emission reductions from agriculture has been developed by organisations representing the industry (including AHDB), with Defra support. Although there has been less public emphasis on this area in the past 12 months, the desire to reduce emissions is likely to remain and may strengthen when the economy becomes more robust. The Government will want see evidence of progress towards the uptake of practices designed to reduce the GHG emissions from agriculture and horticulture. This should be a win/win in most cases as increased competitiveness through greater efficiency boosts profits and invariably reduces GHG emissions per unit of production. It is unlikely that agriculture and horticulture will ever be able to reduce emissions by 80%. However, as time proceeds, the relative proportion of UK GHGS originating in primary food production will increase as the rest of the economy decarbonises. The spotlight on agriculture will become more intense and moves to introduce measures designed to effect dietary change can be anticipated e.g. reduced meat and dairy consumption. The agricultural and horticultural industry should be able to demonstrate that their GHG emissions per unit of output are amongst the best in the world. We need to maintain the focus (including via the GHGAP) on supporting industry (supply chain) competitiveness while ensuring evidence is forthcoming to demonstrate the link between 1 competitiveness (efficiency) and GHG emissions reduction (e.g. through reducing waste). At the same time, We will need to work to ensure that Government and the public understand the limitations to reducing emissions in the agricultural and horticultural sectors as compared to other sectors of the economy. We will need to support sectors to achieve efficiency in their sector which lead to GHG emissions per unit of output that are amongst the best in the world. The opportunity will be taken to demonstrate convincingly that importation from less efficient regions will be detrimental to the global objective of mitigating global climate change. All six AHDB Divisions are sponsoring work on the development of a farm-focussed environmental impact tool that enable farming businesses to make well-informed decisions about changes in practice and land management.

Please note that straightforward actions such as planting more trees can make a positive contribution to reducing GHG levels. Page 2 of 32

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Political

DEVOLUTION / INDEPENDENCE
Devolution may lead to increasingly different policy environments for our levy payers. Devolution has meant that agricultural policy has become a matter for the devolved governments. At present, this mainly means that CAP support payments and rural development funds are organised differently. This may create distortions but is unlikely to have significant effect at present. However, greater distortion may occur over time and possibly in other areas such as disease control, etc. This is further complicated by the UK being the competent authority in some cases still. There is unlikely to be any further meaningful impact in the next 3 years unless CAP reform is implemented significantly differently from 2015. Particularly if Scotland becomes independent in 2014, future differences in policy may become more pronounced and effect relative competitiveness or crossborder trade. We should keep this area under review to understand the opportunities and challenges which might be created and support levy payers in managing those opportunities and challenges particularly where we cover sectors in more than one country.

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FOOD SECURITY
Global food security concerns due to population and economic growth are moving up the political agenda The global price spikes of recent years, and subsequent challenge for many in the world to afford food, has brought the issue of food security on to the political agenda. Growing global demand for food is not quite being met by the growth in supply in years of poor weather and hence we experience higher prices which will stimulate increased investment in producing more food. The 2012/13 season has seen the pattern of poor weather impact significantly on prices across most agricultural markets. Food price inflation remains high at a consumer level, which will probably bring increased focus on food and agriculture and how to reduce the cost of food over the next few years. Defras Green Food Project and the Governments Agri-Tech strategy is seeking to set the agenda across industry to identify ways of producing more food whilst also reducing the environmental impacts. Global demand for food is also seen as an opportunity to encourage exports and also attract inward investment. The short-term implication is that UK farmers and growers will benefit from higher prices and consumers experience higher inflation. With higher cereal prices meat prices have increased around the world. If transport costs continue to rise then fresh produce prices will rise (all other things being equal) as, due to seasonality requirements, some fresh produce will need to be imported. The UK may not be able to guarantee supplies of some food and feed products from other countries to fulfil any significant reduction in selfsufficiency. It is likely that the needs of the urban poor will trump the needs of the rural population and exporters will attempt to keep domestic prices down through export taxes and export bans at times of crisis. If demand for meat continues to increase in developing countries then the challenge will not be stimulating demand, but producing enough to meet the demand. We need to increase the competitiveness and productivity of UK agriculture and horticulture in order to: Increase profitability, Reduce GHG emissions, Support food security The ability for farmers and growers to access novel agricultural and horticultural technologies may be very important to achieve these goals. Please see later (Technological section) for more details. We need to continue to work as part of the Green Food Project.

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Political

FOOD LABELLING
Food labelling policy will require more information on pack Current proposals on food information for consumers and ongoing discussions about assurance schemes relating to welfare, origin, environmental impacts and quality may bring changes for labelling rules. Labelling cannot be used to compensate for a lack of competitiveness in mainstream markets. There must be a genuine Unique Selling Point that a majority of consumers will actually pay for to achieve more value through labelling. Labelling and category management (in some sectors) is currently confused. Clear and more consolidated labelling may provide better information to consumers about what they are buying. However, it is unlikely that this will have a significance impact on consumer buying habits in the short-term. Current EU country of origin labelling proposals (not requiring born, bred and slaughtered) may increase consumer confusion, impact on supply chain costs and undermine market penetration of meat from domestic production systems. Clear labelling will only have an impact on the market if consumers value the attribute being clearly identified by the label. One can anticipate aspects of sustainability will start to emerge as components of food labelling and assurance although this may take longer to develop due to current poor economic conditions and consumer focus on price rather than other attributes. We need to ensure that our marketing activities and consumer communication activities support clear and transparent labelling to consumers. We should also remain close to, and engaged with, initiatives to label food in accordance with specific criteria, e.g. sustainability, country of origin, health. Where appropriate we should undertake research to determine whether a label is related to an attribute valued, or potentially valued, by consumers in order to ensure that support is allocated to the most appropriate labels. Subject to the outcome of current EU proposals on country of origin labelling for meat products additional investment in the promotion of voluntary labelling initiatives such as Pork Provenance, and more explicit communication of assurance scheme requirements may be required.
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In sectors where these activities exist labelling is considered important and activity takes place to work with retailers and policy makers to encourage clear labelling. Page 5 of 32

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Political

ENVIRONMENT/PRODUCTION BALANCE3
Land use priority trade-offs between different policy initiatives and markets There is increasing pressure on land use for food, for fuel, for biodiversity/recreation/ amenity uses. There is a complex interaction between these factors. For example, there may be pressure to set aside land on all farms but this may mean unproductive land has to be used for food production rather than more productive land. It may be better for some farms to be utilised to their maximum, whilst less productive land is used to meet other objectives such as conservation of valued landscapes and biodiversity. The concept of Sustainable Intensification (SI) has become embedded in Government policy relating to land use and production from land. The SI concept points to decisions about the use and management of land that deliver most productively the outputs most appropriate for that land (food, energy or other ecosystem services). It is likely that valuation of currently non-marketable goods derived from land will impact on land use decisions in the future. This has been examined in the Defra Green Food Project and the Governments Agri-Tech strategy is likely to place a significant emphasis on achieving Sustainable Intensification to meet economic and environmental objectives. Investment from Government to assist the industry to adopt SI is likely but will require industry partnering. The Agri-Tech strategy is designed to avoid conflicting policies and incentives that have the potential for perverse incentives and unintended consequences to arise. This should help avoid policies being established, e.g. through CAP Reform, biofuels, biodiversity, etc., that do not support optimal land use. Over the long-term this should become less of a problem as the science is clarified, allowing more accurate policy decisions to be taken which are more likely to achieve the desired outcomes. This should allow a more stable set of incentives, markets and policies to exist. We need to consider how we play our part in supporting the delivery of the desirable outcomes identified by the Defra Green Food Project and subsequently the Governments Agri-tech strategy. We should be prepared to benefit from new Government investment opportunities designed to help deliver SI when they add value for levy payers. We need to be able to provide/signpost evidence and analysis to support informed debate and choices around these competing pressures amongst levy payers, policy makers and stakeholders.

Please note this heading covers the next two issues Page 6 of 32

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Political
National Ecosystem Assessment/EU biodiversity/Environment White Paper could lead to conflicts with GHG reduction The launch of the National Ecosystem Assessment (June 2011) presented a comprehensive statement about the delivery of Ecosystem Services from terrestrial and aquatic habitats in the UK. Among these, Enclosed Farmland represents by far the largest single area and the report will likely influence the way such things as Environmental Stewardship schemes are configured in the future. At the same time, the publication of the Governments Natural Environment White Paper has signalled the Governments priorities and policies towards conservation of biodiversity and management of other natural resources. The Governments Agri-Tech strategy is likely to point to the need for deliverables from science and technology which will enable higher levels of production efficiency from land whilst also ensuring that non-marketable eco-system services continue to be delivered. The short-term impact of these publications is difficult to judge but there are undoubtedly going to be conflicts with other environmental policies such as the reduction in GHG emissions. How these might be reconciled is already the subject of a short Defrafunded pilot project which involves several AHDB Divisions. The most likely impact will be on changes to the operation of Environmental Stewardship Schemes and attempts to quantify the economic value of certain Ecosystem Services may have ramifications for the direction of Government investment and the onus placed on land-owners to meet new standards of environmental management. In the longer-term, one can presume that the so-called Ecosystem Approach could come to prevail significantly on Government thinking and policy making. This places consideration of long-range, difficult to quantify impacts on a par with short-term economic costs and benefits in the context of policy making and political decision taking. The essence is to ensure that natural capital is not eroded and that short-term gain is not at the expense of long-term benefit in terms of delivering essential system functions. The target to eliminate peat could have a substantial impact on the horticultural industry, particularly ornamentals. We will need to adopt a longer range, systems-based approach to its strategic thinking about the way agricultural productivity is sustained and the relationships between different components of agricultural systems. In examining possible benefits from working together on the new five corporate priorities the topic of working on agricultural systems across sectors has been identified as an area for further investigation. We may need to strengthen working partnerships with nontraditional agencies such as NERC and the EA as well as being prepared to engage in programmes of knowledge exchange which enable levy payers to gain advantage from possible shifts in policy directions. We will need to be alert to opportunities for the benefit of levy payers presented by new Government investment anticipated to accompany the launch of Agri-Tech strategy. Some investment is likely to target the area of sustainability metrics and appropriate land use/management to meet the need for both food security and environmental resilience.

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Political

BIOFUEL DEMAND
Biofuel policy on a global basis will provide an alternative demand for food/fuel and useful by products A large proportion of the worlds grains (and edible oils) are used in the production of fuel (estimated to be 41% of the US Maize crop in 2011/12). As long as supply can increase to meet the demand for both food and fuel then this should not have a huge impact on price. However, if stocks are low due to increasing biofuel demand and supply struggles to keep up then supply shocks will lead to price spikes. There is even a view that you could keep cereals prices from spiking by lowering biofuel inclusion rates in years of low cereals supply, although whether this would work would depend on the oil-cereal price ratio. There is increasing political debate about biofuels and whether the consequences e.g. diversion of food crops, palm oil plantations etc. are justified by the st benefits. In addition, the efficiency of 1 generation biofuels in reducing emissions is being challenged. The current support for biofuels may mean that product streams that are currently used for animal feed may be used to generate energy e.g. off spec potatoes or liquid whey to Anaerobic Digestion rather than animal feed. Supply is struggling to keep up with world demand meaning there are low global grain stocks and price spikes are likely whenever there is a supply shock (e.g. poor weather) to the system. Prices will also be at a slightly higher level as less productive land will be used to produce grain. There is an increasing supply of co-products for use in animal feed requiring different rationing practices. Some producers may need to change feeding regimes if the economics of biofuels divert current product supplies. The policy decisions on biofuel inclusion rates and the nd potential development of 2 rd and 3 generation biofuels will potentially have a massive impact on demand for grains and oils. The best way for farmers and growers to deal with this area is to be as competitive as possible in their production costs and recognise that some of the demand is policy led and hence could change overnight. We need to provide the KT and MI services to assist farmers and industry in doing these things. Differentiation in the market for grain products of customised quality for particular markets (food, feed, fuel) may become an important driver for research. We need to ensure that the role of co-products from biofuels as animal feed and any other uses is understood and taken into consideration when the role of biofuels is considered.

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Political

JOINING-UP AGRICULTURAL KT
Joining up agricultural support activities will be a focus of future policy initiatives There is increasing desire within the industry to see advice services to farmers undertaken in a more coordinated way. Currently there are many sources of information and advice (e.g. CSF advisors, RDPfunded activities, etc.) which can be confusing and time- consuming for farmers, growers and the supply chain to investigate. In addition, it is unlikely that all the information is delivered in a best practice manner and it may even be contradictory as it often is not holistic and focuses on achieving one outcome with limited consideration of knock-on impacts in other areas. The short-term implication is that farmers will continue to be confused by the multiplicity of advice and information sources and some of the effort is likely to be wasted as it does not operate to best practice models. More co-ordinated and consistent support and advice to farmers (operating to best practice) would probably support faster improvements in performance across the supply chain, both in terms of competitiveness and environmental performance. We need to consider our role as a potential key facilitator for coordination of this activity through both seeking agreement between all the parties involved and strategically considering how it undertakes its R+D and KT work. This co-ordination needs to occur between all the parties without losing the benefits of specialisation in specific agriculture and horticulture sectors

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Economic

PUBLIC SECTOR CUTS

Public Sector Cuts/Economic Recovery will reduce Defra funding The current difficult financial situation within the UK has two main affects on agriculture. The primary one is the value of sterling relative to the euro and dollar, and secondly the funding available to support agriculture e.g. through R&D, etc. The Coalition is committed to reducing the structural deficit in public finances. As part of this, Defra faces a reduced budget at present and is expected to have to manage further cuts during the next few years. . Combined with cuts in public funding in the devolved Governments, this will probably have some impact on the scale of assistance provided to agriculture and horticulture. Despite economic stringency, the Science Vote through BIS to the Research Councils has been maintained in real terms. Through its Agri-Tech strategy, Government will be seeking to ensure its funding is directed in larger measure to meet industryrelevant targets and this may provide an opportunity for AHDB to use its research budgets as leverage against Government funds in public-private partnership arrangements. The poor economic situation is leading to a lower exchange rate than prior to 2009 which is probably having a far greater positive impact on agricultural profitability than any reduction in Government support. There is less money available from the Government to support agriculture and horticulture. However, R&D spending has been maintained in nominal terms in the Coalitions budget. There is loss of industry knowledge and expertise from Defra/Scottish Government/Welsh Government (SG/WG). Industry and industry organisations are being encouraged to take on aspects of delivery work (and some costs) previously undertaken by Defra/SG/WG and/or their Executive Agencies. In the long term it is likely that the UK economy will recover compared to today, which could increase the value of sterling and reduce prices to farmers (in Sterling terms). There will be increasing pressure on us to undertake delivery work for Defra/SG/WG (possibly some which is Government funded and some which is not). We need to ensure that we only deliver what levy payers need and if this coincides with Defra/SG/WGs needs then there is a win-win. With the increasing pressure, we need to ensure that we are focused on delivering activities which have maximum benefit for levy payers. There will be increased opportunities for AHDB to lead voluntary initiatives such as welfare initiatives and codes of practice on food labelling in place of government policy initiatives. Farmers and growers in those sectors which are profitable should use this period to improve their competitiveness for the long-term through appropriate investment. We should provide information to support the industry in robustly challenging cost recovery exercises to make sure they are based on the most efficient ways of undertaking the activity. In addition, the increasing openness of Government regarding the involvement of wider stakeholders in policy making means that our evidence, resources and information will increasingly be called upon in policy making decisions. This may be a positive move but will have implications for our resource allocation e.g. Green Food Project. We need to pay attention to the opportunities to support levy payers further likely to be provided by new Government investment in industry-relevant science and technology associated with its Agri-Tech strategy. Opportunities for public-private partnerships may require us to reappraise the processes we use to allocate resources to research and KT/E activities.

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Economic

INCREASED COMPETITION
Competitive pressure increases due to high commodity prices Higher prices for agricultural products are likely to increase investment in infrastructure and potentially bring more suppliers to the world market increasing competition to produce food. This is evidenced by the fact that current estimates place the 2013 harvest of coarse grains at its largest ever with FAO estimates of 1,266Mt, 8% up on 2011, the previous high, and wheat up 5% on 2012, and only 1% down on the 2011 high. Inevitably, the weather during the rest of the growing season will determine the actual harvest, but the potential is there at the time of writing. In the short-term high prices will increase profitability in many sectors. However, these can also reduce competiveness if the higher profits are invested in the wrong way e.g. more expensive production systems. Being sufficiently competitive will determine future profitability, and will also support reduced GHG emissions, therefore being able to compete with whoever else is trying to access the same market is crucial for future success. We need to continue and possibly increase our efforts to support farm and supply chain competitiveness, e.g. through R&D, KT, coordinated benchmarking and advice services. Part of being competitive is about ensuring the industry has developed the right products for its markets and developed the appropriate export markets for its products.

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Economic

VOLATILITY
Volatility/Speculation in commodity markets is likely to persist The spikes in commodity prices in recent years have been driven by supply not being able to keep up with demand, with the volatility created by a supply shock linked to poor weather causing low production. Combined with low stock levels, the lower production has led to high prices as buyers seek to secure the supplies they need. It appears that the price spikes have been driven by fundamentals although speculators may be exacerbating the height of the high (and low). With CAP support mechanisms continuing to be reduced (or with prices well above support levels in markets which are supported) it is likely that prices will continue to be volatile for farmers and the supply chain. Volatility is worse now than in the very recent past, but historically it has been just as high if not higher. CAP provided greater stability on prices in the past few decades. In the short-term, the impact of volatility is huge swings in profitability for farmers and a significant risk management challenge for the supply chain. This risks destabilising markets and supply chains e.g. pig production falls more than is economically rational because of the slowness of the pig price to respond to higher cereal prices. Cereal farmers produce barn filler varieties rather than the quality of wheat the market wants, etc. To manage volatility, supply chains will develop to secure supplies. More integration of supply chains is likely with risk and reward more fairly shared if the chains work well. In addition, stocks levels will need to be considered and possibly increased to increase price stability. We need to provide Market Intelligence for farmers (and the supply chain where appropriate), support the development of longterm supply chain relationships where price mechanisms can be used to stabilise prices, and provide information and training on risk management and the use of futures and options to manage risks. We need to consider whether we undertake more work on identifying successful models of supply chain risk sharing, and create understanding among the farming and growing industry that managing risk has cost. In particular we cannot remove the down side risk, but still have all the upside potential if markets rise without a significant cost involved.

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Economic

SUPPLY CHAIN PRESSURE

Supply chain pressures will continue and Grocery Adjudicator has come in to existence To maintain a competitive edge, particularly in the context of current high inflation, and cost conscious consumers, retailers continue to press for high quality food products but at low cost, potentially creating conflict in the supply chain. The challenge is to foster more extensive collaboration and supply chain integration which continues to ensure supply chains become more competitive whilst undue pressure is not put on suppliers. This is challenging because some pressure is needed in supply chains in order to maximise competitiveness. However, too much leads to lower than optimal investment eventually leading to higher costs and lower consumer choice. The new grocery adjudicator may help supply chains to work more optimally. Short-term decisions to put pressure on the supply chain can lead to lower consumer choice and efficiency through lack of confidence to invest and huge swings in prices and supply as the market over reacts in both directions. Lack of supply chain coordination will lead to less consumer choice and less investment as the industry is not confident of making a return on the investment. We should promote the development of integrated supply chains that reduce volatility and meet consumer demands and increase efficiency. These supply chains should also be able to manage risk better as well. One of the ways that this can be done is through the better exchange of information up and down the supply chain which can lead to more optimal matching of market supply and demand.

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Economic

EXPORT OPPORTUNITIES
Population Growth leading to Export Opportunities The world population is growing and getting wealthier, with the emergence of more significant economic power in Asia, Russia, and South America having an increasing impact on the world market. This wealthier and large population will require more food, energy and water and if supply increases slower than demand then prices for all these three factors will increase. More food will need to be produced from less inputs. With increased wealth there is a dietary transition which results in more consumption of animal protein and less consumption of traditional staple foods. This results in global competition for plant-derived protein as animal feed but also provides an export market opportunity. The Government has identified increasing exports as a key strategy for economic recovery. Price levels for agricultural products will be higher than in the past (albeit volatile) if supply does not keep up with the continuous increase in demand. There will be demand for alternative uses of land and increasing costs associated with producing food due to higher priced energy and water. Population demographics could lead to change, e.g. Arab Spring making export destinations more challenging in the short-term. The level of technological innovation and increase in the ability to more efficiently produce food and energy and manage water will determine price levels. The ability to remain competitive, using the latest technology is key. Increasing demand globally, particularly in the East, provides opportunities for exports for our industries. Government has stated that exports have a key role to play in the recovery of the UK economy. Export of agricultural and horticultural products has been identified as an important part of this. There is opportunity for us to co-ordinate and deliver Government agricultural export activity through our sector divisions. We should focus on supporting market access and the development of export opportunities for both food and technical know-how. We should maintain relationships with key UK/Scottish and Welsh Government agencies and departments to support our industries export efforts. In addition, the pressure on energy costs, etc, mean that efficiency of production will be key from a competitiveness and GHG reduction point of view. Our KT services will become increasingly important. We also need to manage the risk associated with supporting exports to less stable regions.

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Economic

INPUT COSTS
Input costs such as fertiliser and feed remain high Producers/growers and processors in all sectors face increasing input costs, such as energy, fertilisers, animal feed, etc. These are not likely to fall because the price of oil, gas and mined minerals will continue to increase due to increasing demand, and potentially reducing supply. In addition, producers will need to consider the management of nitrogen, phosphorus and other nutrients following the revision of the Fertiliser Recommendations and implementation of the Nitrates Directive and investigation of potential diffuse pollution. Higher input costs will reduce potential farm profitability. Closer monitoring and control of inputs will mean greater optimisation will be needed. Higher input costs will encourage lower and more efficient usage of inputs. This should lead to fewer negative environmental impacts. It will also lead to less waste. The exact amount of inputs will always be determined by the ratio of the input cost and the product price, with higher product prices generally leading to more inputs being used, up to a maximum point. As well as supporting farms with knowing their cost of production, we need to help farmers understand what the optimal level of inputs is at different price levels in order to maximise efficient use of inputs whilst avoiding any diffuse pollution.

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Economic

FARM LEVEL SKILLS ADVISOR/SCIENCE SKILLS

Labour and Skills shortages likely to persist Restriction on immigration has caused some problems in some agricultural and horticultural sectors. There is increasing concern within the industry and Government over the sustainability of producers over the next decade. Attracting young people with entrepreneurial skills into agricultural and horticultural supply chains will be crucial to the future of agriculture and horticulture. There are many initiatives springing up in response to this challenge but they are insufficiently co-ordinated and are not part of delivering an overall strategy. It is important to note that the changing structure of the farming and horticultural industry and supply chains, with consolidation constantly occurring, means that the future supply of good employees is probably the key part of this challenge. In addition, in some sectors there is potential for increased mechanisation and IT to reduce labour requirements. In its Agri-Tech strategy, Government is likely to recognise that a highly-skilled and technically-aware workforce is a requirement if the industry is to be globally competitive and contribute to economic growth. Hence encouragement to achieve greater coordination and strategic provision of training at all levels may be sought. Lack of skilled labour will lead to lower productivity and competitiveness than would otherwise be the case. In addition, Governments may regulate and inspect more closely if farming cannot demonstrate and prove a high level of professionalism and proficiency. As per the short-term impact, although increased mechanisation and use of IT may substitute for labour in some sectors. We have a role to support the development of the complimentary range of practical, management and entrepreneurial skills through our KT activities and funding PhD programmes. We are increasingly developing our activities in the farm level skills arena, through our activities such as PIPR, DairyPro, and the work being done on skills by Tess Howe, funded by the RDPE. We are also supporting activities which support agriculture being seen as a positive career by schools. We should actively participate in the BBSRC-funded Advanced Training Partnerships that will support three HEI consortia led by: Nottingham, RVC and IBERS. We should ensure that sectors are aware of new technology and its costs and benefits so that they can adopt it as soon as possible where beneficial e.g. Precision Farming

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Economic

CONSUMER BUDGET PRESSURES

The drop in real incomes is leading to consumers budgeting more carefully and changing their purchasing patterns The effect of high inflation, low wage rises and unemployment have led to reductions in real living standards with median income after housing costs falling by 12% between 2002/3 and 2010/11 for low income households. Consumers have responded through less eating out, and trading down both within eating out establishments (i.e. growth in fast food chain sales compared to restaurant sales) and within grocery shopping (i.e. trading down from brands and premium supermarket products to standard and value own label products). Some consumers are also adopting a little and often approach to purchasing as a way of managing expenditure. For all UK households, expenditure on food and nonalcoholic drinks has increased from 10.2% of spend in 2005/6 to 11.3% in 2011. For the households in the lowest 20% by income, it has increased from 15.6% to 16.6% over the same period. Sales of premium products such as organic have also fallen during the last few years. Other factors, such as health, have become less of a primary driver in purchasing decisions and value has become much more important. Keeping costs of food down in the short-term will be very important and a large driver of the food market making it a very competitive market place in which to operate. Assuming economic recovery begins to take place in the longer term, it is likely that the demand for premium products and eating out will increase again, but possibly at a very slow rate for the coming decade. The current prolonged period of low economic growth may begin to have longer term implications on consumer culture. This area will need monitoring. We need to ensure levy payers are aware of the likely changes in consumer habits so that they can meet them. As the price of products will be increasingly important for the next few years, the most competitive products will probably be those that are of a standard nature but lower cost, rather than slightly higher cost but offering additional added value benefits over the standard product. Therefore we have to help farmers be as efficient as possible.

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Sociological

CONSUMER DIET CHANGES

Mainstream diet changes because consumers are encouraged to eat a more sustainable diet and budgetary pressures remain. There are several driving factors towards changing mainstream diets: General messages towards encouraging people to eat a healthy and sustainable diet are moving towards encouraging eating less meat and dairy and more fruit and vegetables through a balanced plate approach. In addition, natural changes to a more diverse diet are impacting on traditional products, e.g. greater consumption of pasta, rice etc. There is likely to be continuing messaging around this including from the EU Commission with its communication on food sustainability being prepared. Please see consumer budget pressures for more on consumer changes. Keeping costs of food down in the short-term will be very important and a large driver of the food market making it a very competitive market place in which to operate. It is likely that these cost issues will be a bigger driver in the short term (see above). It is possible that per capita consumption of meat and similar products will fall in the UK, although total global consumption will increase. Producing food that is perceived as good for the environment and healthy will be a positive sales strategy for the future although the opportunities available for this may be limited in the medium term, i.e. until economic growth picks up We need to ensure levy payers are aware of the likely changes in consumer habits so that they can meet them. We should help to ensure that what a sustainable diet comprises is well-defined through our research and educational activities and interactions with policy makers. Please see Farming Image row for a key linked area.

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Sociological

PROTEIN FEED
Protein Feed Sources from non EU sources face criticism There is increasing awareness of the fact that the EU imports significant amounts of vegetable protein for animal feed (primarily soya and maize) and there is increasing scrutiny of the sustainability of the systems of production employed in South America. In particular, close to 100% of imported protein is likely to be from GM varieties of soya bean and maize. Concern over imported soya from non-sustainable sources or global competition for supplies may lead to calls for lower consumption of meat due to concerns about environmental impacts or simply increases in price. As transport costs increase with oil costs, and animal feed prices increase minimising the use of imported protein may become more important to the image and profitability of EU livestock production. We will need to work with industry to develop a clear long-term strategy for the sustainable supply of protein to UK livestock sectors. This is likely to require a reconsideration of the use of animal protein as well as the development of differentiated and integrated supply chains. We should support research into alternative sources of protein, e.g. co-products of biofuels, which can be grown in the EU and promote the uptake of those sources on farm.

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Sociological

NICHE MARKETS
Niche/Alternative Markets could grow but will be limited and vulnerable to over supply There are a number of alternative/niche markets for supply chains to exploit. These include: Local, greener, food mile type markets Non-food uses (such as in biofuels) Health benefits Significant additional niche market opportunities will remain limited in the current economic climate. Niche markets are exactly that small opportunities for a few producers not for the majority of the producers in the market place. As the markets are small, over supply, leading to low prices is always a potential problem. If renewable green materials become competitive in price with oilderived products, the market for feedstock will grow and the competition between land for food and non-food crops may intensify. Opportunities for additional niche markets may emerge. The long- term prospects for local food, greener food, slow food, organic, etc. will be determined by the price of food relative to the rest of the economy/ earnings. If food is expensive these niche markets will be very small. If food is cheap these markets will grow. If renewable green materials become competitive in price with oil-derived products, the market for feedstock will grow and the competition between land for food and non-food crops may intensify. New opportunities for producers and supply chains may emerge. We should approach this area on a market failure basis, and only undertake activity that is not being done by commercial players. Where appropriate we can provide some advice and information to those levy payers who want to access alternative/niche markets but we need to focus on supporting competitiveness not niche market development as this will have the greatest potential impact. Much of our information and services will be relevant for all producers whether mainstream or niche.

A small number of consumers have become more aware of environmental sustainability in the food supply chain and engage with issues such as local food, greener food, large farms, GM technology, organic, etc. While still a small minority overall, this group has many influential members who can affect public policy and affect the direction of the private/public sector. The development of broad-acre crops for non-food uses is on the increase globally as a means of substituting for fossil-fuel derived feedstock. Plant derived materials for manufacture, fibres, fine and bulk chemicals, energy and pharmaceuticals are all in this mix.

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Sociological

IMAGE OF FARMING IMAGE OF PRODUCTS

Farming Image in mind of consumers confused by conflicting media coverage There are many mixed messages about farming and growing being relayed to mainstream consumers. On the one hand consumers tend to be supportive of farmers but, there continues to be a lack of trust, confusion and skepticism by some consumers over large herds/farms, modern disease and pest control (e.g. neonicotinoids and bees), GM crops, cloning, TB control, GHG emissions from agriculture, etc. The industry could do more to engage with consumers and policy makers and help them understand about modern agriculture and horticulture. In addition, farming must be prepared to consider whether all of its practices which we are familiar with on a day by day basis are appropriate in the modern world. To do this, consumers must be engaged with actively and constantly. Increasing transparency of the world through social media is both an opportunity and a threat, but the farming and growing sectors should actively engage in these areas in order to promote the industry. If there is not a good understanding of farming and growing then consumers and politicians may have knee-jerk reactions without examining the evidence base. This could impede the development of UK farming. If UK agriculture and horticulture is not able to become more competitive through the use of modern technologies, either UK consumers will have higher food prices than elsewhere in the world and/or we will export our food production to countries where new technology is more readily accepted. Consumers will then have little option but to purchase food produced in ways that contravene UK regulations, (an example of this would be the export of much of the UK pig industry to the rest of the EU). We need to help ensure that the policy makers in the UK/EU, mainstream consumers (and future consumers through educational activities) have a good and balanced understanding of modern agriculture and horticulture and the evidence/information they need in the format they need it in. We should work with global colleagues to gather the information and evidence needed for this activity. We should work with others in the industry to promote the farming and growing industries e.g. through Open Farm Sunday and our educational activities.

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Technological

ACCEPTANCE OF GENOMIC TECHNOLOGY

Genomic Technology is becoming more accepted elsewhere in the world. Genomic technology offers many potential benefits to agriculture and horticulture. There is increasingly renewed interest in the benefits of biotechnology, including GM, diagnostics to support conventional breeding, genotype based diets and cloning, etc, as a route to improving production efficiency/yield/human health. Concern exists around these technologies for several reasons including the fear of the unknown, the monopolistic control of these technologies by large multinationals and the lack of public science involvement. This leads policy makers and the public to be concerned that profit is the only motive and concern that safety or animal welfare may be given secondary consideration. There are signs of movement with retailers now content to allow poultry to be fed on GM corn feed and strong support from the Secretary of State for the Environment, Food and Rural Affairs for GM technologies. The benefits from genetic and genomic technologies globally have been considerable in a few traded crops (maize, soya, cotton and oilseeds). The momentum is likely to increase as demand grows. The productivity of those crops has increased enormously in recent years by comparison with so-called orphan crops such as wheat. The EU continues to be resistant to the introduction of GM crops but the uptake and impact of genomic selection and other new technologies is likely to have rapid impact. New technology brings the best hope of the significant step changes in productivity needed to feed a growing world population. The inability of EU/UK to access and adopt new technology will seriously hamper the ability of the EU and UK to compete with other countries and be profitable. We need to ensure the industry and policy makers understand the pros and cons of new technologies and the opportunity costs of not being an early adopter. The involvement of more publicly-funded scientific activity in product development is probably crucial if new technologies are going to receive wider public acceptance in the EU.

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Technological

LACK OF R+D AND KT

Lack of applied R&D and KT There is a need for technical research and knowledge exchange/transfer to maintain competitiveness and to respond to the need to reduce GHG emissions as well as minimise waste, increase resource use efficiency and counter threats from pathogens and parasites of livestock and diseases, pests and weeds of crops. There is growing concern about the need to increase the level and reach of Research and Knowledge Exchange (both publicly-funded and industry-funded) that is clearly directed towards the resolution of major challenges in order to increase longer-term productivity on a sustainable basis sustainable intensification. This concern has led to action being taken including likely outcomes from the Governments Agri Tech strategy. There is likely to be an initiative to ensure a closer connectivity between research providers and those organisations which provide KT/E services to farmers and growers. It is likely that new Government funding will be predicated on industry contribution which may provide an opportunity for AHDB in this important area to leverage funds for the benefit of levy payers. There are shortages of capability in the science base with the erosion of some key disciplines, such as soil science, animal nutrition, weed science, crop pathology, etc. Also, the age structure of the science base is problematic and there are issues of succession for some areas of applied science of relevance to agriculture/ horticulture. Additional funding e.g. the Agri-Tech strategy may begin to act as a catalyst to begin to tackle these challenges. Current initiatives such as the Agri-Tech Strategy may have supported tackling the threat of long- term lack of applied science and KT focus leading to the weakening of the competitive position of UK agriculture/ horticulture. We must act as the knowledge house for the sectors we work for, bridging the gap between scientists, policy makers, industry and farmers and work with policy makers to ensure there is adequate funding of applied R&D and KT. We must work to preserve the whole pipeline of research, from strategic to applied, to KT. We must also access knowledge from around the world in order overcome the lack of indigenous researchers. Funding of this area and leveraging funding from other sources must be a key priority for us. The KT part of this area is at least as important as the R&D area as R&D without effective KT is worthless. On a value-for-money basis, we should engage with initiatives such as the Agri-Tech strategy, Horizon 2020 etc. in order to ensure that these opportunities provide benefits for levy payers,

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Technological

SLOWING PRODUCTIVITY GAIN

Crop and Animal Performance is slowing after the post war boom There has been a slow down in the increase in productivity in many sectors in recent years. This is for a variety of reasons low profitability, less investment in applied R&D and KT, lack of focus on improving production levels. Much of the financial incentives, technical advice and support, implementation of new varieties of crops, etc., ended when supply of food in the EU exceeded demand. With the expected increase in world demand for food, the EU and UK has an opportunity to scaleup productivity. This has been the primary driver for the Governments Agri-Tech strategy and the need for the UK to increase the productivity has been recognised as a subject requiring public-private initiatives to achieve progress. One issue in keeping productivity up is the availability of pesticides. This comes to three issues: Consumer attitudes (see farming image), legislative (see Legislative) and finally resistance/new pesticides. Lack of improvement in productivity will lead to lower profitability and greater competition from other countries whose productivity is improving. Pesticides which dont have resistance problems but do not have a significant impact on the environment are needed to control pests and diseases. Greater environmental damage, greater food insecurity and less profitability in the UK agricultural and horticultural sector than in other parts of the world. Lack of pesticides that are effective is inherently unsustainable methods should be developed to make pest and disease control more sustainable. We must work with partners to ensure the UK productivity increases at least as fast as competitors. This will involve working with policy makers to ensure policies do not hinder productivity, supply chains to ensure the incentives exist and through KT with farmers and growers to improve business management and technical performance. We should support the development of sustainable methods of disease and pest control which can be used to maintain yields at current levels. We need to pay attention to the opportunities to further support levy payers likely to be provided by new Government investment in its Agri-Tech strategy.

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Technological

IT/PRECISION FARMING
Uptake of IT/Precision Farming is patchy across and within agricultural sectors There is a poor understanding and uptake of ICT performance-based measurement tools, and precision farming techniques and technology, within some sectors. With increasing growth in ICT applications used for supply chain operations there is increasing potential for producers to gain efficiencies in supply chain coordination. The rate of change in electronics, information technology and sensors will continue to be very rapid. In the next 25 years, this may result in miniaturised biosensors actively monitoring crops and animals and controlling highly targeted inputs for water, nutrition, crop protection etc. Robotics may begin to play a part, further reducing the need for low skilled (and even some high skilled) labour on farm. This area continues to grow and it is likely that new technology will surprise us with applications not previously considered. The use of Big Data may provide opportunities in agriculture in the context of R&D, better supply chain management etc. If farmers and growers do not (or cannot) take up new technology their productivity will not keep up with competitors and profitability will suffer. In addition, greater precision can mean less waste and less bystander exposure, etc. As for short-term plus the cost of technology and the complexity of it may mean that farms and growers may continue to get larger in order to be able to exploit it effectively and efficiently. We will need to support the uptake of this technology through communicating its value and benefits in order to meet our competitiveness and environmental objectives and also to improve the image of farming with consumers and policy-makers. This means that we need to stay abreast of technological developments. To do this we need to ensure that we have sufficient IT/technologically skilled staff within AHDB to understand the trends and technology. We need to pay attention to the opportunities to further support levy payers likely to be provided by new Government investment in its Agri-Tech strategy. The area of big data and agri-metrics/ informatics has been identified as a high priority by Government.

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Legislative

TRADE DEALS
Trade Negotiations under WTO are not complete. Bilateral trade deals are emerging In the absence of a multilateral trade deal, bilateral trade agreements will continue to influence global trade flows in the short to medium-term. Current tough economic conditions are likely to delay trade deals as there has been a shift of emphasis in many countries towards greater protectionism which, although not significantly reducing access at present, is leading to limited new access. Mercosur talks are ongoing but still have some way to go before successful conclusion. This may be of serious concern to EU beef producers, as Argentina and Brazil may look for greater European access. The proposed EU-US trade deal will need to be monitored to see what impact it may have on agriculture. It is likely that EU regulation of GM technology will feature in these discussions. The increase in average world commodity prices to EU prices in many sectors has reduced the potential impact of free trade in many products (cereals, dairy) whilst in others remains crucially important (beef, sheep, pigs). Increased access to EU markets for meat products would probably lead to significant pressure on UK/EU farmers. We need to provide the industries with information on the likely market impacts of any agreements. We need to ensure the industries are as competitive as possible in the markets in which we operate in order to maintain profitability. We should promote trade based on equivalent sanitary and phytosanitary standards. Our own policies on GM and other potentially controversial technologies in the EU need to be kept closely under review in the context of a US-EU trade deal.

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Legislative

NEW TECHNOLOGY BANNED

EU GM/Novel Foods/Pesticide legislation is not as responsive as many other parts of the world The approach to GM and other new food production technologies from the EU is crucial to the uptake of these technologies. Legislation could prevent or delay the uptake of technologies widely in use in other parts of the world and also discourage the development of technology specifically suited to EU/UK climatic and production conditions. There are signs of movement with retailers now content to allow poultry to be fed on GM corn feed and strong support from the Secretary of State for the Environment, Food and Rural Affairs for GM technologies. As per the long-term impacts. The UK/EU agricultural and horticultural industries are potentially falling behind the competitiveness of other countries because they cannot use the same technology. This could increase the cost of food for consumers, increase GHG emissions and possibly export our industries to other countries with standards that would not be allowed in the EU. We should help the scientific community ensure that policy makers have the evidence and information that they need to make informed choices. We should both support and promote a science led, risk based approach to analysis and decision making.

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Legislative

CAP REFORM
CAP Reform will change the policy background including the greening of Pillar 1 Following detailed proposals to change the CAP in late 2011 discussions about the implementation details are ongoing. The changes to CAP will be within the context of the forthcoming wider negotiations on the EU budget framework post-2013. The key development will be greening of Pillar I. This will mean that farmers have to undertake additional actions to receive their Single Farm Payment. The exact impact of CAP Reform will depend on the implementation details and this will become clearer during 2013. The precise impacts are difficult to predict without knowing the final shape of the the Reform. However, the farming and growing sectors are likely to need to get to grips with a new st support system from 1 Jan 2015. This is likely to bring new rules and regulations which will have to be implemented within on farm practice. This may distract farmers and growers for a period of time as ensuring compliance in order to receive support will be high on their priority list. The precise details of CAP Reform will affect the entire industry. However, until the details are known it is not possible to determine the full long term effects. However, it is important to note that the need for a common market and competitiveness are key, which if not supported by CAP Reform may lead to disadvantage to parts of EU agriculture. At present there is some concern that CAP will be less common after this round of reform and this may change the long term competitiveness balance and hence change the supply/demand balance across EU. We need to work with the farming unions to analyse and explain to farmers and the supply chain what the impacts may be and ensure that policy makers have the information they need access to ensure that the outcome they want is likely to be achieved by the measures they propose to put in place. We need to consider how and whether to implement technical KT events at around the time of CAP Reform implementation particularly if there are CAP Road shows being held as farmers attention is likely to be on CAP compliance rather than technological/productivity improvements.

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Legislative

LEGISLATIVE COMPLIANCE
Compliance with Legislation is becoming more costly By complying with a wide range of environmental and other food regulations, producers are increasingly bearing higher costs of compliance. With growing concerns over environmental protection and food safety the EU will be continuing to focus on food hygiene/safety and animal welfare/disease regulations. The EU is currently considering proposals on animal health and welfare and is reviewing air quality (ammonia emissions) as well. The horsegate scandal is likely to lead to further focus on how the food supply chain is regulated and monitored. As new regulations come in farmers/growers and industry have to understand them and implement them. This takes time and money to do. The implementation of the recommendations of red tape task force may help to mitigate some of the historic legislative perverse outcomes and gold plating. Higher standards in the EU that importers do not have to also meet will simply result in EU consumers consuming food that would not be allowed to be produced in the EU and the exporting of the industry to other countries. Any more stringent regulations in the EU should be compensated for by the introduction of payments to farmers, or import controls on food stuffs not produced in the same way if the regulations are not to be self-defeating. We should ensure that policy makers have the evidence and information that they need to make informed choices. We need to work with industry organisations to engage with policy makers and regulators over the implementation of regulations, including horizon scanning regarding new regulations and taking a pre-emptive approach to EU proposals. We need to support the industries in understanding and preparing for EU-wide bans on particular products, e.g. neonicotinoids, or new regulations.

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Environmental

CLIMATE CHANGE ADAPTATION

Climate Change adaptation will be required in the EU Adapting to climate change is becoming increasingly important across many parts of the world as global average temperature increases, changing the climate. Farmers and growers will need to review cropping and production choices and methodologies. In particular, weather windows may change in timing, sometimes with positive results e.g. a longer growing season, sometimes not e.g. new pests get a foothold in UK due to a more favourable climate. The role of plants in mitigating climate changes and making the urban environment more comfortable in a changed climate situation should not be overlooked. Novel plant and animal diseases may increase, eg., blue tongue, Schmallenberg, ash die back, etc. The current run of poor weather dry in 2011, wet and dull in 2012 and cold in early 2013 has provided significant challenges to UK agriculture and horticulture. Whether these are due to climate change and what climate will take hold in due course is not yet clear. What is clear that any permanent changes in climate such as the concerns that less arctic sea ice might lead to the Gulf Stream moving southwards more regularly would impact the pattern of production in the UK. The Governments National Adaptation Plan is due to be launched soon and agriculture is likely to be prominent. The weather is likely to have more of an impact than climate change in the UK. However, there is increasing concern about whether our weather is now starting to be affected by climate change The UK was expected to be one of the countries least affected by Climate Change in the modelling that has been carried out. However, it remains to be seen whether the models are correct or not. Adaptation will need to take place within the UK, but it is currently too early to determine what the longer term climate of the UK will be and hence what changes UK agriculture will need to make. We need to ensure that the potential increase in importance of the UK as a food producer is understood by stakeholders and policy makers, with particular reference to the land use trade off and food security issues. We need to work with industry to support adaption of production systems to any long-term changes to climate through the provision of existing knowledge, and commissioning of new R&D where necessary. The role of trees and plants in public spaces and gardens to help mitigate the effects of climate change through temperature reduction, rainfall buffering, etc should be promoted. We should work with industry and government to identify any disease risks which may migrate into the UK from warmer countries. We need to consider the need for monitoring and forecasting the likely changes to pests and diseases due to climate change. Adaptation to climate change may require sufficient capital investment by farming businesses (e.g. livestock housing, water capture and storage, precision irrigation, etc.). We need to consider where we will access the knowledge and skills to provide advice and support to levy payers.

Novel animal and plant disease outbreaks may need to be managed.

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Environmental

WATER MANAGEMENT
Water Management is an emerging priority Fresh water availability is one of the key global challenges. However, in the past most of the UK is reasonably well-supplied for most of the time in most years. The exception is the densely populated and drier South East of England where there is less water per capita than in Morocco. Farmers in the dry South East of England often have limited extraction capability and certain crops (sugar beet, potatoes and vegetables) are reliant on irrigation. Horticulture in that region is also constrained by the availability of water at certain times in most years. The substantial issue in the UK is water management around pollution and waste control coping with the Water Framework Directive and related legislation. The sustainable use of water is a growing concern as indicated in the Water Framework Directive and will probably affect attitudes to food production in the long-term. Ensure that those crops that require irrigation can be irrigated by investing in water storage and distribution. Ensure that NVZ and other regulations are complied with. Concerns about embedded water could lead to lower consumption of meat products, but could also provide a boost to home produced foods where water is more abundant than in many other countries and production systems are based on grass from natural rainfall potentially providing a competitive advantage. We need to ensure that the industry has the evidence it needs to demonstrate that water use is often needed for efficient crop production. This means policy makers can have the information and evidence they need when they are developing strategies, policies and regulations. We can also ensure consumers understand the situation regarding water in UK produced products.

For UK products which are heavily dependent on irrigation, there is a need for studies of comparative sustainability in terms of yields per m3 extracted water relative to imported product. There may be redistribution patterns of crop production based on water availability.

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Environmental

SOIL MANAGEMENT
Managing natural resources like soil will be increasingly important Soil is a natural and finite resource that underpins all agricultural production systems. Its functions include crop anchorage, distribution and provision of nutrients and water, sequestration of carbon, filtration and lockup of water pollutants and contaminants and numerous other ecosystem services related to biodiversity amongst others. Soil condition and composition has a profound effect on productivity along with costs associated with workability. Condition is also implicated with respect to water holding capacity and resilience to drought, flood management and mitigation of diffuse pollution. Events relating to erosion frequently hit the press and compromise the reputation of agriculture. Research into soil management has historically been piece-meal and ad-hoc often without a longer-term rotational context and adoption of best management practices has been ham-strung. Poor management of natural resources such as soil and peat will impact productivity and lead to poor consumer views of farming and lower productivity if we allow soils to degrade. Further consequences of degradation are that more soils will migrate from good to marginal or from marginal to unproductive compromising rotations. We should ensure that researchers, funders and policy makers recognise the potential benefits of creating a fully integrated soils research platform capable of sharing methodologies and appreciative of the need for long term, rotational approaches to soil improvement. We should ensure that farmers are provided with information on consumers and policy makers attitudes towards farming practices so that they can take them in to account when making decisions. In addition, we should ensure farmers and growers have access to the best practice advice about how to manage soils and reduce peat usage.

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