Food and drink supply chain and transport industry: evidence report

2. Scottish food and drink production, markets and transport routes

In 2017 Scottish food and drink exports were worth approximately £6 billion; almost £570 million more than 2016.^[11] Drink was the largest proportion, valued at £4.36 billion (73% of total food and drink exports) with Scotch Whisky comprising almost all that value. Fish and seafood accounted for the majority of food exports and were worth approximately £944 million, up 23% from the previous year and 16% of total food and drink exports.

This section identifies the key markets and transport routes on which the main food and drink sectors in Scotland rely.

The source of the export data is the Her Majesty's Revenue and Customs (HMRC) Regional Trade Statistics and Overseas Trade Statistics and Export Statistics Scotland. This provides a comprehensive overview of Scotland's export market; however, there are cases in which Scottish production for export is poorly attributed in the data due to the location of processing and / packaging etc. or data has been processed differently for the HMRC and Scottish Government Export Statistics Scotland.^[12]

When the entire production process for Scottish produced goods (the majority of whiskies, for example) is completed on Scottish soil, the origin of goods exports is better known. However, some goods may be moved across internal UK boundaries for packaging and further processing prior to export (for example, whitefish landed in Scotland but processed in Grimsby). This level of cross-border processing is not easily quantified and makes it difficult to determine the origin of some goods. This effect is not limited to seafood exports: dairy, meat and other Scottish products can also originate in Scotland with further production and value added in the rest of the UK.

Export data reliability is further compromised by the transhipment of goods which results in the 'Rotterdam effect'. The largest importing country is Netherlands largely because Rotterdam acts as a major distribution hub as well as a port. This means that Rotterdam is often recorded as the destination of many goods exported from Scotland (and the rest of the UK) which are then subsequently re-exported to other destinations.^[13]

As such, the figures given below should be considered as indicative, rather than definitive.

Figure 2. Scotland's Food and Drink Exports, by product type, 2017^[14]

2.1 Whisky

2.1.1 Production and markets

In 2017, exports of Scotch Whisky rose to £4.37 billion, which represents a volume of 1.23 billion bottles, exported to 180 markets worldwide. With over 10,000 employees directly involved in the Scotch Whisky industry and over 40,000 jobs across the UK supported by the industry, 7,000 of them in rural areas, whisky is a key product and export for the economy.^[15] Gin also represents a growing industry in Scotland.

The main markets for whisky are the EU, North America and Asia, as shown below.

Figure 3. Regional Scale and Performance of Scotch Whisky exports, 2017^[16]

These key markets continue to see increased volumes and valuations alongside emerging markets in Africa, the Middle East and some non-EU European markets. The EU is the main export region for Scotch Whisky with 32% of the total export, £1.38 billion. Within Europe, France is the largest market with 31.5% of total EU exports.

Outside of the EU, North America accounted for £1.1 billion worth of Scotch Whisky exports and for 25% of all Scotch Whisky exports by value. Values in Asia represented 20% of the export market.

2.1.2 Transport routes

After distilling, most whisky is sent to third party warehouses for maturing for at least three years and often significantly longer. After maturation, it is transported to bottling plants prior to transportation to the customer. The production of whisky is wholly contained in Scotland.

Bottling plants operate on a just in time basis and once bottled the product is sent to the port for export. If there are delays there is little storage on-site to hold the product. There is the potential to hold whisky in the maturation warehouse prior to bottling but not for a significant period of time and given the long lead times associated with whisky production, changes in the supply chain, market or logistics requires significant advanced planning.

The majority of whisky exports are transported in intermodal containers; and whisky comprises a large proportion of containerised exports leaving Scottish ports. The final bottled product is typically taken by road and rail to ports across the UK including Grangemouth, Greenock, Liverpool, Teesport and Felixstowe. Whisky is therefore relatively unsusceptible to potential delays at RoRo^[17] ports such as Dover (ferry and Channel Tunnel), which accounts for only a small proportion of whisky exports going to France.^[18] Exports destined for outside of the EU typically move via Rotterdam or other major ports, transhipped from the relatively small container ships serving Scottish ports to larger ocean-going ships for onward movement to international destinations.

There may be the potential to make greater use of the Channel Tunnel for rail freight to Europe, which could come directly from Scotland via the rail halts at Coatbridge, Mossend or Elderslie. There is the potential for customs issues associated with this but the product could potentially be cleared for export away from the terminal to minimise delays.

Greater use of the railways for freight highlight the importance of reliability on the mainline network, and especially the West Coast Main Line which provides the main route for Scottish exports. Floods in early 2015 resulting in the closure of the Lamington Viaduct showed the impact of incidents on the line. A number of diversionary railfreight routes are not W8 gauge^[19] cleared or 24hr, and this resulted in other export routes being explored, including the greater use of Greenock port, marine services from which were soon operating at close to maximum capacity. Had a similar incident occurred during the peak whisky period of August-December it is not clear how significant disruption could have been prevented.

There is little use of aviation for transporting whisky on a large scale. Its weight makes transport by air costly, whilst its long shelf life makes it unnecessary however it is used for high value bottles or to meet tight delivery timescales. Whilst increasing Scottish airport capacity and capability is not necessary to support export volumes, improving global connectivity is important for the industry both in allowing executives to reach new and growing markets, as well as increasing the number of tourists visiting Scotland and its distilleries.

2.1.3 Transport resilience

The whisky industry is relatively resilient to transport system shocks in comparison to other Scottish food and drink sectors. Its products are already transported in large volume to many countries across the world, meaning that its reliance on any one market is relatively small. It already utilises a relatively large number of UK ports as export points, reducing its reliance on single ports or routes.

2.2 Seafood

2.2.1 Production and markets

Seafood is one of the two dominant export products in the Scottish food and drink industry alongside whisky, with an export value of £944m in 2017.^[20]

Within this section, 'seafood' accounts for two broad sectors: fishing (wild caught fish) and aquaculture (farmed product comprising mostly salmon and mussels). Within fishing there is a broad distinction between inshore (boats under 12m in length, near the shore, largely shellfish) and offshore fishing (white and pelagic fish). These sub-sectors have been identified as they have fairly distinct supply chain routes, operational models and timescales to market.

Relative to the rest of the UK, Scotland accounts for 80% of catch by weight of total landings, and is the fourth largest sea-fishing nation in Europe.^[21] In 2015, Peterhead, Lerwick and Fraserburgh accounted for 48% of volume and 32% of value of all seafood landed in the UK^[22] with north eastern Scotland processing dominated by fish landed by vessels engaged in offshore activity.

Around 341,000 tonnes of sea fish and shellfish were landed into Scottish ports by inshore and offshore vessels in 2017, carrying a value of £505m, a 2% decrease in both value and volume from 2016 levels.^[23]

Inshore fishing typically focusses on nephrops norvegicus (langoustine/ scampi) and scallops^[24], brown crab (growing in demand in the Far East), European lobster, and the velvet crab are also prominent. In 2017, £63.66m of value was landed by the inshore fishing sector at Scottish ports.^[25]

Aquaculture in Scotland broadly includes the farming of finfish (mostly salmon), shellfish (mostly mussels) and, to a small extent, seaweed.^[26] An estimated 40% of farmed seafood is currently exported.^[27] Salmon is the largest food export from both Scotland and the UK more widely; salmon exports have grown rapidly over the past decade, from a total of 128,606 tonnes of farmed salmon in 2008, to a total of 189,707 in 2017, an increase of nearly 50%.^[28]

In terms of volume, France and the Netherlands are the biggest destination markets for Scottish seafood produce once leaving the UK. This is due to the importance of Boulogne-sur-Mer, northern France, as a key auction market for onward buyers into other European centres (it is estimated that 80% of Scottish seafood exports to Europe are through Boulogne^[29]), and of Rotterdam as the major transhipment hub towards large Asian markets. As such, much of the produce categorised as exported to France or the Netherlands has final destinations in other counties. The third largest destination is the United States; mainly for fresh salmon.

Scottish salmon is exported to over 65 countries; the top five export destinations in 2017 were:

• USA (sales worth £193M);
• France (£188M);
• China (£69M);
• Republic of Ireland (£34M);
• Taiwan (£16M).

Germany, Poland, Canada, Belgium and the Netherlands make up the next five export destinations.^[30]

The share of exports to the Far East is on the rise, and Scottish Seafood has identified emerging market opportunities for Scottish exports in the six major Asian cities of Shanghai, Beijing, Hong Kong, Seoul, Tokyo and Singapore.

Lanarkshire is an important logistics hub for Scotland's shellfish and farmed salmon, with large scale temporary chill and cold storage facilities available on site for consolidating relevant loads before onward delivery. The Lanarkshire sites are well located to reach south England ports within one lorry driver shift. Increased congestion en route and potential increases in delays at ports will impact on the viability of completing the journey with one driver.

Bellshill, south of Glasgow, is strategically positioned next to the motorways and has developed into a processing cluster. As a result, it has become a staging post for consolidation of Scottish fish products.^[31]

DFDS's site at Larkhall holds a significant strategic position in the aquaculture logistics chain. The transport hub and chilling facility handles at least 140,000 tonnes of fresh seafood for exports annually – the vast majority of all Scottish salmon, likely over 90% of the total – and is not yet at capacity.^[32]

Deliveries of fish are particularly time sensitive. Consignments typically have a maximum of around 60 hours to reach customers following dispatch. If product demanded live (typically shellfish) arrives dead there is a significant reduction in price and if it arrives at commercial market after midday the price drops by around 50%. This places a premium on ensuring speed and reliability of transport connections.

Destinations and routes for frozen produce vary due to the demand in new markets. For example, a large volume of pelagics landed at Shetland are directly exported to Russia, Nigeria and East Asia by sea, while brown crab is in increasing demand in China.

2.2.2 Transport routes

Almost all seafood bound for export leaves Scotland on road vehicles, as this provides the most flexible mode for time-sensitive goods.

Trade with Europe is dependent on the Channel Tunnel as journey times for ferries are too slow for time-critical produce.^[33] The primary destination is the fish market at Boulogne-sur-Mer, which is a 13-hour journey from Larkhall, the same time that it takes to reach the London markets from Peterhead with a stop-off at Larkhall for packing. Orders are taken until 16:00 and the client expects the product to be in Boulogne-sur-Mer by 08:00 the following morning giving a short window for transport^[34].

DFDS's timescales from Larkhall to Boulogne allow for up to a 45-minute delay to journey times, and have calculated that just a 7-minute delay attributed to paperwork at the border would take the trip over the limits permitted for a single driver and would necessitate either a second driver or result in the spoiling of the product.^[35]

Given the importance of road transport in the supply chain, the standard of infrastructure is critical. Issues with the M74/M6/M40/M25/M20 route to the Channel Tunnel remain, especially when delays are caused by roadworks.

The Channel Tunnel is generally considered to work well, though there are often high levels of congestion, particularly at weekends when maintenance takes place. But there is no current alternative route that can be used between the Scottish seafood processing centres and the Boulogne market without the shipment being late.^[36]

A glimpse of the impact that delays can have on lorry movements was experienced during the introduction of Operation Stack on the M20 in 2015 as the result of industrial action in France by ferry workers. Consideration had been given to the issuing of permits to give priority to perishable goods, though such action was never taken.

Fresh seafood exported outside the EU is transported by air, almost all via Heathrow. Almost all Scottish seafood destined for export from Heathrow is taken there by road; interconnecting flights from Scottish airports rarely provide a time-competitive route.

Most seafood exported from Heathrow will travel as bellyhold cargo in scheduled passenger planes. There are reported to be regular capacity issues and difficulty securing space on flights from Heathrow, which must be booked several weeks in advance. During times of peak demand, preference can sometimes go to other products due to the smell associated with transporting fish.

A small amount of Scottish seafood is exported to non-EU countries directly from Scottish airports. The planes used for the Emirates service to Dubai from Glasgow are sufficiently large to carry palletised salmon, though we understand from aquaculture industry stakeholders that seafood consignments are flown from Glasgow only irregularly. Some small consignments of high value shellfish are transported from Edinburgh Airport.

Amongst Scottish airports, only Glasgow has any refrigeration infrastructure in place to store chilled produce prior to its export. At other airports, roadfreight hauliers must operate just in time deliveries to meet flights. There have also been discussions in the past about utilising Prestwick airport for seafood airfreight, but these have not been pursued to any conclusion.

Some frozen seafood (mainly prawns and scallops) leaves Scotland in containers, either on road vehicles or directly from Scottish container ports^[37]. These will often be destined for Far East locations, and rely on transhipment in Rotterdam or other major ports. There is reported be a small proportion of direct shipments to the continental ports from Shetland.^[38]

It is reported^[39] that, when the daily (and, latterly, every other day) Rosyth-Zeebrugge ferry service was in operation, little use of it was made for seafood haulage. This was partly the result of primary export auction markets being located in France, 35km from Calais but 160km from Zeebrugge, and the logical preference for the Channel Tunnel route by consequence. Furthermore, the Rosyth-Zeebrugge route was seen as ill-equipped to meet the strict time demands of Scottish seafood exports to the continent due to its limited frequency and the arrival times of the service.

2.2.3 Transport resilience

The Scottish seafood industry is heavily dependent on just two transport options to access export markets: the Channel Tunnel for export to Europe and Heathrow for other markets. No alternative transport route is available to the important European fish markets that enables current ordering and delivery expectations to be met.^[40] Use of other transport routes would require longer lead times between customer orders and deliveries than the industry currently operates to (for example, Dover-Calais ferries).

Direct ferry services from Scottish ports to Europe have not, in the past, offered an attractive alternative. Scottish airports do not currently have capacity to handle significant volumes of refrigerated goods, and direct flights from Scotland connect to relatively few destinations in comparison with Heathrow.

2.3 Meat and Meat Products

2.3.1 Production and markets

Meat and meat products accounted for £99M of Scottish food and drink exports in 2017.^[41] The Scottish meat processing sector sends less of its produce overseas than the UK as a whole, and exports tend to be of higher value products, particularly for beef and lamb, with pork exports negligible. Fifth quarter products (which includes organs, hides and bones) make up a significant proportion of exports and play an important part for Scottish cattle and sheep processors, helping achieve better returns.

A huge proportion of meat exports from Scotland are bound for the EU; Quality Meat Scotland estimate the proportion of exports to EU countries to be 97% of the total.

Ireland, the Netherlands and Germany the largest markets within the EU. The USA and Brazil are the main destinations outwith the EU.

Parts of the Scottish meat industry are heavily dependent on supply chains into England. Significant proportions of Scottish-reared pigs and lambs are transported to England for slaughter. Almost all produce has some level of secondary production between slaughter and the market. Much of this processing, especially for animals slaughtered in England, though also of a significant proportion of those slaughtered in Scotland, takes place south of the border. A small proportion of Scottish meat is processed in Ireland.

Meat is not particularly time sensitive pre-processing, as time spent during transportation can be included is part of the maturation process. Post-processing, the perishability increases markedly, so fast and reliable transportation becomes more important.

Demand for scotch meat is growing in non-EU countries, but is such a small proportion of exports at present that it would take a wholesale shift in demand and transport networks before market substitution could that from the EU. Accreditation for exporting to China is being sought, though this is expected take a number of years to be approved.

2.3.2 Transport routes

Most meat exports are believed to be transported by truck, though some are understood to be moved in containers. Given the ability to include transportation time in the maturation process, transport is not usually considered a problem for the industry, unless faced with a short-term issue such as industrial action or a prolonged period of bad weather.

Regulations mean that consignments cannot be mixed, so different meats and meats at different stages of maturation must be kept apart on separate vehicles. As a result, some hauliers make multiple collections of the same types of product from different locations during their journeys, and these sometimes include loads of Scottish, English and Irish meat on a journey to the continent.

Rerouting these exports to leave from Scottish ports would be relatively inefficient, as would using Scottish ports to export Scottish meat that has been slaughtered and/or processed in England.

Some meat is flown from Edinburgh Airport to Heathrow for onward transport as belly cargo on commercial passenger flights.^[42] Interviews conducted for this research suggest that air freight operators have investigated the potential for new Prestwick or Edinburgh air links to the Far East, though the case has not yet been made, and a current constraint is the lack of refrigerated storage at Scottish airports, though general freight handling capacity exists.

2.3.3 Transport resilience

Meat products are, particularly pre-processing, much less perishable than seafood, so the meat industry has less risk of lost value from short-term transport delays.

But the meat export market is highly reliant on demand in the EU and on Dover-Calais/Channel Tunnel routes to get there. Its ability to move away from those short crossings is constrained by the reliance of much of the industry on processing capacity at sites in England, and on the inability to mix consignments of different products on a single vehicle.

2.4 Other food and drink products

Airfreight is currently used by a range of Scottish gourmet foods. The 2012 Highlands and Islands Transport Partnership (HITRANS) Air Freight in the Highlands and Islands study found that products included.^[43]

• Wild mushrooms (with Dalcross Logistics (Inverness) reporting several tonnes each year being exported through their system and the US being mentioned as a frequent destination for this product).
• Vacuum packed wildfowl, game, North Ronaldsay lamb and Aberdeen Angus beef.

Orkney has a sophisticated agricultural sector with range of gourmet and organic food with organic beef and lamb collectively marketed under the Orkney Island Gold label. Currently, road and ferry transport has been optimised to move goods to Glasgow and Manchester for onward air freight journeys however the report noted that Orkney exporters have had many frustrations with attempts at air freighting directly from Orkney itself.

There is a range of specialist game producers. However, this market sector is quite small and dispersed with many relatively small producers. It still has much growth to achieve in serving the UK market, let alone reaching out to world markets, and it appears the UK can usually be adequately served by road transport.