General Enquiries on the form should be made to: Defra, Procurements and Commercial Function (Evidence Procurement Team) E-mail: [email protected] Evidence Project Final Report Note In line with the Freedom of Information Project identification Act 2000, Defra aims to place the results of its completed research projects in the public domain wherever possible. 1. Defra Project code FFG 1141 The Evidence Project Final Report is designed to capture the information on 2. Project title the results and outputs of Defra-funded The UK Cereal Supply Chain research in a format that is easily publishable through the Defra website An Evidence Project Final Report must be completed for all projects. 3. Contractor European Food and Farming This form is in Word format and the organisation(s) Partnerships LLP, boxes may be expanded, as appropriate. Mermaid House, ACCESS TO INFORMATION 3rd Floor, 2 Puddle Dock, The information collected on this form will Blackfriars, be stored electronically and may be sent to any part of Defra, or to individual London, EC4V 3DB researchers or organisations outside Defra for the purposes of reviewing the 54. Total Defra project costs £ 62160 project. Defra may also disclose the information to any outside organisation (agreed fixed price) acting as an agent authorised by Defra to process final research reports on its 5. Project: start date ................ May 2012 behalf. Defra intends to publish this form on its website, unless there are strong September 2012 reasons not to, which fully comply with end date ................. exemptions under the Environmental Information Regulations or the Freedom of Information Act 2000. Defra may be required to release information, including personal data and commercial information, on request under the Environmental Information Regulations or the Freedom of Information Act 2000. However, Defra will not permit any unwarranted breach of confidentiality or act in contravention of its obligations under the Data Protection Act 1998. Defra or its appointed agents may use the name, address or other details on your form to contact you in connection with occasional customer research aimed at improving the processes through which Defra works with its contractors. EVID4 Evidence Project Final Report (Rev. 06/11) Page 1 of 76 6. It is Defra‟s intention to publish this form. Please confirm your agreement to do so. ...................................................................................... YES x NO (a) When preparing Evidence Project Final Reports contractors should bear in mind that Defra intends that they be made public. They should be written in a clear and concise manner and represent a full account of the research project which someone not closely associated with the project can follow. Defra recognises that in a small minority of cases there may be information, such as intellectual property or commercially confidential data, used in or generated by the research project, which should not be disclosed. In these cases, such information should be detailed in a separate annex (not to be published) so that the Evidence Project Final Report can be placed in the public domain. Where it is impossible to complete the Final Report without including references to any sensitive or confidential data, the information should be included and section (b) completed. NB: only in exceptional circumstances will Defra expect contractors to give a "No" answer. In all cases, reasons for withholding information must be fully in line with exemptions under the Environmental Information Regulations or the Freedom of Information Act 2000. (b) If you have answered NO, please explain why the Final report should not be released into public domain Executive Summary Project aims This project was commissioned by Defra to identify ways in which the UK cereals industry can continue to increase its competitiveness and resilience in a global marketplace. The work aims to identify and build on current best practice in the sector with a view to enhancing and broadening understanding and application where there are opportunities. The project report will be used by Defra to understand the role of CAP reform and the use of policy levers to improve competitiveness; and by the Home Grown Cereals Authority (HGCA) to identify and prioritise activities that support cereal supply chain improvement . Evidence for the report was gathered from a number of different sources including desk research, specially commissioned research amongst representatives of the supply chain and case studies highlighting examples of best practice in the cereals sector. The global marketplace faces the dual challenge of volatility and the need to produce ‘more from less’ It is important to set the findings of this report within the context of a global marketplace and the food security challenge described by the Government‟s Chief Scientific Advisor, Professor Sir John Beddington. The challenge is framed by the need for a world population of 9 billion people to be fed healthily and sustainably by 2050. Cereals and rice form the staple diet across the world and in the future world production will need to increase substantially whilst at the same time conserving natural resources of energy and water: in other words producing „more with less‟. To achieve this will require all those in the supply chain to work together more effectively to identify and implement savings and efficiency gains. As price support for EU farmers has been dismantled over the last 15 years UK producers, food manufacturers and consumers are exposed to much greater global market volatility. Within the last 5 years this has been greatly exacerbated by substantial price spikes due to increasing world demand and variable harvests. The view is that the world is entering a new era of significantly higher and more volatile cereal prices. EVID4 Evidence Project Final Report (Rev. 06/11) Page 2 of 76 UK is self sufficient in cereal supply Within the UK the value of cereal output is estimated at £3.2 billion, with production of 21.5 million tonnes (2011 harvest) which is currently more than sufficient for the country‟s own processing needs. Exports total between two and four million tonnes, with imports of around two million tonnes of crops (e.g. hard red wheat for milling) not easily grown in the UK. Wheat, barley and oats make up over 99% of the UK cereal area, with wheat being the most significant of these. This report focuses on wheat and barley. UK cereals are mainly used for animal feed, food manufacturing and brewing Mapping of the UK cereal supply chain demonstrates the range of routes that cereals take from farmers through to end product or consumer. The main products include animal feed, flour derived from milling wheat, malt from barley, cereals for breakfast cereal manufacture, wheat for starch and bio-fuel manufacture. Grain merchants are an integral part of the supply chain The majority of the cereals are sold at harvest, stored on farm or stored in central (often cooperative) stores. Deliveries to first stage processors are generally managed by merchants who remain an integral part of the supply chain, acting as the coordinators for the numerous and fragmented farming supply base and the relatively few processing and export customers. Over 70% of the national crop is handled by the largest six merchants. The animal feed sector is the single biggest user of grain The animal feed sector remains the largest single user of cereals in the UK, accounting for some 9.6 million tonnes in 2011. The two largest feed manufacturers with national coverage account for around 50% of the market. Milling remains the largest sector for human consumption of cereals utilising 5.1 million tonnes in 2011, producing 4.1 million tonnes of flour. The two largest millers, account for 40% of flour production. The fortunes of the two malting sectors for brewing and distilling (totalling 1.8m tonnes), have been in marked contrast over recent years. A fall in beer consumption, and hence demand from brewers, has been offset by a rise in global demand for whisky that has seen the distilling sector continue to expand. The decline in UK barley production over the past 20 years has led to a number of stronger supply chain relationships developing within the malting sector to maintain a UK production base and to ensure security of supply. The breakfast cereal sector continues to grow in value and in 2011 was estimated to be worth £1.48bn, using 350,000 tonnes of wheat. The decline in production of group 3 wheat, on which there is a high dependence in breakfast cereal manufacture, has been a concern. Previous supply chain work was led by the Cereals Industry Forum (CIF) CIF was set up in 2002 as partnership between HGCA and industry. It developed a series of business improvement tools including Cropbench, Probe Analysis, Masterclass, Value Chain Analysis (VCA) and Risk Management training. Of these VCA, was the only initiative that identified improvements across the supply chain; the other tools focusing on individual business performance. VCA identified nine categories of issues grouped under three broad headings where improvements were necessary; crop management, supply chain relationships and commercial drivers. CIF was disbanded in 2008. The project research with cross industry participants identified barriers and enablers to improve supply chain competitiveness This research highlighted the perception that progress has been made over the last decade but that there is still considerable scope to improve efficiencies and hence competitiveness in the cereal supply chain. Issues raised could be categorised into four main themes: Further improving supply chain efficiency A major barrier to growing milling wheat and malting barley is a lack of incentive however, there was a feeling that a real difference could be made by the development of longer term and stronger collaborative relationships between farmers and processors / manufacturers.