Drivers of sustainable malting barley production in Scotland
Published on 3 May 2011 in Sustainability and Communities
Introduction
Sustainable food supply systems are an essential component of sustainable rural communities: social sustainability – e.g. ensuring food access and food health; economic sustainability – e.g. creation of employment, income and opportunities; and the maintenance of competitiveness in farming and the food industry; environmental sustainability – e.g. the prudent use of natural / local resources and reducing food transportation. Concerns over food access and security as well as climate change all reinforce the need for sustainable food supply chains.
Barley is Scotland’s most important cereal crop in terms of output, being estimated at £243 million for 2008 according to the 2009 Economic Report on Scottish Agriculture, and its contribution to Scottish agricultural output is only exceeded by cattle and dairy production. According to HGCA in 2008/09 an estimated 1.872 million tonnes of barley were produced in Scotland with some 740,000 tonnes being used for malting and the remainder for feed (885,000 tonnes) and seed (50,000 tonnes).
The exact value of the barley crop is very much dependent on the size and quality of the domestic crop and the state of both UK and international markets. Cereal prices in Scotland are strongly linked to global markets. In 2007 and 2008 cereal prices rose markedly, including those for barley, due to low global stocks and increasing demand, but the global recession has led to reduced demand and stocks have recovered following good harvests. Consequently, prices fell markedly in 2009 with barley prices being down 29 per cent on their peak in 2007.
Such price movements invariably affect farmers planting decisions and in 2009 the spring barley area in Scotland was down from 287 thousand hectares to 242 thousand hectares, a reduction of 16 per cent, whilst winter barley rose slightly from 45 to 48 thousand hectares. Thus barley went from representing 74 per cent of the Scottish cereal area in 2009 to 68 per cent in 2010. With spring barley yields in Scotland down marginally in 2010 and winter barley yields constant, production of barley fell from approximately 1.9 million tonnes to 1.6 million tonnes.
The Scottish whisky industry is a major user of malt from low nitrogen barley, and the malting sector typically uses 700 to 750 thousand tonnes of malting barley per year. The special qualities of Scottish malting barleys, especially those with low nitrogen levels, make it a key ingredient for the Scottish whisky industry, with grain of higher nitrogen levels going to brewing malts and export.
Thus, the sustainability of the whole chain – malting barley production, malting, distilling and brewing is of vital importance to the Scottish economy. The purpose of this note is to provide an overview of drivers of sustainability of the malting barley sector in Scotland.
Key Points
To understand the factors that drive the sustainability of malting barley production in Scotland, it is important to understand that malting barley is the key raw material for several supply chains, but principally for the malting barley-malt-whisky supply chain.
For growers the concept of sustainability involves the ability to continue farming and producing malting barley, and within this notion is the importance of economic reward for the resources and effort involved. Environmental and social considerations are present to varying extents in farmers’ thinking and actions (depending on the ethos of the individuals concerned), but these are to a degree facilitated by sound economic sustainability.
There are three important drivers of the sustainability of malting barley, which are related: (1) factors affecting the choice of malting barley production by farmers, (2) factors from the downstream supply chain (i.e., farmers’ customers) and (3) legislation.
Factors affecting the choice of malting barley production by farmers
High input costs (e.g., high fertiliser and energy costs) and low output prices. On the one hand, the rising price of key inputs at all stages of the chain is driving farmers towards more sustainable practices. At the farm level this involves more efficient use of fertiliser, diesel and greater use of renewable energy sources. On the other hand, low output prices have a direct impact on crop profitability and on the farmer’s decision of whether to include the crop in the farm output mix.
Better profit margins on other crops (e.g., bio-fuels). Farmers’ decisions are strongly influenced by the relative profitability of crops. Thus, continued malting barley production depends on the profitability of possible alternative crops such as winter wheat and oil seed rape.
Factors deriving from the downstream supply chain
Demand for products derived from malting barley. Clearly, as in any supply chain, any disruption of the downstream demand for products affects the demand for malting barley. For instance, a decrease in the international demand for whisky reduces the demand for malt, which subsequently implies reduced requirement for malting barley. Of particular importance for the demand of products derived from barley are international market forces. Weak international competitiveness of the malt sector, which might arise from old and relatively inefficient plant in the UK compared to new plant in the EU and Far East, will ultimately lead to reduced demand for Scottish and UK malting barley.
Quality, traceability and food safety assurance requirements. For maltsters the economic dimension is foremost and within this the fundamental importance of a consistent supply of raw material is stressed. This means that farmers, who are operating within a volatile market, need to ensure profitable production of the required quality, whilst satisfying all the traceability and food safety requirements required by legislation and their customers.
Sustainability concerns among downstream supply chain participants. The sensitivity of malting barley customers to sustainability issues, particularly environmental sustainability, is an increasingly important driving force. Environmentally sustainable practices are most likely to be actively developed within collaborative supply chains where collaboration amongst growers (horizontal collaboration) combines with collaboration amongst downstream chain participants (vertical collaboration involving growers, processors and possibly retailers).
The whisky industry is very interested in favourable sustainability practices and innovations within their supply chain, and this is expressed in their industry-wide Environmental Strategy. This is not only an issue of corporate social responsibility, but also good sustainability messages can assist with market differentiation and help protect the value of key brands. In fact, the whisky industry is committed to reducing greenhouse gas emissions and reliance on fossil fuels through innovation and adoption of appropriate technologies, with a target of ensuring that by 2020, 20 per cent of the industry’s primary energy requirements will be derived from non-fossil fuel sources and 80 per cent by 2050. For the malting barley sector this clearly implies the adoption of high environmental standards and relevant sustainable practices, as well as the agreement of partnership targets and other opportunities for environmental improvement so as to minimise the total environmental impact of the Scotch whisky industry.
Legislation
Affecting the profitability of crops. Legislative changes such as the reform of the Common Agricultural Policy, has the potential to change the profitability of crops. An example of this is introduction of the Single Payment Scheme, which disconnects payments from production and which aims to make European agriculture more competitive.
Affecting the use of inputs. The use of inputs is also regulated by EU legislation. Issues such as the use of genetically modified crops and also the use of pesticides are important for malting barley not only with respect to environmental sustainability but also economic sustainability.
Research Undertaken
Two projects deriving from the 2005-2010 Scottish Government Research Programme have provided findings as regards drivers of sustainability for malting barley in Scotland. The first one is Strand F: Socio-economics Programme 1, Work-package 1.1 – Barley Genetics; and the second is Programme 3, Work-package 3.1 - Sustainable Farming Systems, which comprises (1) Stakeholder analysis and (2) Agri-food supply chain analysis.
The topics in Work-package 1.1, which are focused on barley, have involved understanding the current market environment of barley in Scotland, the transactional and organisational / personal relationships along the supply chain, and an analysis of the prospects of the sector together with the main requirements in terms of genetic traits.
As regards WP 3.1, the malting barley-malt-distilling supply chain has been one of the supply chains considered for the sustainability analysis. This analysis has comprised two areas of work: (1) to provide an understanding of motivations and behaviour towards sustainability of the main agri-food stakeholders of the supply chains, and (2) to explore how different types of supply chains and market conditions influence sustainability at the farm level.
Policy Implications
Despite the rise in commodity prices, it is expected that pressures of competitiveness will remain due to the rise of input prices (particularly those derived from oil).
The fact that the prosperity of the malting barley sector depends in great measure on the performance of the entire supply chain, makes the sustainability of the sector more challenging as any pressure downstream is reflected on malting barley growers. In view of this, it is appropriate to ask about advantageous strategies for the survival of Scottish malting barley production.
A prominent answer to the aforementioned question seems to be that farmers should work to establish collaborative and sustainable relationships with the various stages of the supply chain. Within such arrangements, domestic farmers can offer processors a resilient supply of raw material of traceable quality, which complies with all the required specifications, including strong sustainability attributes.
In response to a commitment for a stable supply of the required quality, processors should ensure a reward (expressed in terms of adequate payment reflecting changes in the costs of production and stable demand) that is essential for investment and sustainable production.
Certainly to achieve such marketing arrangements requires reward (commercial benefit) for each partner in the chain and good communication between them which will reinforce the trust between the parties concerned.
Authors
Philip Leat Philip.Leat@sruc.ac.uk
Cesar Revoredo-Giha Cesar.Revoredo@sruc.ac.uk
Chrysa Lamprinopoulou-Kranis Chrysa.Lamprinopoulou@sruc.ac.uk
Topics
Sustainability and Communities
