 Good morning, everyone, and welcome to the 32nd meeting in 2017 of the Rural Economy and Connectivity Committee. Could I remind everyone pleased to make sure their mobile phones are on silent? The first item on the agenda is the draft budget scrutiny for this year. This is the first evidence session on the budget support from the Scottish Government and public bodies for the food and drink industry, forming part of the committee's pre-budget scrutiny. Felly, AMCR has published a budget хочет for 2018-19. The committee will have an opportunity to question the cabinet secretary on spending across a whole range of policy areas within the committee's remit, including food and drink. I would like to welcome the first panel, James Withers, the chief executive of Scotland Food and Drink. David Thompson, chief executive of Food and Drink, Federation Scotland Patrick Hughes, the head of Seafood Scotland, and Scott Lansborough, the chief executive of Scottish Salmon Producers organisation, and Andrew Richardson, the director of the Society of Independent Breweries. Before we go into the evidence session, I would like to declare an interest, and I believe that there will be other panel members who want to declare an interest. My interest is that I am part of a farming partnership, therefore producing food in Scotland. Peter, would you like to? The declaration is part of a farming business in Aberdeenshire. Does anyone—Stiwet, do you want to— I registered agricultural holding of three acres. I think that's all the interest declared. For those of you who haven't given evidence before, if you look at me, I will try and bring you in. If I see you catch my eye, I will bring you in if I can. I will also try and reduce the length of answers to the questions if I feel it's getting quite long, because it's quite a big panel for everyone to get a chance to speak. Also, could I remind you, you don't need to touch any of the buttons in front of you. Once I have called you, your light will automatically light up and you'll be able to answer the questions that are put to you. I think that we'll go on to the first question, which is from Peter Chapman. Thank you, convener, and welcome, gentlemen of the panel. My question is based on what's been an absolute success story over the last 10 years. There's no question about it, Scotland's food and drink now worth some £14 billion to the economy and growing and turnover growing by 44 per cent and exports by 56 per cent in the last 10 years. We aren't content to rest on our laurels and the expectation is to grow that to 30 billion by 2030, which is an ambitious target indeed. My question is, what do you think the Scottish food and drink industry needs in terms of support to achieve those aims by 2030? James, you looked up. That means that you lead off, James. Thank you to the committee again for the opportunity to come and talk to you this morning. I know that we did a session earlier on in the year around the strategy itself that we launched back in March that we titled Ambition 2030. As Peter says, I articulated our view that there is an opportunity there of growth of the industry to twice the size that we are just now. Within that strategy, there are some very clear strands for us around market development, both in our market here and market overseas, and then the three major capability-building areas in the area of skills, areas of innovation and the area of supply chain. We operate quite deep partnership between industry and the public sector in Scotland, which we have done for the past 10 years, and it works well. It would be fair to say that we have a good level of contentment among the industry in terms of funding that is going into the sector. It is more complex in Scotland than you will get in other countries. In countries such as Ireland or New Zealand, you tend to have one figurehead public sector body, where all funding going into the farming, fish and food and drink sector is spearheaded through. In Scotland, we have a more complex landscape with a number of public sector actors and industry bodies, but we have developed a close way of working. Our view is that the prioritisation of funding for this sector is absolutely critical going forward. It is difficult to put a number on that. I think that that is one thing that we have found sometimes a challenge for the industry. Spice have made a good attempt, I have to say, at trying to understand the different levels of funding that exist in different places. The greater clarity on those different areas of funding and the scale of investment going there, I think, would be helpful. However, prioritising investment across those four areas for us will be essential market development, skills and innovation and supply chain. One area that we are worth in particular to look at—I think that I mentioned it last time that we did a session on the strategy earlier on in the year—is that, a few years ago, within the rural economy budget, as it is now called, there was no food and drink industry development budget at all. It did not exist as a budget line, and it was welcome to see it there. It is modest, I would say. It sits at about £6 million at the moment. Clearly, we have an ambition in growth terms of £14 billion, £15 billion over the next 10 to 15 years. I think that that is an area that is worth looking at. That fund has been used quite well in recent years. We have a certain level of flexibility to it. There is a new funding agreement between industry and government that has been agreed as part of this strategy—£10 million between industry, money and government. I would like to see that particular budget line move northwards, because I think that we are going to identify, over the next year, as we are doing action planning around these key priority areas, some flagship initiatives and gaps in delivery. It might be a little bit frustrating for the committee that I am not here with my top five things that we would like to invest money in, but that work is happening just now. If we can move that particular budget line northwards, that means that, as we identify those opportunities and priorities, we do not lose then a year in trying to make a funding case. We have funding earmarked to be able to move quite quickly in what is going to be a pretty fast-changing environment. There is some more detail on mind around particular market opportunities, but I will leave it there for the moment. I will bring in Stuart before I give somebody else a chance on the panel. You have all been studiously looking away, so I do not know whether you are not wanting to answer the question, but maybe Stuart will entice you in with his. We are reading in the press that the cost of food is going up faster than almost anything at the moment because of the proportion of our food that is imported. Clearly, the devaluation of the pound should be an opportunity for our exports of food, but that does not appear to be happening. Given that we are looking to double the size of the industry, is the devaluation of the pound opportunity or threat? Because so far, it does not seem to be playing out as the former. I am going to let Scott come in on that, because he was… Well, I do not know if you noticed our export figures in the media the other day, but we have benefited from a lower pound. Undoubtedly, in the export markets, our exports are at record highs. Our production is not static at the moment, but we, as you are aware, have some aspirations to grow that. The reduction in the value of the pound is a double-edged sword. Our feed costs are a large part of our production costs, and obviously they have gone up because that is priced in US dollars, so that has been an impact. On balance, it is beneficial to us to have a lower pound to export around the world, because we are becoming more attractive compared to our competitor countries. It is straightforward as that. I agree with all the things that James has said. I think that the other thing that we have to recognise for producing large quantities, the good news about Scottish food and drink is that its high value is regarded as premium, but in order to get to a number like £30 billion, we will need to be producing a lot more, and that is a capacity challenge. We need to think about the capacity and how we create that, and how we can deliver that additional production. Some of the things are maybe additional points as opposed to mainstream points, but it is worth bearing in mind that we are transporting large tonnage of food from the northern Isles, and we need to ensure that our road infrastructure is up to speed for that challenge. We think that there is undoubtedly an A85 upgrade as a high priority, as is the A82 and the A30. I know that that is a different budget from what you people are looking at, but nevertheless it is something to bear in mind. Additionally, the digital and mobile connectivity remains a challenge. Our keenest competitors are Norway and the Faroiles, they are the nearest and keenest competitors, and their connectivity is miles ahead of ours. I think that that is against something that we need to bear in mind. Actrix, do you want to come in on that? Does the value of the pound have been a benefit to your industry or not? As Scott has alluded to, in the salmon sector, there is significant growth. We are also seeing growth within the white fish sector too, the pelagic sector. We are noticing that there are increased opportunities within the export market. That works in tandem with the in-market specialist that we have in various different places around the world, and that echoes with the interests going to the likes of the Boston Seafood show and Brussels, where we are seeing first-time attendees now interested in seeking and enhancing their market opportunities from export. In terms of support, we are going out to industry and a series of engagement sessions to understand what the challenges are and what the aspirations are for the industry to move forward. Support and innovation in looking for processors to move towards automation is something that needs to be looked at. The long-term strategic funding of how these initiatives can help. For example, we know that the EMFF is life-limited, so having a system that replaces that in time, we are not necessarily left with a funding gap to potentially move the initiative forward. The in-market specialists and the support to looking in export markets are not necessarily resting on our laurels and looking to see that Scotland is open for business and that we are seeking markets elsewhere. The transportation issue that we were up in Shetland last week and one of the key issues that that sector has are linked to the freight and the getting off the island. That chimes with what Scott was saying in terms of linking that all up with transportation and distribution. James highlighted that it is a fairly complex system. There are many funding streams to support the industry. Do you find that difficult? It makes the job more difficult if we could streamline the systems of support and it would help the industry? I think that it would give the industry more clarity. In terms of EMFF, it has been very worthwhile, but it is short-term, so having that longer-term strategy and that flexibility to maybe adapt in the medium term as well, it is very prescriptive in terms of what you have to do and if there is a deviation beyond that, it may not permit that deviation. Andrew Duggan, do you want to come in on that? Just to say that I am a manager of a brewery, as well as representing SIWA. We do not have any full-time staff in Scotland, so I can talk from personal experience as well as the experience of our members. Overall, I think that the support that we get from the Scottish Government is excellent. We get seminars on various topics. There is capital expenditure support that we have had, there is innovation support, and there is support if you are trying to do exports. It is there if you want it. We are lucky that my companies are account managed by Scottish Enterprise, so there is one person who can advise us on what support is available. For people who are not, it is a bit more difficult and there is a bewildering range of opportunities. Even this morning, I was chatting to someone downstairs in reception waiting to come to this meeting room from the Scottish funding council who told me that they have money available for small businesses to work with universities, which I was not aware of. We will get along to the next SIWA meeting and he can tell us about what that is about. Just to say that I have had met him. Our average member is two to three man business, knows the grainstone. They do not have time to spend a lot of time looking around, to be frank. They are running their business, so I think that simplifying it or, as I say, we are lucky, we are account managed and the chat we deal with is excellent and therefore can inform us on what is going on, but if you do not have that, I think that it is more difficult. Peter, is there a follow-up to that? The follow-up is, how effective do you feel that the support has been to date? I kind of answered that question when I started speaking earlier on. You have been a huge success story over the last ten years, so you might assume that what the support mechanisms have been to date have been a success, but how do you feel about that? I am sure that in some ways it could be better. For my sector alone, I think that we have unfulfilled demand. We can't, but if we could overnight double our production, it would all be in market today and it would be at the same price, so there is an undersupply. That is one of the challenges that we have. Obviously, we have to do it in a sensitive way, particularly to the environment and the biology that we are experiencing at the moment, but I think that there is a huge opportunity for the salmon sector certainly in world markets, but if you look at all, by and large, all the Scottish food brands are pretty high quality and I think that the premium message is just going to grow in demand. Do you feel that it is realistic that you can double the salmon industry in the next 15, 10, 15 years? Is that realistic in your opinion? I think that it is very challenging. I would like to say that we will try and grow by around 4 per cent per annum, but to put a big tonnage number out there, I do not think that it is a good idea. I think that we just need to play it by ear. There are so many variables in managing in the natural environment, food production in the natural environment that I cannot commit us to that particular tonnage. I think that it would be silly to do that. I am quite keen to bring you in because I have not had a chance to yet. Do you want to comment on whether it has been effective the funding so far? I think that it has. There are areas where we have already discussed that there is hunger for more. As has been mentioned, capital expenditure support for companies is always something where there is a high demand, a limited budget and a limited set of criteria under the food processing and marketing grants that are available. Certainly, in the experience that I have had with those grants, there is always an oversupply of eager applicants for those. That is one of the key areas where you can easily point to support that has been available and that has delivered growth. We talked about the clutter of funding. There are some good examples of how the partnership has helped to declutter some of that funding. Last year's launch of Make Innovation Happen, the innovation support service, which is backed by more than £1 million of Scottish Enterprise on Highlands and Islands Enterprise money, is a way to declutter the innovation landscape and make it easier for firms to access. Now, there is a phone line that you need to talk to and specialists who are there who can do that. On the back of that funding, projects will arise and there is money that is available to support those projects. There are areas where work has been done to make it simpler for businesses to access it. If I may, I wanted to pick up on the question that Stuart Stevenson asked about imports and exports. My members, who are quite often some of the larger companies that manufacture in Scotland, are facing pressures. Those pressures are around materials that are imported in order to add to the process in Scotland, some of which you cannot get in the UK alone. The prices of those have obviously gone up with devaluation and currency, and that is creating cost pressures for a number of my members. I am going to bring Mike Rumbles in and then we will move on to the next question, Mike. I want to ask a devil's advocate question. We are examining the budget. Food and drink is a really successful story. The Government has done a good job in supporting the food and drink industry. Maybe it has other priorities now. You can only spend public money once. If I was the finance minister asking you this question, I would say that where in the budget of financial support to the food and drink industry do you think that the finance minister might be able to call a little bit back to put to other areas? James, you are sort of clawed back out of food and drink spending to put elsewhere. That is a devil's advocate question. It is. That is why I wondered why you were volunteering to answer it quite so quickly. I was volunteering to clarify the question. That is a really difficult one, Mike. I do not know what the answer is. I think that it would be fair to say that the last 10 years can sometimes be characterised as giving a lot of things a small amount of money, rather than potentially looking at what transformational investments might be. That is a real challenge for something like the food and processing marketing grant scheme, which I agree with David. It is absolutely critical. Do you give 10,000 businesses some money to buy an oven, or do you look at a couple of transformational processing capacity areas that we need to invest in? As we go forward, we need to look at how we prioritise some of that investment. There is an instinctive desire of the Government to spread the money thinly so that everyone is a little bit happy, as opposed to prioritising what those key investments are. The challenge for us as industries is to help them to do that and make some of those difficult decisions ourselves, rather than leaving that with Government. I do not approach this discussion by thinking how much I would like to see the food and drink investment budget go down, so I cannot help you particularly with that question. What a surprise. I say that everyone else has looked away when you asked that question. I wanted the question asked. I am probably going to move on to Fulton now to ask the next question. Thanks, convener, and thanks, panel. Good morning, and thanks for coming along. I probably should just declare that just before you came in, I have just eaten a roll in black pudding and potato scone, so I have definitely done my bit for the food industry. Whatever anybody thinks about that particular combination, I was told earlier today that it was definitely a coat bridge thing, so there you go. My question is kind of following up from Mike. You know we are talking about the budget just now and there is a discussion nationally going on around taxes, particularly income tax. Is there anything that you think we can do to help to encourage changes that would support the industry, and if so, what would be the key focus in order to achieve that and be happy to take it in any order? Patrick, do you want to go with that? What changes would you like to see? That is an industry. Just alluding to the engagement session, we are asking the industry what they are looking for support in. It does vary. The processing sector is looking for help in the innovation and in automation. If we are looking at a reduced workforce, which is invariably happening, we have the north-east of Scotland potentially on average 70 per cent of migrant workforce to make a sustainable future going forward. Those businesses are going to have to look at automation. That is challenging for those businesses that work on tight margins. There is a factor of de minimis that means that the public sector support is limited to a certain extent. In terms of what needs to change, we need to look at what de minimis support we can give to the sector and also look at ways in which we can help with the infrastructure investment for automation and moving those businesses forward. I am going to bring Stuart in and then widen it out, if I may. That is a very small specific point to Patrick. At the moment, the European rules limit investments to 30,000 euros. Is there an opportunity, therefore, once the UK leaves the European Union, to see the state being a bigger player in investment? We would certainly like to see that. Certainly, if we can get some parity with the agricultural sector, that would be great. However, not even limiting that, now is an opportunity to look at things in a different way. We would certainly encourage that. James, you nodded at that stage. Do you want to add anything to that? Obviously, the de minimis rules are complex and the difference between agriculture fishing, between agriculture fishing and then manufacturing. It places an artificial limit on support that can be plugged into companies where the case of that investment is quite strong. There are, as I understand, WTO limits around this as well, so we are not going to be free of those de minimis limits. However, I have never been quite convinced of what the economic rationale is for the de minimis limits that we have, particularly solo at the primary sector. Back to the point about prioritisation of funding, although I would agree entirely with Peter's comment about the success of the food and drink sector, there are areas in which we have been patently less successful. That investment and connection between what is happening at the primary end of our supply chain, particularly farming and the rest of the manufacturing sector, and the more we can remove what I would argue are artificial barriers to investment of that, the better. I think that we will be able to achieve the kind of ambitions that we have. David, do you want to come in on that? Sure. Not so much about de minimis, though I would absolutely agree with the points that both James and Patrick have made. Going back to the question about income tax that was the first one, I think that over the next couple of years we will see a massive challenge to the food and drink industry in both manufacturing and primary production, and that is around the issue of workforce. Brexit or not, the change in the currency has meant that there are enormous pressures in food manufacturing and in the primary and agriculture and in fishing on the workforce as a whole. One of the questions that I would ask is whether there is anything in the income tax proposals that would support bringing more people into this country to be able to do that primary processing and do the food manufacturing that we will require and that is critical. That is one of the areas that I would ask. The other thing is around the income tax. A number of my members are large companies, sometimes international companies, who move people around. That is part of what they do in terms of management training and otherwise. We would not want to see such a differential in tax in Scotland, as compared to the rest of the UK, that that makes that tricky for individuals who are on a management track or who are developing their skills and potential as well. Fulton mentioned income tax. If anyone wants to widen that out to business rates or other form of taxation, I am sure that that would be a prick, Fulton. Do you want to follow that up? No, that was the only point that I was perhaps going to make if people were just going to focus on income tax and the question so far, that as a convener says, feel free to widen it out in the last two answers. Scott, do you want to say something on that? To endorse what David has said, I think that there are two pressures. One is the primary processing end, if you like, the lower-skill workforce. I hear and this is not necessarily from my sector that the attractiveness of working in Scotland for relatively low wages in the past has been the value of the currency compared to home. As the currency is devalued, then it is not as attractive. That is obviously putting pressure on a number of parts of the primary processing sector. That is one pressure. The other pressure for us is that we now have a strong demand for people with high engineering skills in our sector. It is strategically significant for us because we are about to invest in large-scale recirculating aquaculture systems for the production of juvenile salmon, which is all part and parcel of managing the environment in a better, more effective way. I am not talking maybe half a dozen. We are probably talking in the hundreds where we will need highly skilled people. That is the other pressure, if you like, to attract those people and to keep them and to give them a good career. Obviously, they are in an international marketplace for that. It is just a question mark. I am not giving an opinion here. We have to be careful when we are looking at differential rates in income tax with regard to that. Fulton, if you are happy with that, because that neatly leads on to the next question, which is from the deputy convener, Gail Ross. James Withers talked about the three pillars of strategy in the Ambition 2030. I want to concentrate on pillar one, people and skills. The last time that you were in, we discussed the possibility of a foundation apprenticeship in the industry. At the Food and Drink Federation event in the Scottish Parliament, Minister Jamie Hepburn went on to announce that there is going to be such a foundation apprenticeship, which was great news. I was interested as well to hear about the need for more engineering-type skills and people in the workforce. We know that the Scottish Funding Council has £37 million to invest in the sector. Do you feel that the money is being spent in the right areas? How do we know that it is providing the right training and do you think that we are getting good value for money? There are quite a lot of questions. Who would like to start off? David, do you want to start with that? I can start off on some of the skills work that is being done. As part of the Food and Drink Federation, we get support from the Scottish Government to do work on using the food and drink industry as a career. We work with a wide range of schools and we create partnerships between schools and businesses and have done that for many years now. A lot of those partnerships are very well developed. We also work with our education providers. We work with Schools Development Scotland, the College Development Network and the Scottish Qualifications Authority on making sure that we have the right types of degree and other courses available for those who want to pursue a career in food and drink, particularly in technology. What that means is that we have developed school-level courses and we have supported universities and others to target their courses better. We have also worked with a range of colleges to make sure that they have the right course there. That means that we are helping SQA and others to develop a new higher national diploma in food science and technology. There is a range of activity that is going on to try and align the courses and the types of experience that is available to young people so that they can see a clear career path into the industry. That is one of the ways that we are helping in particular around the science and technical subjects. I just wanted to make sure that that was there to show that there is, again, support from the Scottish Government and support from industry to try and make that career path clear. Andrew, do you want to come in on that? Very briefly, at a more senior level, the Heriot-Watt of the only brewing and distilling course in the UK at the moment. The Heriot-Watt mafia are everywhere. We have had three graduates from Heriot-Watt being very good, although they tend to be very theoretical rather than practical, which takes four or five months before you can let them all in, but they are very good. On the apprenticeship level, there is a lot of desire for skills training in the industry, and I think that we would welcome it. My lift conversation coming up here today was with someone from the Skills Development Scotland who told me that they have now developed an apprenticeship scheme for brewing, which is great news. I hope that he will come along to the Society of Independent Brewers and tell us what that looks like. That is the sort of thing that people will genuinely get behind. Does it make the business sense to have, in particular in small companies, people that you can rely on that you can leave alone who will do what you want them to do without needing constant supervision? There is a desire to have people trained up. You mentioned skills. Do you want to comment on the money that is available through the SFC? It might be a specific request. We have an ageing workforce in salmon industry. It has been going for 40 years now. We actually have quite a lot of people over the age of 25, and we would like to basically enter them into an ME programme, a modern apprenticeship programme, because a lot of these people now require different skills to the ones that they originally entered industry with. I think that that would be of enormous benefit to us to upskill the over-25s now in this country. Gail, do you want to come back on that? That is an interesting point. Do you think that, as an industry, as a whole, we are getting the right people in the right place, or are there any gaps that you can identify that maybe the money could be better allocated in other places? David, do you want to… I think that it is clear to us from feedback from our members that it is in the science and technical and engineering side of things, so that ranges from a new product development to some machinery engineering and people who hit things with hammers and know precisely where to hit them. That is absolutely the area where the industry tells us that there is a great need, and that is why we are focusing our attention on those types of qualifications. I want to bring Stuart in, and I would like to say Patrick, if you have got something to add to that. Stuart, if I could start off with you. It is perhaps David and Scott. Our biggest competitors in Salmond by a long way are the new agents, where the tax rates are about 50 per cent higher than they are here, and yet I hear that they are not experiencing some of the difficulties in getting engineering staff that we are experiencing. Why? Scott, if there is a simple answer to that… There is a simple answer to that, I am afraid, but there is a societal thing there. It is a different style of living. Undoubtedly, there is a better infrastructure spend in Norway that benefits particularly a disparate industry such as Salmond. People enjoy the benefits of that. Again, a lot of this is cultural, so it is a difficult thing to answer. Norwegian's tend to holiday in Norway. We tend to travel the world and look at other millions of people who go in and out of Edinburgh airport every year. There are quite a number of different pros and cons to that. I am not advocating that. I do not know what you are advocating Stuart. It is an open question. It is a very big question. I know that the Parliament and the Government are testing the water, and that is the appropriate approach at the moment. It is a difficult one. Patrick, do you want to come in on skills specifically in your industry? Again, due to labour shortages, it is typically not dissimilar to other industries where it is not an attractive place to work. Therefore, trying to seek new entrants across the supply chain, even from the catching sector right through the processing sector, it proves challenging. However, the foundations are in place. Once people are in, the systems are there to help them. We just need to do a bit more work to upsell the industry as a whole, as an attractive place to work and an effective career choice. That is an interesting point that Peter wants to pick up on. Specific to Patrick about the catching sector, it used to be these fishing boats were all crewed by local folks. Nowadays, it seems to be increasingly difficult to attract local people, local youngsters to crew these boats, and we have got Filipino crews and all sorts of issues with that. Do you feel that that is beginning to turn around and we can train up the local young guys to see a future in the fishing industry? I was thinking about catching sector organisations yesterday, and they are starting to see it, but they have laid the foundations in place. They are giving new entrants an opportunity to actually go out into the sector and catch. There are limitations, whether that is due to boat licensing and everything else, but there are opportunities. We are not there yet, we are not seeing that influx of local people, but we need to try and get that rural infrastructure in place, try and get people into the sector. We will move on to the next question, which is your question. My question is about the supply chain. We have had a problem in Scotland with the length of supply chains in the past and the distance from the consumers. How can we address that? Is the funding that is going into supply chain being used to make sure that producers understand their customers' needs, both home and abroad? David, do you want to start on that and then I will probably bring James in afterwards? James has already alluded to the fact that one of the key areas in Ambition 2030 that we have really focused on is making sure that work on supply chains results in farmers and fishermen feeling like they are part of the great success of the food and drink industry, because that is something that has been a lack over the past few years. Absolutely, the work that is going on by the Scottish Agricultural Organization Society and a range of others in terms of co-operation and working with the supply chain is fundamental to the success of Ambition 2030. Philosophically, there is a difference between logistical efficiency and supply chains and even short supply chains. There is a whole range of tricky issues for the industry. If consumers want goods that are high-quality but at a low price, part of that is to make sure that logistics work. What that tends to mean is that you have longer supply chains and it tends to mean that you have larger distribution centres. Some of the types of businesses that I work with are the way that they have success. There is no one-size-fits-all here, but I think that there is still massive opportunity to support the supply chain and to do more in shortening that supply chain where it is appropriate to do so and where it has an advantage for Scotland's fishermen and farmers. James, you want to come in? I would agree with David Attila. I think that there are two parts to the supply chain investment. One is about capital investment, particularly in processing facilities, but the first part is about the work that the likes of SOS do where they really act as that honest broker between manufacturers and primary producers to look at having much more collaborative supply chains. Historically, in some worst, there is a fairly adversarial relationship between farmers and processors with a view that only one of those partners can make money at any given time, whereas there are good models of much more collaborative supply chains. Market-driven supply chains are a really important project. It is co-ordinated by Scottish Enterprise, funded by a number of public sector partners. It is about £1 million going into that project. That is the kind of investment that we need to see much more of. There are very clear returns on investment for that. You will see multiples of that investment being generated in terms of sales impact and growth impact as a result of that kind of investment. The capital investment, though, is important. I think that that is one, as a Brexit-related issue, FPMC, the food processing market and grant scheme, has been talked about a couple of times. It is absolutely critical funding stream. It comes from Europe just now. As we leave the European Union, we are going to have to find a mechanism to continue those kind of capital injections to the right projects at the right time, because that has really helped to drive on the growth of the last few years. Like David, there is a real delicate balance between having local processing facilities versus Scotland-wide processing facilities. For me, the priority is to be adding as much value as we can to our raw material in Scotland, so not to see product leave Scotland to be processed and then come back in. I think that there are opportunities to do that in a number of ways. We have been talked about in the red meat sector for some time. That said, in some circumstances, having smaller processing facilities at a very localised level can be really valuable, because it really enhances the provenance story behind the product, producing an area, processing an area and sold in an area. I am going to bring John in. Patrick, I would like to get you all in on this question, because I think that it is really important. As far as Patrick is concerned, supply chains and making sure that some of the produce stays local will be of interest to people, especially in your agency. If I bring John in and come back to the other Scot, would you like to talk on supply chains? I am just going to reiterate what the others have said. Our supply chain works pretty well, but I think that where we are underperforming is in secondary processing. A lot of it is still going to Poland to be processed, smoked. I think that we have missed an opportunity there, but again, the challenge there will be the labour market to get that right. We do not seek any funding for developing processing plants. We have already recently built a large one in Rysaith, as you know, and there is more coming in the west coast as well. We are quite comfortable with that. I think that the key for us is perishable product, so the whole supply chain has to work very efficiently. We want to get to our destination to be able to be distributed to the consumer within 48 hours maximum, and we achieve that. We achieve that in 60 countries around the world from some of the remotest parts of this country. It is working reasonably efficiently. I go back to my earlier point about transport infrastructure. It is dependent on that. It is dependent on that being upgraded as regularly as it can be. The support to the ferry system is welcomed and the long way that continues, because it is very important for us. I take the point that the system is working efficiently. I wonder whether the rewards are shared out evenly. I was checking one of my local restaurants—I could get had it on trips tonight—for £12 and fill it with beef for £25. At the same time, we are told that 36 per cent of farm businesses have made a loss. More than half of farm businesses generated income roughly equivalent to less than the minimum agricultural wage. If we lost 36 per cent of our farms, how can we possibly grow our food and drink industry? That raises the question with me. Although the supply chain might be working, is it fair the way things are? Can the Government do anything about that, or is that just something that we have to leave to the market? I would like to bring Patrick in on the supply chain and making food available local. Perhaps we can pick up on John's point, so Patrick, would you like to start on the previous question and then I will pick up the others? Shorter supply chains are obviously vitally important, especially within the seafood sector. We have an issue in the processing sector at the moment in which we have reduced capacity. There is ever increasing capacity. We need to reverse that trend, which goes back to some of the points that I made earlier. We also need to make sure that we retain the added value in Scotland. We have the markets in Peterhead and in Lerwick, in particular that are reinvesting in the fish auctions there. If we are not careful, the processing ability and capacity that we have will flow through Scotland and go to somewhere where it can be processed. We need to make sure that we capture that supply chain within Scotland. That links back to transportation and investment in the industry, too. We need to make seafood more available. We need to be working closer with public procurement to make sure that we are getting local fish on the menus. We are seeing examples of that with Highland Council. We are putting Scottish Salmon on their menus, which is great. There are small elements of success to try to increase the local seafood offering, but they are absolutely right. More could be done. Who would like to pick up on John's particular point on farm gate prices? I do not know what the equivalent is in the fishing industry, but there must be a saying there. James, do you want to pick up on that? It cuts to the heart of the whole issue of the booming food and drink industry, but how many farmers are feeling that boom effect and the reality is not enough. Scotland has, if not the, among the highest beef prices in the world, and yet we have a lot of particularly hill producers that will struggle to see profitability this year. It is a complex pattern. My view is that the answer has a number of parts to that. One is about markets. Scotland cannot and should not be a commodity producer in terms of agriculture. I think that we need to forget about playing the commodity markets and about premiumisation. Our most successful industry is whisky. Our second most successful is salmon. Both of them have premiumised their products. That means a balance of markets. 90 per cent of the Scotch beef that we sell is sold in the UK. It is completely the reverse for whisky. We need to keep internationalising our sector. That has particular challenges in red meat, because Scotch beef is still banned in mainland China. It is still banned in Japan, and it is effectively still banned in the likes of the US. The UK post Brexit, if we are in a new global trading mentality, has to prioritise those kind of certification issues in third countries. I do not think that they have done historically. Mixed markets and premiumisation will be critical. The averages are probably particularly irrelevant sometimes in farming, because the gap between the top third performing farmers and the bottom third performing farmer is huge. A few other sectors would tolerate it, but the support system has, if you like, somewhat cushioned farmers from that market. The support system will be critical. We need livestock production in the 85 per cent of Scotland, which does not lend itself to any other kind of agricultural production. However, in that spiced briefing paper on how we are investing funding in farming, fishing, food and drink, the single biggest element is agricultural support, which is £400 million. We need to think very quickly about the future generation of that support, and in particular the outcomes that we want. A support in the way that encourages farmers to drive efficiency and get closer to the market will be absolutely critical. However, there is no doubt that the on-going support will be central to keeping that supply of product coming through. However, we need to premiumise that product and access markets that we are currently still locked out of and think about how we drive greater efficiency on farm. The final element to the on-farm bit is that we cannot co-operate enough between farm businesses, and the likes of SOS do a huge amount of work in fostering, co-operation and collaboration. In the UK, we have probably been 10 or 20 years behind other countries in terms of agricultural co-operation, even though we have some sectors doing it very well just now. James, can I just push you slightly on that? I have made it clear that I do have a farm business, and I have seen barley prices being the same as what my father received 30 years ago, and it would be the same for most farmers. Those barley are going to one of the premium industries that you are suggesting in Scotland, and that is our whisky industry. Do you think that farm gate prices are a fair reflection of the work that our farmers are putting in, or do you think that they are not sharing enough? I do not think that we have an equitable share of the success that is being felt at the market end of food and drink back down through the supply chain. Why would a whisky company pay £150 a ton for malting barley because they can? A large part of that is about co-operation and the industry working collectively. If Scotland is selling its product on a provenance story, Scotch whisky does not have to use Scottish barley—it is not part of the PGI—over 90 per cent of it will be, but the whole supply chain needs to think that if that provenance story is going to mean something going forward, more and more it will have to be about right back to source, right back to farm gate. A greater value of that raw material coming from the farm gate and much more collaborative supply chains, open book supply chains, are going to be critical and forward. Maybe, in answer to the question about future support, we need to help to prioritise that support more. If we are going to be giving capital grants to companies, what are the requirements of those companies? How are they working collaboratively with producers? How are they tapping into international markets? How are they helping to build that Scottish brand and trying to target that support into companies that are embracing those kinds of principles? David, do you want to come in and then I would like to bring in Richard, who has got a question. Sure. I agree with everything that James said there. The thing that I wanted to highlight is with Brexit and with the change in farming support and fishing support, then there is a fantastic opportunity now to rethink that support that is available to farmers and fishermen and find ways to help them in a different way than was previous. That is obviously part of this budget process as well in thinking how that goes forward. The critical thing is that we have a set amount of money, part of which is part of the European rebate, so we must secure that for our farmers and for our fishermen. The second part is that I would not want to note that food processing itself is a high-volume low-margin business. There are companies that I represent where they are making half a percent or one percent on everything that they make, so it is not like all food processes and manufacturers are sitting on piles of cash either. As part of that, the whole supply chain needs to benefit. I am going to go back to Rhaedda first and then come to Richard. Yes, it seems to me from the evidence that we have heard that where the supply chain is owned almost by the producer and the salmon industry, the whisky industry adds to the profitability of that industry, where things seem to fall down, is where the producers are simply producing to sell, maybe on the open market adoption or whatever. At the vagaries of the market, we have seen in dairy to an extent where producers got together and there probably could be an argument whether that was good, bad or indifferent, but it could have helped them to get through the really difficult times. Is there a need for more co-ops and ownership of those co-ops owning the supply chain to the end producer? Would that be a direction of travel that we should maybe be investing in? Scott, do you want to go with that more co-ops in the salmon industry? What you are advocating for is vertical integration, which has worked to a certain extent for ourselves. It is not a whole sale across the salmon sector. We still supply a large part of the processing industry and that is a market exchange, if you like. I get complained to by various people about the farm gate prices, so there is obviously a pressure there, but that is the market dealing with it. I think that the trend, and it maybe reflects what Stuart was asking about, in the Norwegian industry is more vertically integrated than we are at the moment, and I think that that will be the direction of travel. If we do not do that, the other side of this is that there is always a risk reward. The risk is that more processing will go to a country that can process it cheaper. That is the other side of it. We, in recent years, have noticed an awful lot of salmon processing going to Poland. That is something that we obviously want to avoid. We want to keep it here. As James says, we are a Scottish premium product. That is our whole pitch. It is about the heritage of Scotland and the premium food that comes from Scotland. Therefore, we want that to be fully traceable back through the whole Scottish food production chain. I am going to bring James, and then I am going to bring Andrew in, because I think that it will be interesting to hear from his sector and then go to Richard. James, do you want to contribute to that? Yes. Vertical integration has some real attributes to it. In the Scottish sector, there is not really a debate about farmers versus processes, because they are the same business. I would say that co-ops have a huge role to play, but it is almost co-operation with a small sea rather than co-operatives that is critical going forward. Some of that is about mentality on both sides. In my old days, working for NFU, when prices were low, we had farmers desperately getting us to encourage the big whisky companies to offer fixed-price contracts. Then when prices went high, we had farmers desperately urging us to advise them how they can get out of their contracts. There is something about being able to lock in production to a price where a farmer knows that it can make money versus potentially still having some of the product that they can play about in the spot market and the auction market. However, I think that we need probably clearer contracts, more transparent contracts and greater commitment on all sides. I would say that from retailers and food service downwards, not just manufacturing farmers to contracts where everyone can make a buck out of the job. That does not necessarily mean that we need to own the processing, although I would absolutely support that in some cases, but greater co-operation and collaboration and supply chain should be able to make that happen. There are some examples where that has worked before. Andrew, do you want to come in and then I am going to get to Richard. Right. I have too much to say on this, but in a way we are similar to farmers in that we are quite a fragmented market. There are so many small brewers now. In any market where you have fragmented suppliers but concentrated buyers, as in supermarkets, you are going to face an unequal relationship. That is what we face. There is no doubt that the boot is on the foot of the buyer in the case of our industry. It is up for every company to manage that as best they can. Clearly, from a consumer point of view, they are delighted because they are getting good quality beer cheap. Who would not want that? You start saying that you have to pay the brewer more, then you have to pay the farmer more, then you pay everyone else more. At the end of the day, that means that your beer is going to cost more. That is the market that we live in. We all knew that when we got into it. Unless you are a giant, you are going to have to do as best you can in the market with prices that are not set by you. To some extent, you can set your prices, but there is a market rate for what you can sell your beer at, and that is the rate. I do not see an easy solution to that to Frank, because without putting up prices to consumers at the end of the day, I do not see an easy solution to guaranteeing small suppliers that they will always have a good income. I do not think that that is going to happen. A lot of our members are not making a lot of money, but I am afraid that is life. I do not know that we are not looking for Government support in that. Richard, do you want to come in with your question? I have a few questions, but the one that Andrew was talking about is that if you set your prices at a fair price, then you may sell more at simple economics. If I move on to Scots, Landbird and Patrick Cews, I have fish processing plant in Erringston in my constituency. I previously visited one in Aberdeen a few years ago when I was on the health committee, but the point that I want to make to you guys is that if we want to sell more, we need to produce more. Two things. I watched a programme a few weeks ago on the television. All the fish that is caught in Scottish waters, under flags of convenience, may be a British flag that is landed in Holland or landed in foreign ports. What do we do about that? Basically, for New Scot, Norway has a lot of feards. You are getting hassled from people about where salmon fish farms are, so if we want to produce more and sell more, how do we do it? I will move on to Patrick Cews first, because I think that the question of where to land your fish, you might want to comment on, and then maybe to Scott because the question was directed at both of you, Patrick. There is a requirement for Scottish fish in the processing sector, so if we can get Scottish boats to land in Scottish ports, that is obviously an advantage to the processing sector in Scotland, and that helps to retain the value within Scotland. However, in saying that, it is a global market, and therefore we cannot necessarily dictate where boats land. I mean, they are free to land wherever and create the prices that they get from that marketplace. What we do find is similar to what James was alluding to earlier, is that some businesses in some of the processing sector are actually buying on contract, so we do have the boats landing at an agreed price and they are benefiting from that too. That is really all I can say in terms of the market situation. Who are we going to raise? Right, so we want to double it. You want to double your process, and you are saying that in the processing plan I went into, it was like magic, fantastic from end-to-end superb company. I will not name them because I think that that would be unfair, but located in Nardingston, basically. That is a plug for them, but basically. How do we double our production if we do not have the fish? Part of it is to go back to what James and Scott have said earlier. It is Scottish premium product, so it is not necessarily looking to double the production, it is looking to double the value, so we need to actually put more value on the product that we actually produce and potentially command greater price for that product that we produce. You are right, we need to look at the throughput of some of these factories as well, because that not only retains the factories, but also retains the jobs within those factories too. We are just simply looking at how how we can potentially ensure that we get more product through that market, and that looks at more sustainable supply chains and looking at the catching sector and working closely with the posted sector. Scott, I am going to bring you in, but I hope that there is no fish processing plants in Richard's constituency that you are going to mention. No, I will not mention them all of them. I believe that Salmond does go through them. You asked about how we produce more. Basically, this is probably for another day, but we have an aspiration to grow. We want to grow. UNFAO tells us that, without doing any selling, our demand for salmon protein will grow by 8 per cent per annum. It is just the way the demand for high-quality protein is going. We are farming the sea. Farming the sea is not easy. You all know the things that are laid at our door in the media these days. It has been tough the last few years. It has been particularly tough. It is implied that it is on a kind of farming practices. It is really on a kind of climate change. Climate change has an enormous impact on the marine environment in Scottish waters in the last few years. I can tell you that in certain parts of the west coast, our average sea temperatures have risen by 15 per cent. Just relate that to yourself. If you are living in an ambient temperature of 60 degrees and it goes on by 15 per cent, you will have to change. You will have to change how you behave and that is what our fish are having to do. We are having to take them through there. It has been tough. Next year, our outturn will reduce by around 12,000 tonnes. We have been static since the turn of the century. We have not been growing and that is because we have been taking the considered decision to minimise, control and reduce our production in order to control all the things that you read about in the media that are affecting salmon at sea, sea lice, algal blooms plankton that is foreign to our waters. All those things are causing gill irritations that are challenging the health of our fish. The health of our fish is paramount to us. There has been a lot of talk in the media about mortality in our industry. Mortality is the last thing that we want, believe me. Why would we want mortality? We want to grow and the way that we are going to do it is that we are going to change and innovate the way that we are going to do it. A lot of that will be about what I spoke earlier and about recirculating agriculture systems in the freshwater environment, which will mean shorter time at sea, and that is how we are going to grow. I believe that we will grow significantly in the next 10 to 15 years on a kind of adopting highly skilled, highly capital-inventive, intensive, innovative programmes. I would like to bring in John, if I may, and then go to James. If I have time before we move on to the next question, I will bring in a couple of others. John, do you want to… Thank you, convener. Good morning, panel. I am looking at this briefing, and it is talking about food and drink as one of Scotland's growth sectors. It is really just a fundamental question, in part linked to the comment that Mike Rumbles said, perhaps in jest. I thought that it was a very pertinent question. Why should public money go to fund increased profits? Surely public money goes to fund the provision of food and jobs for our nation? There has been a lot of talk about growth. Should you not be aspiring to be reducing the level of public investment? We are scrutinising the Scottish Government's budget. That is one aspect of a whole range of issues. Should you not be aspiring to having no public money if you really are operating in the capitalist system? I will ask James to answer that first, and then I will come to you, Scott, and I will look for other people to enter if they want to. James, do you want to come? It is a perfectly valid question, and you might argue that, as the most successful and fastest growing sector in Scotland at the moment, it is the one that least should be targeted for public sector investment. My view is about the size of the opportunity and the size of the prize. Food and drink is Scotland's biggest employer—about 115,000 people—and we have identified a growth opportunity. I suppose that the Parliament and the Government would welcome oil and gas, textiles, tourism and financials are all coming and saying that this is the size of our opportunity. Our view is that the level of investment that goes in, even if you accumulate everything that is in the briefing paper that you just referred to, is a very small investment compared to the return activity that comes from that. The return for whom? Scotland PLC. In terms of jobs, we think that there are going to be 27,000 new job opportunities just in the next five years. Who is going to fill those jobs? That is a skills issue, so investment of skills will be critical. The industry absolutely has to do that, so the onus around getting that labour gap filled is about the industry talking about opportunities and raising awareness of the sector. However, we have a jobs growth situation, we have start-up business rates that have increased by 81 per cent, levels of R&D investment are up 71 per cent, so the amount of investment that the industry itself is putting in is significant too. It is a perfectly valid challenge and the way that the partnerships should work here, which I think is unique in food and drink between industry and government, is that industry should challenge government at where we need investment and government should challenge the industry and say, what are you going to deliver in return? How much are you going to invest? The £10 million funding announcement that was made when the strategy was launched is £2.25 million that the industry is putting in, so we are putting our investment on the table in return for government funding and to me that should be the model going forward. However, if we do not deliver it, we do not grow, we do not create new jobs, we do not drive sales, then as a taxpayer I would tell the Scottish Government to put the money elsewhere, but I do not think that it should do because I think that we can deliver a growth agenda. Scott, I am going to let you come in and then I am afraid time-wise we are going to have to move on to the next section. Very briefly, John, we do not believe that we take very much public money. We do in innovation. The Scottish Government has been tremendously supportive of innovation in our sector, the Scottish Agriculture Innovation Centre and we are hoping that that will continue. We do to a certain extent in skills. We are operating in a global market. We are marketing selling to 60 countries around the world. Our competitor countries, I can assure you, are upskilling with significant government support. Stuart mentioned earlier how highly taxed the Norwegians are. A lot of that goes back into investing in their strategic industries. They consider salmon to be a strategic industry. Not only do they invest directly into that, but I can tell you by the way that their budget for marketing salmon and Norwegian salmon in the UK is £28 million this year. That is why there is more Norwegian salmon sold in the UK than Scottish salmon. We are up against that support. Additionally, they have road infrastructure that is second to none, connectivity that is second to none. It is a hard call, but that is what we are looking for. There is a return to everybody with that. John, I am afraid that I am going to leave that there. Jamie, yours is the next question. Thank you, convener. Good morning. I think that segue is nicely into my first question that I have been building up over the course of the proceedings. That was around another issue of public spend on Scotland's food and drink. In this instance, one that perhaps benefits local businesses across Scotland, that is the issue of public procurement. I think that it is not in our briefing, but it is worth talking about it, whilst we have the opportunity today. We know that around £150 million is spent on public procurement of food and drink. I am reliably told that around half of that is spent on local produce, but there is anecdotal evidence of huge amounts of public money being spent on overseas food and drink being imported. Perhaps more could be done to encourage all aspects of the public sector to buy locally. For example, when over £1 million is spent on chicken from Thailand, for example, we are buying potatoes from France, carrots from Belgium, raspberries from Serbia, it seems a bit bonkers in my view. What does the panel think about what government can do to improve that? David, I am going to come to you to start off with. It is important to recognise that there has been significant growth in those stats over the past 10 years or so. There has been a lot of government action on that already, but there is, of course, more that can be done. It is important to go back to the issue of farmers and primary producers. It is important that they are supported as much as possible to be able to access public sector contracts. That might mean that making sure that public sector contracts are small enough for local opportunity. It is important, particularly if we are looking to give public support to processing and other elements, that we have a look at some of those opportunities and the opportunities that you have outlined in terms of import substitution that we might be able to do. Sometimes that is just because the processing capacity is not there to be able to meet that market opportunity in the public sector. Some of the funding that could be made available should be made available to projects that might meet the market. I think that there are a range of things to do. I think that the easy stuff has been done, so I think that the next stage is probably going to be more difficult and plays to the that is where government support and help can help, in particular primary producers, access the public sector market. Patrick, do you want to say anything about that local procurement of your seafood? I will go to James, maybe. I think that Andrew, you are precluded from this, because I am not sure that the Government is buying quantities of beer. I may have got that wrong, but Patrick. I mentioned earlier that we are seeing some success in that regard. Highland council, for example, is a great example, but I agree with what David said. We have done the low-hanging fruit and now it is slightly easier and more challenging to go to the next level. Breaking those contracts down into more bite-sized pieces and looking at more collaborative opportunities is probably the way to go. James, do you want to contribute to that? I mean not much to add really there at all. I think that there are other opportunities. I think some innovation in how we do public procurement might help to be honest, so if you have national contracts for some parts of the public sector, whether it is NHS or elsewhere, is there an opportunity to regionalise that? In Dumfries and Galloway, could you pull your schools requirement, your hospitals requirement, your local council requirement into a larger regional contract that the suppliers might be getting into? I do think that the 49 per cent figure, which I think is roughly the amount of public procurement spend that goes on Scottish suppliers, I think that masks a slightly better story than that, because there is a whole heap of products from oranges and fruits that we just cannot grow here, so they are all into the mix as well. The percentage that we could supply for Scotland and are actually supply for Scotland I think is higher than that, but I think that there is some more innovation in that area. The real question will be do we want to replace tie chicken to be a bit provocative, so the price difference between what the ties can charge for chicken versus what we can is huge. That gap has to be closed by local authorities being able to bring fence more spending from that particular area, rather than us necessarily racing to fill what is a cheap commodity product going in. Although my aspiration would be that it comes from Scotland at the right price, but it would need to be at the right price. Jamie, do you want to follow that up? Thank you. Not on that question, I will move on to my next, if I may. I think that we have touched on the issue of investment and innovation, and I do wonder if I could push that further. I had the great pleasure and probably privilege of being on board one of Iceland's new trawling vessels earlier in the year. Now, they are investing quite heavily in fishing vessel infrastructure, over 200 million euros is being invested in 12 new trawlers. This particular one was quite unique in the world in that it was processing and freezing trawlers, so it pretty much did end-to-end production on board the vessel itself. That is a country that has taken investment and innovation using use of technology in food production to the next level, in my view. We often talk in Scotland about investment in an odd vessel here and there, and the news pops up periodically in the press, but you do not see that same scale. I do not know if that money is coming from government, industry or mixture of both, but what do you think Scotland could do more of to raise the bar in innovation, technology and food production? I am going to start with you, Patrick, and then I will probably open this a little bit wider. We are seeing probably unprecedented investment in the catching sector just now. I do not think that it is a secret to say that the order books on a lot of the boat-building yards across Europe are full, because the catching sector is achieving good market prices. That is a result of the sustainability. There is reassurance and confidence in the industry and in healthy stocks, so they are reinvesting in the sector. Where it falls down is the reinvestment in the processing sector. In terms of innovation in that processing sector, we need to look at how we add value to that product. Is that machine-filling? Is that more automation within the processing sector? To not only have more throughput through those factories, but also to upskill the workforce? To add to that, I do not know if you have another question, Jamie, on top of that. It picks up on a point that James made earlier on that the Government's current method of spending little to many could be replaced by a spend more and more targeted investment, but would not a by-product of that be, for example, if you give £10,000 to businesses of two or three people that may encourage more employment within those small businesses, more manual growth? Whereas large-scale investment surely lends better to automating industry to more industrialised production with less employment, does not that address one of the issues around the lack of skills and resource that is needed at the lower SME market? I am struggling to see which is the better option. Should you invest in SMEs to encourage more employment, or is it better to spend more in large automated industry, which reduces the cost of production and means that you do not need as many people to do that? Therefore, it facilitates your doubling of growth. I want to move on to the final question, because I know that you all will have a comment on it, so I would like to take James' answer to that and then move on, if I may please. If there is any consolation, we wrestle with that same quandary as well. One of the issues that we have in the ffundring industry is that we are not as productive as other countries. We have been less productive in the ffundring industry than other parts of the UK, but that is now improving, so productivity has risen quite sharply. The blunt view of productivity is that less people but make more money increase in productivity and lead to increase in employment too. I think that the innovation landscape, if anything feels more like a need for revolution than evolution, with big data, augmented reality, artificial intelligence and robotics all coming, is a need to think very hard about investment in that. The idea of a new-year advanced manufacturing centre in Scotland is really quite exciting and how that might serve the ffundring industry, I think that the work that SMAS does and how that relates to the ffundring industry will be more important than ever. However, that will also come with the skills requirement as well. Robots are only as good as the people who are programming them and working with them. It is probably in reality a balance between the two, investing in workforce and investing in this new phase of innovation. Can I make a very quick point related to this, which is to do with city deals? One of the strengths, I would argue, in how Scotland has approached food and drink, farming and fishing development, is that there is a sense of unity and common purpose, so there is a Scotland policy and a Scotland strategy. City deals are potentially an amazing mechanism to drive investment into our sector. My nervousness is that there are a number of city deals in Scotland, all with the exception of Glasgow. We have talked about creating a food and drink innovation centre, so what a lovely problem to have is that there are lots of innovation centres popping up, but there is a real question in my mind about how they work collectively and how they dovetail. Will the Scottish Government invest in city deals and food and drink innovation? How do we ensure that it is creating national provision rather than regional competition? I think that you have got route and avatar following us, so that is maybe a question for them. I think that there is talk going on between them, but I think that that is where we need to ensure that we have a real national view of how we are investing in these things rather than regional. I am going to move on to the last question, which is John's question. Can I ask, because I will ask each of you to answer it? I am going to start with James. I am going to work that way along the table. Can I ask you to keep it as short and succinct as possible, because it is an important question and I know that you will each have points on it. I think that we should have Scottish craft beer in this Parliament instead of foreign wine and orange juice. However, the question is on Brexit. What are you concerned about around Brexit? It has been mentioned already. Is it that we have no deal at all? Is it that we switch to WTO tariffs? Is it that exports have tariffs on them or is it that exports get held up at the border or there is a lot of extra paperwork? Capital injections were mentioned. Is it that we lose migrant workers? We had evidence from Angus Softfruits that they would just move production overseas. Or is it that we lose the cap money? Or anything else? John Smith posed a lot of questions there and it could take hours for each of you to answer them. Can I ask you to focus on the most important parts of that? Otherwise, I think that we could go off on a tangent. I am going to say E all of the above. Trade, labour, ag policy are the top three. I will focus on trade. My colleagues, might want to pick up the others. David might, I think, maybe particularly talk about labour. Trade, 70 per cent of all the food that we sell out of Scotland that leaves the UK goes to the European Union. It is the ball game at the moment, as far as exports. I have heard the phrase, no deal is better than a bad deal. No deal is a disaster. No deal is a bad deal for us. It is difficult to contemplate. Different variations, different sectors, whisky will be fine. There will be no tariffs on whisky. It will be about smooth operational things. For salmon, I think that tariffs are relatively modest, still important, but relatively modest. If you want to export a beef carcass to France under WTO tariffs, you are looking at a 93 per cent tariff, so our product suddenly doubles in price. We have seen what happens before, particularly to our livestock industry, when European export markets have closed to closure in footmouth, closure to BSE. It is a disaster. No deal is a disaster in trade terms for us in terms of food exports. We need to build exports beyond Europe. We are doing that, but we need tariff-free access to the European market. David, your challenge is to make it shorter than James's answer. I will start with our four, which is people, customs and tariffs, regulation and prioritisation. With James's cue, I will talk about people. That is our biggest issue. You have already alluded to the Angus soft-roots example. I have been to see the farm. There are 1,000 people mostly from the European Union, and it is a big issue. All levels in our manufacturing industry are number one priority and are number one concern about Brexit. If we can pick up just slightly on regulation, all of the European regulation and food is the second most regulated industry that comes to the UK. There is a huge potential for divergence with Europe and in the UK with different authorities. All of that is a major concern for us going forward. Patrick? It literally is all of the above. The main thing is securing the raw material and making sure that we get a good deal for fish that comes into Scotland, followed by trade access to the markets, not only the European market but also collectively and productively working for other export opportunities. The quota is being secured in Scotland. In terms of non-tariff barriers, open access to borders, we know, for example, that, if certain live shellfish products do not get to a French market within two o'clock in the afternoon, the price drops by 50 per cent. We need to make sure that those barriers are not there. The on-going funding support, we have seen a lot of support through EMFF and therefore something that is going to replace that but with no delay and no barriers to make sure that there is a seamless transition. Scott? Very briefly two of your points, John. Experts held up at border would be a disaster for us. Absolutely a disaster, that cannot happen, so they need to get some form of agreement there. The idea that it can just be computerised to make it more efficient, that is not going to happen either. We have got to maintain what we have got at the borders, otherwise we are going to end up with 40-mile-acues north of Dover, not the 17-mile-acues that we have at the moment. The other thing is migrant workers as well for the processing plant, so we need that. Andrew? For us, well, there are lots of unknown unknowns in all this as well, but the ones that we are concerned about would be what is the impact on our input costs. I am not clear what tariffs the UK will impose on goods coming into the UK as a result of that. Are our raw materials going to go up as a result of that? Obviously, open access to other markets is very important for us. Finally, I just say that the EU support for industry, so the various grants and support that they can offer, how will that look after we leave Zanglir? Thank you. That comes to the end of our question, so I would like to thank the panel each of you for giving the answers. If there is anything that you have missed out and you want to feed in, please let the clerks know. I had hoped to give you each an opportunity to make a short closing statement, but time prevents that. If there is something that you would like to let us ponder on, please let the clerks know. I am now briefly going to suspend the meeting for five minutes to allow the panel to change and suspend the meeting. I would like to move on to the second part of the meeting, which is also to take evidence, as we have been doing this morning on the food and dink industry as part of our committee's pre-budget scrutiny. I would like to welcome Danny Cusick, the director of food and drink, tourism and textiles, David Oxley, the director of business and sector development, Highlands and Islands Enterprise, Dr Stuart Fancy, the director of research and innovation in the Scottish funding council, Chris Brady, the lead head of sector development, skills development Scotland, Professor Peter Morgan, the institute director of the Roberts Institute and Professor Carl Sasca, head of school of science, engineering and technology. Welcome to you all. The way this works, if you haven't done this before, is you try and catch my eye if you want to answer one of the questions and I'll try and bring you in. You don't need to worry about pushing any of the buttons on the screen in front of you, because the gentleman on your left and my right will pick you up and will activate your microphone. I would like to move to the first question, which is from Peter Chapman. Thank you, convener. Good morning, gentlemen. My question is the same question as I had to the last panel. We are looking at an industry that has been a success over the last 10 years, but the ambition is to double it again by £20 billion to £30 billion. The question is what the Scottish Food and Drink is an interesting need in terms of support to achieve that step change in output? Somebody has got to catch my eye, but if you look up, I might catch you anyway. Carl, you looked up first, so would you like to lead off on that? First of all, it needs the people for the industry with the right skills. That's primarily the requirement. We take the range of products that are available, but we need to be able to process within Scotland with the right people, doing the right things, with the right technologies as well. David, do you want to come in on that? Carl is up to right. People are a key component of it, but if we're going to grow the sector over the next 12 years or so by doubling it, it's not going to be purely by price, so it needs to be about capacity as well. Productivity improvements are essential, becoming more innovative. The people are going to be a challenge. We've talked a lot earlier on about the potential issues of staff going forward. If we can get investment in innovation to make things more process-driven and product-productive, we can grow the sector and grow the value of the jobs in the sector, which I think will be important to attract more people into the sector as well. Stuart, do you want to come in on that? One of the features of this industry from where we sit over the last few years, and I think that we heard a bit about it in the previous session, was the collaboration between the industry and those who are here to support it, including many of the people around this panel. One of the things that the industry will continue to need is for us to work together and with it very closely to make sure that we answer all the questions that David has just outlined. Chris, I'm sure that you'll have a view on whether it's just people or the skills that they bring. Sure. I think that we heard this morning that what's important is that we recognise that there's no one silver bullet. It's not simply about people. There's a broad range of support required for the industry around innovation and market development. People and skills absolutely agree. You would expect me to agree that it's a really important part of that. As an agency in working with colleagues of Scottish Enterprise and Scottish Funding Council, we developed a strategic skills investment plan for the sector in 2014. That was work that was heavily informed by Scotland for Drinks and by a number of the sectors that we met from today. What that does is set out a shared vision between industry and government about where we think investment priorities should be in respect of people and skills. I'm happy to talk about that further through the proceedings this morning. Just to echo the previous comments, it is about ensuring that we absolutely create the right business environment and right conditions to allow the sector to grow across the key areas that we can identify daily around our market development, around our innovation support, around our supply chain development and around our workforce development. It's bringing in all of those conditions and how partnership, agency and industry work together in achieving that. I'm going to bring you in, Peter, because it would be unfair not to do so before I come back to the other Peter for another question. I would say that it's obvious that we can't do more of the same. We've been very successful over the past few years, so that means there has to be a shift. I think that innovation is an undeniable requirement, not only because of the Ambition 2030 targets, but if we've got Brexit going on behind the background, that's going to be another driver for change and innovation. A third component is the fact that, with the good food nation bill coming along as well, we want to think about changing people's diets. If we change those diets, the food industry is going to have to respond to that, so that creates a great deal of innovation requirements and needs, and you then need people to deliver it. Peter, do you want to follow up on that? Yes, I'm interested in your answers. People and innovation in marketing is all very important, but none of you mentioned the fact that we need more raw material if we're going to double this business. We need more raw material, and that comes back to the primary producer. We've seen that, in farming in particular, the profit margins are very slim and they've become very slimmer. How can we double the food and drink industry without some of that going down and growing the raw material? Another dimension to this as well that we haven't touched on, which is how we utilise our waste, since half the food is consumed. What do we do with the other half and how can we better use that, so that would add into that? Whether that's production of biofuels, for example, or just better use of the food in the first place? I think that's another dimension that we can look at. It's not just about having more raw materials. Yes, Peter. I think that your point is very valid, but I think that a lot of research that is going on is about trying to make the agricultural system more efficient, better breeding and selection, reducing disease, the waste issue. I think that a lot of those drives are where the innovation is going to occur to actually enable us to get more out of the system. Okay. Danny, do you want to add to that? Part of the consideration is around the complexity of this answer as we see for the information. There's over 17,000 companies that are classified as food and drink companies in Scotland. The vast majority of those are around the agricultural sector, then it's followed by fishing and then the food and drink manufacturing processing. The last part of that will only occur for something like 6 per cent of the company base, but it generates 75 per cent of the GVA and is almost responsible for over 100 per cent of the exports. Across that wide spectrum of activity, from primary users to the manufacturing, there is a great issue around the productivity across that sector. At one end, we have a very, very highly efficient drink sector, which is £200,000 per employee per annum. At the other end is the primary agriculture at £14,000 per annum. One of the key things about growing this sector is that we are absolutely able to tackle the productivity challenge across the entire spectrum of the supply chain. If Scotland has a productivity challenge across all sectors, to go up to the upper quartiles OECD, we would have to increase productivity by 27 per cent. In food and drink terms, that would be increasing GVA by almost £1.5 billion. It's those key things around productivity that perhaps we have to focus on. We know the barriers around productivity, investment, internationalisation, levels of innovation and levels of workforce development in ensuring that we have the right people with the right skills and jobs. Stuart, do you want to come in on that? We want to double the size of our industry. I dare say that all the world's major producers of food want to do something similar. What distinctively in Scotland can we do that means that we will succeed where others won't? Stuart, do you want to lead off on that? I'll certainly try. In the earlier session, we heard the question of the distinctive feature of provenance, the fact that Scotland has that story to tell of a food and drink industry that builds on the purity of its raw materials, the quality of the work that's done with those raw materials. Clearly, in the university sector and in the colleges in Scotland, we want to contribute to that. We want to help our colleagues to contribute to that. By telling that story effectively and by contributing to the supply chain being both efficient but also distinctive in its quality, that allows the industry to thrive and compete in those international markets. People who buy from us already know that they're buying quality, but they're not buying price. How does it change to make a uniquely different doubling of the market in Scotland? Is it simply a marketing issue that we need to tell more people the story, or is it something more fundamental about the way that we do our business? David, do you want to come in on that? The uniqueness of Scotland on the whole? I think that the food and drink sector is dominated by two particular aspects—the whisky sector and the salmon sector, which are key to us, but there's a huge range of other companies and sub-sectors from brewing to biscuits to bakers and all sorts of things. I think that we can help to grow that by getting further growth in many of the other businesses that are out there, not to disparage the whisky and the salmon sector, but by doing fantastic success stories. We need to try to reflect that in some of the other sectors. I live in Murray. Walker is a virtual on my doorstep and you cannot go into an airport in the world without seeing Walker's shop right, so if we can encourage more people like that, that would be a good way to do it. I'm going to resist the temptation to say that he's my next-door neighbour and that it's an excellent product. Having not been able to resist that, I'm going to move on to Fulton with his next question. It's definitely weird enough. Before I go into my main question, I just wanted to pick up on some of the points about innovation and productivity. We know that there's gender balance in other sectors and that productivity and innovation can be increased. Can you comment on the gender balance in the food and drinks industry and perhaps reflect on the fact that today the committee has been presented with 10 panel members that are all male? I don't know if that reflects the higher end of the industry overall and I'm hoping not, but I'm putting that out there to ask that question today. Chris, do you want to lead on that? I was just looking through my extensive briefing for details on gender imbalance in apprenticeship frameworks and that is one of the many things that I'm sure I'll find out that I haven't been provided with. We can write to you and provide you with details of how that plays out in terms of the apprenticeship frameworks. I don't have those figures to hand what I would say that it's something that we absolutely recognise as a challenge across apprenticeship frameworks. There are similar challenges as well, I'm sure, in college and university provision. We're absolutely committed to addressing that, so we work with a number of organisations, including Equate, for example, and a number of other organisations to address some of the root causes. The challenges very often are happening in the school system or happening at a very early age, so the addressing of gender imbalance is a key priority, but not a simple one. Carl, can I bring you in on that one, please? Sector, we're looking at that through a CNS1, for example, and Equate, as you mentioned, Aurora programmes, for example. It's true that the food science programmes do attract larger numbers of women than men, but then equally engineering, also associated with food innovation, attracts more men than women. It has been historical, but we are endeavouring to address that to make it more attractive to both genders. Fulton, do you want to follow that up? I'm just wondering if there's anything else that any other speakers want to comment. Mr Chair, the funding council working with our colleagues in SDS and in the two sectors are very aware of the gender imbalances at the education end, and whilst it does start early, we are doing what we can with our colleagues in the sectors and with SDS through our gender action plan to try to do what we can to help rectify both of those imbalances, both if you like, excessive men applying to engineering courses and the excessive women applying to other courses, and neither of those balances are helpful imbalances. David, do you want to come in on that? On Fulton's question about the balance today, I think that that's a fluke rather than a reflection of the overall society. I sit in a number of aquaculture committees and boards, and the gender balance is improved, and I see that increasing going forward. There's a number of, probably, females that got into the industry 10, 15 or 20 years ago and are now starting to progress through the industry. If you'd looked probably 20 years ago, it would have been absolutely a lot of male faces, but I think that it is changing. Tanya, does that reflect your experience? From a sector perspective, I think that the figures will show that there is a relatively reasonable gender balance across the sector from an employment perspective. However, across all businesses, the key issue is around reflecting the gender balance and the leadership aspects of the sector. I think that successful businesses are those ones that are able to absolutely harness all of their workforce, and I think that there's lots of work to be done across the piech, not just specifically within food and drink. I think that that would be across the Scottish industry as a whole. I appreciate the panel's honesty and frank responses to that. I think that it was important to discuss it because it's in the context of the rather other examples where productivity innovation, as I said earlier, can be increased if there is gender balance, in some way, that that's been taken on board. My other question is just what I asked at the previous panel, and it relates to the taxation situation. You'll be aware that there's a national discussion going forward at the moment in terms of taxes particularly relating to income tax, but not just restricting your answers, restricting to income tax. Is there anything that you think that we can do overall to encourage tax changes that would support the industry? If so, what do you think the industry's key focus should be in relation to that debate or discussion? You're all looking down very studiously. Dany, you had your head up, and I'm going to come to David as well from HIE. I think that in the generally competitive sense, what we want to ensure of Scotland is as competitive as we possibly can be for a number of aspects. One is ensuring that we provide the right environment to allow those companies that are already here to successfully grow, develop and also be able to invest. It's also about ensuring that we're able to attract the type of foreign direct investment that we want to see that supports this industry. That's an industry that has a large contribution of FDI component to it, so we want to ensure that we are as internationally competitively based as we possibly can to support that and at the same time ensuring that we are also a country that enables new start-up opportunities and investments in R&D and allow those types of risks to be taken. Across that whole piece, the key considerations are ensuring that we create the best environment possible to allow Scottish companies and companies that want to come here and invest to be as successful as they possibly can be. David, and then I'm going to come to Carl. I'll take it into a broader context of tax. Prior to working for Highlands and Islands Enterprise, I spent 15 years in the brewing industry, and I think that we've seen phenomenal growth in the brewing sector for quite some considerable time. I think that that was largely on the craft beers around the changes in beer duty, which allowed many more smaller breweries to start up and then grow. I think that that is probably an example of an innovative way of using tax to stimulate growth in a particular sector. Carl, it's been kept on Danny's point, which is quite a valid one. There are a lot of very small food-producing companies and a lot of new ones who would probably like to raise the level of their business, but they are probably unable to. Help and support for those businesses will be very welcome, but also through the use of universities and being able to provide that help and support through innovation and business confidence and being able to upgrade their businesses. I'm going to briefly bring in Richard, if I may, and then I'm going to move on to Carl. That was a question that I was going to ask. Are we looking at this wrong the wrong way? Should we not be looking at firms who are not exporting at this time and encourage them? Basically, do you have an opinion on our regional allocated resources? Should the budget lines be spread over all parts of Scotland in order to help more firms, new firms, export? Because there are a lot of firms that are exporting, but not enough. I want to come back on that. That's an interesting one. In terms of helping and supporting local companies, particularly new startups who may be based out in the rural communities, it's important to keep them in the rural communities to support those rural communities rather than simply bringing them into the major cities where they may be able to have better opportunities for distribution, manufacturing and access to skills, for example. We can encourage new startups to remain in the rural communities, but that would be welcome. I can't answer about the export question that you asked, but I think that that's an important aspect, and we shouldn't forget that. I'm going to bring Danny in, and then I'd like to take a quick question before I go to Gail from Mike. It's an important consideration for not just the food and drinks sector, but for the Scottish companies. There's a whole, only 7 per cent of Scottish companies actually export. For us to go up to the upper quartile, we need to at least increase that figure by at least 40 per cent. Scottish Development International absolutely looks at the food and drink sector as a key consideration for them. We mentioned it before that we have it in market specialist, and I think that we have the foundations from a food and drink perspective to absolutely capitalise and increase our export penetration. Our Scott exporter initiative, which is being launched, is predominantly tried to focus at ensuring that we touch as many companies as possible, but through the partnership. I do think that the foundations are in place. It would be a great challenge within the partnership if we are in market specialist both in the EU and outside. We were having such a demand for the services that we would have to look at how we increase that, but I think that the infrastructure is in place to do that. The in-market specialists are predicted to increase export sales by over £100 million over the period of that programme. Food and drink industry, having increased over the last 10 years by 44 per cent and exports increased by 56 per cent, is doing a really great job. I think that your organisation should be congratulated for your input into that success of the food and drink industry. However, if I could ask a similar question that I asked in the previous panel, public money is in short supply. This is a successful industry. It has received government support. Is it time, if the finance minister decided and reviewing his budget, that it actually wants to redirect some of that government support elsewhere to other areas? Where do you think, in your organisation, it would be best to have a little bit of a reduction in? Is there any particular area where you could advise that it would hurt less if you had a reduction in a particular sphere of your organisation? I do not know who wants to go first. Everyone looked the other way when, at the last panel, you have all done it again just now. Who would like to go first? Peter? We already are taking reductions in budget already, so it is the pain that we have been feeling for a few years. My institute, Rowett Institute, as with a number of the other institutes funded by a Government in the rural sector, has been taking 5 per cent cuts each year, and we have flat funding before that. We have been experiencing that pain. The trouble with that continuing, as it is, is that we then lose the critical mass that we need to have the variety of researchers that we need to actually input into the innovation agenda that is required by the industry. Then you get back to the other question, which is, should this industry be pumped up with public money anyway? The issue here is that the industry is not like the pharmaceutical sector, where it makes great big profits and is going to put in money to reinvent itself. It does require a certain element of public priming. You see that in other countries. You look across in the USA, France, and they have public sector funding putting money into the agri-food sector. I think that if we pulled too much money away, we will live with the consequences down the line. What we have seen as success now, we will lose in a few years' time. Chris, would you like— Sure. I would begin by echoing the comments that Peter May made. We operate in an environment where budgets are the best static and most often reducing year on year. That presents two challenges for us as an agency. One is that there is a degree of complexity. If we listen to the range of specific skills issues that have been highlighted by people from Brewing and Salmon and the seafood industry, our challenge is to respond to that and ensure that our investment that we put into the apprenticeship programmes reflects the need of industry. Our focus is very much on that alignment. The second thing for me is what a backdrop of reducing budgets often leads to is that it can be quite difficult to find money to capture particular opportunities when they emerge. As funding reduces, funding tends to get tighter in terms of what it is spent on, and that is a challenge that I am sure would be echoed across my colleagues. I will bring John in briefly, because it does not look like anyone is volunteering to see a reduced fund, so maybe John. I think that that is an excellent question from my colleague Mike Rumbles. I know some of the answers that have been related to the internal structures, but at least two of the organisations here pay money out. For instance, Mr Cusick is there, and I appreciate that this will not be your area, but when representing the highlands and islands, when crofts are struggling, when farmers are struggling with payments, people might be surprised for instance that Scottish Enterprise gave £2 million to a company that had made $3.14 billion, for instance, profit, Lockheed Martin, two years ago. Is that the sort of area where I focus more on a direct return rather than bankrolling obscene multinational corporations involved in the commissioning of death? I think that you have made your point, and I am going to let Danny answer that very briefly, if I may please, because I would then like to move on to now Gail's thing. I am not familiar with the actual project, John. I would absolutely be convinced that there was an absolute rationale for that investment. We invest in priority where we can absolutely see what the return of that investment is going to generate, either by the way of increased investment from the company, in Scotland from an R&D perspective, or in safeguarding or creating jobs, but there would have been an absolutely very strong rationale for that investment, I can assure you. Danny, I am very happy for you to leave your answer there. I am going to move on to the next one, which is Gail Ross at the Deputy Committee. Good morning, panel. I am going to speak about the first pillar in the 2030 strategy, which is people and skills. Chris, you just said that apprenticeships need to reflect the needs of the industry. Do you think that that is happening well at the moment? How do we know that we are providing the right training and getting good value for money from the £37 million that the Scottish funding council currently provides? I probably just say a number of things in terms of response, so we fund somebody in the region of about 1,100. Modern apprenticeship starts last year. There's run about 3,000 modern apprenticeships in training across the sector. A significant effort of my sector's team has actually been on ensuring that we're developing frameworks that meet the specific needs of the industry, so we've developed a new modern apprenticeship, as was referenced this morning in craft brewing. We have also looked at building flexibility into the food and drink manufacturing framework so that it reflects dairy meat and fish processing. We've got a body of work under way in the development of new foundation apprenticeships, so there's a foundation apprenticeship, as you mentioned, in food manufacturing, which we think, coming back to one of the earlier points, may play an interesting role in addressing gender imbalance. Some of the experience from the engineering FAs is that we've had much more mixed cohorts going through the FAD and through the MA. We've also just this week agreed that we're going to progress with the development of a graduate level apprenticeship framework in food technology and food science as well. On the apprenticeship family more generally, and there have been a number of questions around productivity today, Mr Stevenson asked the question, what might we do differently in Scotland? One of the observations that I would have, if you look at high-performing, highly productive economies, countries that we aspire to be like the Austrians, the Switzerlands and the Norways of this world, they have much higher levels of work-based learning built into the post-16 educational system than we have. That's why the work that we're doing with the funding council and with the college and the university system to look at work-based learning approaches is absolutely critical to addressing productivity. Do you have a follow-up to that, Gail? Does anyone else have a… David, do you want to come in on that? It's not just about entry-level skills. We, and I'm sure that Scottish Enterprise do as well, invest a lot of time in leadership skills from emerging leaders to senior leaders to entrepreneurship skills. We've seen some of the best returns on investment have come through that. I can think of an example of a Shetland-based muscle company that we put through an executive education programme, and their growth has been exponential as a result of the ambition that they picked up from that and wanting to grow their particular business. Stuart, do you want to say something? You referred to the investment that we make in supporting both undergraduates and post-graduates and college students across the sector, and it is in these areas that we're talking about here about 700 students in the university sector at the moment, and about 7,000 in the college sector, so it's a significant number. However, a very good question about the link to employers' needs is one that we've been increasingly engaged in. Chris has made some reference right to the skills investment plan that we've been involved with, SDS, in building the Food and Drug Skills Academy. We're bringing employers close to the educational establishments in order to establish that link between what is needed and what is provided. At the higher skills end, we've been working through the innovation centre programme, particularly in this context, in the one in aquaculture that was referred to in the first session, to ensure that where we need master's level provision, where we need PhD training, that that is done in partnership with the industry itself. That link between what the industry needs and what the educational establishments are there able to provide is an extremely strong one, but one that we must keep a very strong focus on for all the reasons that we've referred to. I want to briefly bring in Jamie, if I may, and then come back to Gail. Thank you, convener. Just further to what Mr Brody said on improving productivity in Scotland, I note from a briefing paper of the over £2 million that your agency spent on supporting food and drink, only £10,000 was spent on productivity improvement. Is that something that maybe you could address internally as an agency? I'm happy to address that. The £2 million figure reflects the range of activity that SDS is involved in. The majority of our programme delivery is in the apprenticeship family, so the vast majority of that £2 million is focused on our apprenticeship spend. What we have done in terms of the food and drink productivity piece that's referred to in the briefing is that £10,000 is a contribution towards a partnership piece of work that was delivered along with Scottish Enterprise. So what we look to do is to where we have discretionary funding to partner up to ensure that we can increase the impact of that funding. Gail, do you want to pull up? Yeah, thanks. I think that for a while now we've been trying to persuade young people that it's a good thing to have a career in the sector. Danny, you mentioned about getting the right people and the right jobs. Do you think that that is currently happening? I guess that, along the lines of the developing the young workforce scheme, where schools, colleges, universities and industrial work together, is there anything else that we could be doing better as to where the funds are allocated at the moment? Undoubtedly, there would be a recognition that we have to get more young people interested in the sector, right from primary production right through to advanced manufacturing. There's also recognition that within the sector it presents a myriad of career opportunities and perhaps sometimes that's not fully recognised. There is lots of work to be done. I think that the industry itself would recognise that. It's a key part of the overall ambition around a responsible sector, which would be the employer of choice. Whether or not we have to look at it from grass-roots level, from schools right through to the universities and right through to the quality system, we have to look at all that. It's a key element of what we have to do. I suspect that Chris might have a better recognition of some of the conditional things that we need to put in place, but certainly it's usually important consideration. Chris, as you've been introduced by Danny, I think that we should hear from you, but I'd also quite like to hear from Carl and maybe Peter on that subject as well, so Chris. I may just offer a few observations. I think that the first thing for me is the most effective voice in terms of acting as a proponent for industry, as industry itself. As a result, a lot of our work is actually focused on ensuring that we've got the industry representing itself in the best kind of light forward. We obviously run the national careers advice information and guidance service for Scotland, so food and drink is quite heavily reflected on my world at work. We also provide localised information to our careers advisers that reflect the reality of careers in different parts of the country, and it would come as no surprise that a significant part of our work is focused on places like Aberdeen and Aberdeenshire. We're working with the NYW group in Aberdeen at the moment to look at promoting both the processing industry but also the fishing industry as a career, and that issue of reach is critically important as well. It's about targeting that activity in the places where there are jobs. Carl, would you like to— Yes, thank you. We have to work hard to make sure that the industry, the food and drink industry, is the industry of choice for youngsters from schools through colleges and attracting them into universities. I don't have any doubt that there's a demand for our graduates, but attracting undergraduates into our programmes is a challenge when they could go into other disciplines where there may seem to be more lucrative careers. That is a challenge that we face, but the industry is wide. It's not just in food science or food technology, it's process engineering, it's many other different fields as well as physics, for example, so it is very broad, it's very wide, but it is nonetheless something that we have been working on and we recognise that maybe non-traditional routes are what we need to be looking at, routes into universities. Peter, would you like to— Yes, I think that it's a very important point of how we entice individuals into the industry. We've been giving that a lot more thought. I'm part of the university of Aberdeen, so we're an ancient university and we're looking much more at how we can engage with the food and drink industry to understand their problems. One of the things that we are doing is talking about developing courses that will help graduates or people in the industry who may want to retrain through CPDs to bring up their skills even if they're part of the industry. So there's a very active dialogue going on now, recognising the point that you're making. So we haven't got there yet, but we are definitely very much alive to the issue. Thank you. I think that we'll move on to the next section, which is being read across. My question is about supply chain and traditionally we've had a long supply chain in Scotland with primary producers being some distance from their customers. What can we do to deal with that, to make sure that our producers know what their customers want and indeed maybe shorten the supply chain to make sure that some of the profitability remains with the primary producer? I'd like to start off on that. Danny, probably you. I'll start with you if I may and then move on. One of the, as previously mentioned, is an absolutely fundamental component of what we're trying to do with respect to the strategy around the supply chain and having a very, very effective supply chain from primary to retail. The market-driven supply chain is one initiative that we put in place in order to try and address that. That initiative, it's the second phase of it now, but it really is primarily looked at how we get primary producers much more connected with either processors or retailers on the basis of ensuring that there's a much more cleaner and a much more stronger linkage from primary to end-user. The more that we can do of that, the more that we can invest both at the research side with academia and also with companies, then clearly hopefully that's one of the key things that we're going to look at from the point of view of priority moving forward. We can do more of that, but part of that is also around how we engage with the right companies and also with the right partners. David, do you want to add to that? I think that Stuart might have something to add there, hopefully. David? I think that Danny is absolutely right. I think that some of the best examples of where we can help the supply chain in total is around meet-the-buyer events, so getting to know it, getting in front of the customer and seeing exactly what the customer wants and where the opportunities are. That could be new pro-development, it could be about accreditation in various BRSE accreditations, etc., but understanding and making sure that the producer understands exactly what is critical to the customer is a very important aspect of it. Stuart, do you want to come in on that? The future of the industry will be supported considerably by innovation, innovation in business practices and products in various other forms of their activities. In our support for that, with the universities and colleges in Scotland, we're extremely interested in ensuring that we're trying to help those industries to think of innovation at all levels in the supply chain where it exists in Scotland, so that those companies that are supplying perhaps the big aquaculture, the big salmon firms, for example, that their suppliers are themselves being helped to be more innovative. The innovation centre in aquaculture, to use that example again, is as interested in supply chain problems and supply chain support, so that those companies are competitive in Scotland at various levels of that chain, not just those at the top of it. Chris, and then we'll go back to a supplementary to Rhoda. I'm perhaps just going to pick up specifically on our kind of engagement with the agriculture sector, and I mentioned that we've twice worked with the industry to develop a skills investment plan. When we came round to the second iteration of that plan, one of the bits of self-reflection that we had with the industry was that the skills investment plan, the first iteration, didn't necessarily talk to the challenges of the primary sector, so that was something that we tried to put right in the latest piece of work that we did with the industry a bit 18 months ago. One of the things that we were particularly interested in were some of the challenges that farms in particular have around attracting people to work into the business, and I think that there are some specifics there around that, and they sound very obvious, but the the rurality of farms, the fact that it's very often family members who are their main kind of succession sources meant that they haven't been necessarily used to engaging with an agency like ourselves in terms of, for example, modern apprenticeship, so that some of the work that we've tried to take to put that right, we've now got the National Farmers Union and Lantra on the skills partnership, which drives the skills investment plan. We're looking at the development of pre-apprenticeship models and shared apprenticeship models, recognising that actually using the mainstream funding perhaps hasn't been as attractive, so I think we're looking, from a skills perspective, to be as responsive as we can be. Rhaedon, which you'd like to pull up. I'm going to try and squeeze two questions into one. The first part, would co-ops, would primary producers working as co-ops in marketing and maybe cutting part of that supply chain outwork for them? Is that something we could encourage? Given that 50 per cent of the funding for the food and drink industry goes into supply chain, could that be used in a different way to make it more profitable to the primary producers so that the money is going back to those that we need to be there working to keep our food and drink industry where we want it? Danny, by directing the question towards him, from a skills perspective, the whole principle behind the shared apprenticeship model is exactly that, so recognising that a shared apprenticeship model where an apprentice might be working in two or three businesses lowers the cost and eases the cost of entry, so that's absolutely where we're at. Probably colleagues from high and Scottish Enterprise would be better pleased to address that question. Danny, it seems to be ping-pong between the two of you. I'm actually going to widen it out, so I'll let Danny come in here and then maybe bring David in and anyone else who wants to come in. Corporatives do and have an important role to play across the supply chain, and there's some very, very good examples of that. For instance, the crafty sellers association got together, there must be about 40 of small craft gin makers get together to effectively collaborate much more closely with one another and be able to look at how they can access markets, not independently but as collectively. We've done the same thing with the Craft Rules Association. We have done some stuff with the Raspberry Producers Association in the UK in relation to looking at various strains through our market-driven supply chain. There is an absolute role for that. Increasingly, we can look at more ways to do that, and more ways to involve whether that's locally or regionally or, indeed, sexually-based co-opters in supporting their ambitions around their growth and also potential to access markets, which they may not normally be able to access as individual companies. David, do you want to come in on that? It's worth just to point out that there are over 5,000 food and drink companies in the Highlands and Islands, and the number that are bigger than small or micro is 80. There are vast numbers of small businesses, and getting to market is really challenging for some of those. We have seen some great examples of where small producers have got together. The one that springs to mind is the Argyll-Filled Produce Association. We've got together with a variety of different products and we've been able to market those effectively with the taste of Argyll-type branding, and we're going to events and shows and everything to try and promote that. I think that there is a lot of benefit from that, in that they can share skills and experience and knowledge and cross-sell. Ray, do you want to come back in and then I'll probably bring Stuart in? I'm just conscious that this is budget scrutiny and everyone's avoiding the budget question about is the money being spent in the right place? Stuart, that's you in the spotlight. Before I address that spotlight, we established interface to help very small companies meet and reach into the academic base to draw value from it. One of the things that we learned is that the very smallest companies benefit from work doing that together in clusters, so interface now has a sectoral approach. In the food and drink sector, they have established common interest groups that allow groups of very small producers to come together to work with universities and colleges to address problems that are common, such as cheesemakers, distillers, rapeseed oil producers and so on. 200 companies have taken advantage of that clustering approach, so stopping short of co-operative or very tight structures like that, clustering appears to be a very effective way to use money to address that point obliquely and time effectively from very small producers who tend to lack both. Is it being used effectively? Well, I think that we're using public money very effectively. One thing I wanted to highlight is that that question came up a little bit earlier, so I'll bring back the question about how we're using public money with private money, because I think that combination is a really interesting one. With the big salmon producers who have been at a focus for discussion today, big salmon producers are investing in a very high fraction of their own resources in their own innovation future through the innovation centre that we've set up, so we're not subsidising that work to a very large degree, but they are investing in their own future, which seems to me a good relationship to have with an industry that is doing well. Does anyone else want to come in on that, because I'd like to take a follow-up to that. Okay, John. I think that it is following on the way that we're using the money, because I think that it was Mr Cusack who said that 75 per cent of the GVA is at the end, or later stages of the chain, and yet at the same time we're putting 438 million cap pillar run payments at the beginning of the chain to the farmers and so on, and we're hearing that a third of farmers are making losses on the verdict going out of business, so if you bring that in as well, I mean at the moment we don't have control over that cap money, but we might have in future, so should we be... I mean I suppose I'm torn, because if the later section is doing well it doesn't need support, or because the later section is doing well maybe we should support it to do better. Danny, do you want to answer? I think that the key thing is around supporting opportunities. We, from a Scottish Enterprise perspective, don't start a year with a food and drink budget per se. We will have commitments from projects that we're supporting either through some of our programmes or through some of our company activity, but we're based or funding on basis of real kind of prioritisation, which is kind of demand-led, evidence-based, so if we can demonstrate that by contributing to a particular project we're getting a significant return on our investment, that will be effectively deciding consideration as to where we will put our resources. It's really around that kind of very strong demand, evidence-based input in relation to where our funding will get the biggest outcome from a Scottish PLC perspective, and that is about opportunities and whether those opportunities exist. I suspect right through the whole supply chain. You need a very, very healthy supply chain from primary right through to absolutely, you know, final production and retail, and we have to ensure that it's the right balance across that that we get the resources into for the right interventions. Right, I'm going to bring Chris in and then move on to the next question. I'm very conscious I haven't been to my left side of the table or your right side, so you're not catching my eyes, but if you want to come in, please do let me know. Chris? I'll just make three very quick observations about our funding, so one I would agree completely with what Danny said. The principle of co-investment in the apprenticeship frameworks is critical, so we make a contribution to training employers, make a financial contribution, as well as a contribution in terms of paying wages and recruitment. I would argue that our apprenticeship work is very clearly demand led as well. We've actually gone through a process with the food and drink industry, but a whole range of other industry sectors where we have taken out the evidence that we see in terms of where we think demand is, and we look for industry to validate that before contracting. That's a piece of innovation, if you like, into our contracting methodology that we hadn't previously done as explicitly. I think that the third element that I'd pick up on is that I would reflect on some of the conversation that we heard from James and others this morning. The engagement that we have with Scotland food and drink and the range of industry bodies that we are here today is absolutely critical, because that gives us a mechanism for posing the question, are we investing in the right places? The skills investment plan is not an SDS document. We haven't determined what we will do. That is a very clear ask from industry in terms of where they think priority should be in respect of skills, as well as a clear commitment from them in terms of what their responsibility is, as well. I think that the industry, no matter what size it is, fully understands what support can be gained from the university sector. I think that that's missing at the moment. Well, it's not missing, but it's not utilised to its full potential by a long way. Okay. An interesting point, and probably the best place to leave that, move on to Jamie with his question. Thank you, convener. The ambition is to double the Scottish food and drink industry to 30 billion by 2030. Let's assume that, in the pending budget, your agency budgets don't double. How do you think your agency will contribute towards helping Scotland PLC meet that target? Peter, do you want to start with that? Yeah, well, I represent the Rowett Institute, but it's one of six institutes funded by Scottish Government to do research which underpins the agri-food sector. We've been doing that for years, but what we've done this year is to bring those bodies together under a single umbrella called safari. The reason for doing that is because we want to help the food and drink industry to understand what we do more effectively. It's actually made one single gate through which we can talk to Scotland food and drink directly, which we've already done, about how we can help them deliver ambition 2030. So we need to have a common discussion and language so that we know what their problems are and they know what we can help them to deliver with. So we're taking an active approach to that and changing how we're operating. Okay. David, do you want to… I, on just on behalf of my finest director, I'm happy to take a 50% rise in budget if that's what's being offered instead of 100%, but I'm sure that's quite not the case. In terms of where we would prioritise, I think that there's probably two or three areas, firstly, absolutely on innovation. We need to get the best return on investment from our business. We know that some of the challenges that the sector and other sectors are going to face is about a tight labour market going forward. That will mean, I think that somebody mentioned, a revolution in terms of the way we do things in the sector. We're seeing evidence of that happening with drones and the use of sensors on lots of industries within the sector, so I think that we'll see a lot more of that. I think that we can work very collaboratively with some of the innovation centres, but it's not just about the ones that have got food in the title like Scottish agriculture. I think that sensors and data labs have also got a role to play in the use of this. I think that also there's a big market out there, and I think it was mentioned at the previous discussion, that some of our products can't get into some export markets because of restrictions. If things can be done to change that, we can potentially, that's a good way of growing the sector. The one thing that I think the Food and Director, when we do a regular survey of businesses, Food and Drink sector is probably the sector that is most concerned about Brexit, A, from losing people and B, potential tariffs. I think that it's a real big challenge for that sector, but if we can get more folks exporting now while it's relatively straightforward, it's going to be a lot harder whatever the outcome of Brexit is in 18 months, two years' time. Just on Brexit, there will be a question coming up on Brexit, so I'm happy if we move. Jamie, do you want to follow up? I know that Danny and Stuart want to come in, so if you don't mind. Sure. I think that Mr Oxie raises a valid point around innovation. Innovation is one of the three pillars of ambition 2030, but it receives less than 10 per cent of public finance spend on food and drink. That seems quite a disproportionate ratio if it's such an important part of the ambition. Do you have any views on that? Yes, and I think that it's recognised across the piece, from a food and drink perspective, that the levels of innovation are incredibly low. I mean, the levels of innovation across Scotland is a whole a whole. In some respects, that's the way that we capture the information, because birds are a pretty blunt instrument, but at least it's a proxy. It's one of the reasons why they make innovation happen initiative was absolutely established in order for us to increase the levels of bird and innovation business R&D into the sector. That's only, we're only going to lessen a year into that programme, but we can absolutely see now. I look at the figures that are in your SPICE report from last year. The funding on large R&D grants went into the food and drink sector from Scottish Enterprise. We're very low at just less than quarter of a million. I know now that the pipeline of projects that we have confirmed on large R&D are now over £2.5 million. Our budget for next year will be very different based on our commitments of those projects. That is around how we actually are trying to stimulate innovation activity in the sector, and by doing that, I stimulate innovation activity across Scotland as a whole. Isn't the making and vision project only a budget of around 1.1 million over three years? Again, isn't that just scratching the surface? That budget is really to act as a catalyst as a stimulus as a feed-up so that the key funding for projects will come from our existing large grants R&D mechanisms, including our SMART. The making and vision project is not the only budget that we will use to support. It is really there to stimulate demand, of which, hopefully, we will see much more larger R&D grants coming into the main part of the system. As I said, we are sitting with a couple of projects that we are about to conclude. If they go forward, I am very confident that they will, it will increase the bear, just by two projects, by almost half of the current entire bear for the sector at the moment. One of the things that we should and must do is to continue to invest in research as the underpinning knowledge generation from which the innovation that the industry can benefit from can be drawn. That is extremely important. Similarly, we should continue to invest in demand-led innovation support of the kind that my colleagues have been talking about. Working with the industry to ensure that the responsiveness of the academic sector is there for them through mechanisms such as the ones that we have talked about at interface, innovation centres and others. Finally, I wanted to highlight something that I think is extremely important for the coming period, which is to work with the opportunities that the UK Government's large amount of funding through its industrial strategy challenge fund offers to Scotland. We have already seen SRUC be a beneficiary in large partnership looking at the future of agritech, so there are very large amounts of resource available there for us to work with in that area and also in the area of city deals, which we mentioned earlier on in the discussion. Peter? I think that part of the issue of the uptake with the investment going into research that could be picked up by industry in Scotland in the food sector is that a lot of the companies are very small and getting some of that innovation in large-scale projects is quite difficult. I think that the common interest groups is a very important development where you can bring together a number of parties where the research can make greater impacts. I think that this is a vehicle that will make a big impact and could be quite transformative for the future in terms of going towards the 2030 goals. Okay. I think that the question that I said was coming later is about to come up, John. Yes, and that is about Brexit, which has been mentioned both in this panel and the previous one. I think that, Mr Oxley, you said your two concerns about Brexit or your two primary concerns were losing people and perhaps tariffs, so I just wonder yourself and others, would these be the main concerns? What about not getting students coming here or even post graduates? What about losing research funding? What about the cap payments being reduced? If there is no deal at all, is that a concern around tariffs and moving goods across borders? I suspect that each of you will want to comment on that. To save myself from being predictable, I am now going to start on my left, your right, with Carl, and work that way around the table. Carl, if you would like to start on that. Thank you very much. You are right. There is a high degree of uncertainty within the higher education sector. It is about issues associated with collaboration in Europe, the ability to lead projects with our European colleagues. It is about the ability to attract European students into our universities, which is a major part of our business. Two other very important areas are about the ability to attract European staff. About a quarter of my staff are from overseas, including the European Union, and the ability to retain staff as well—a high degree of uncertainty with the staff who are currently here. There are other issues associated with opportunities for internationalisation within our universities through university exchanges either into Europe or from Europe to us, which enriches our universities through internationalisation. All of those are being addressed, or would like to be addressed, I think. Where we go from here is a little bit unknown, I have to say. However, there is certainly a high degree of uncertainty, and it is not a good position to be in, I have to say, particularly for some of my European colleagues. Peter. I would echo many of those comments. In my institute, we have between 25 and 30 per cent of people who are European. They feel very destabilised right now, and whether they wish to stay in the future is an open question. That is part of our leadership in terms of the scientific leadership that we have. It is even a higher figure when it comes to PhD students. They have very many from Europe. Getting the most talented people doing what we want to do is a difficulty. There is then the issue of money granting come, which we are very successful in getting. If that is no longer available to us, that is a serious slug of money that is lost. That also loses the collaborations that we have built up over many years, not just for academic collaborations but in all sorts of senses. The ramifications are huge, and that leaves aside the other aspect, which is students from EU, which is a major intake issue for Scotland, particularly in the University of Aberdeen. The ramifications are enormous. I do not think that we can underestimate it. I will probably reflect specifically on some of the potential labour market implications. A couple of things that we recognise is that the food and drink sector is in some places, in some parts of the country, and in some sub-sectors, quite heavily reliant on migrant labour. That question of uncertainty is critical. In the absence of clarity on whether people have the right to remain, whether we have a clear immigration policy that is differentiated for Scotland that reflects the make-up of our industry, I can understand why businesses feel concerned about that. I think that we heard some very clear concerns from James and others this morning. In terms of labour market implications, we also probably want to look at two other directions. One of the questions that we are wrestling with is whether Brexit actually has the potential to lead businesses to look at other ways of meeting their production needs. Is it going to be a driver for automation? Potentially it might pick up the pace in terms of the response of businesses. There is also an opportunity to be thinking a bit more clearly around the question of labour market participation and economic activity. If labour supply is turned off, we move to a position where actually re-engaging people who are not in work becomes a business imperative as much as a social imperative. We need to be looking a little bit to the medium term or the longer term and thinking why things become clearer, what might the policy responses be that we need to think about. Stuart, I think that Chris has probably posed three questions back. I hope that he hasn't taken one of yours. I was going to echo Carl and Peter's comments on the risks. They outline very well the research staff and research funding students' issues. I will take that a little bit further and then raise a second one, if associated with Brexit, if I may. If we accept that there is a risk that a large number of our research staff may not come here from the European Union in future because they currently do and may not feel so welcomed, then that impacts on our overall research quality as an academically highly thought-of country. That is a vicious cycle potentially where more and more people may not regard us as highly as they have done in the past, which reduces foreign direct investment attraction and reduces the flow of international people from all the way around the world. That takes me to my second point. One of the theatres that we have about Brexit is that its reputational effect on the United Kingdom is that it makes the whole country feel as though it is less welcoming generally. Therefore, Scotland needs to work hard and the academic sector is working hard to retain that sense that it welcomes staff and students from all around the world, countries that are not. Brexit is affected directly, but it needs to feel welcomed here in an environment where there is a concern that might not be quite as welcoming for them. The Scottish academic sector is working hard that way and we are working with it, but it is an important wider implication of Brexit to countries beyond the European Union. The availability of minor labors has been a hugely important aspect of not just the food and drink sector but the wider Highlands and Islands economy. Over the last census survey, we saw virtually every part of the Highlands and Islands growing its population, which was really good to see. A lot of that has been on the back of people coming to the Highlands and Islands. I think that it was Peter O'Crist's point earlier on about changes in terms of a driver for automation. I think that absolutely that is something that we are going to see more of if in a worst-case scenario where lots of people disappear in a very short period of time in order to keep production levels up, there could need to be huge investment in automation. There is perhaps a sectoral attraction benefit of that if automation means that you need higher quality staff, perhaps getting paid more, a bit of skills, then it will become a bit more attractive industry for our young people. Just to echo what has been said, the considerations around constraints on the industry are around workforce and availability of labour, also tariffs. On the tariffs aspects of them, our focus will be around how we can support companies to navigate through whatever break-foods comes out at the end of it from the point of your regularity requirements, but it is also really important about diversification of markets. That includes non-EU markets, where we already have a presence from an STI perspective or from a market specialist, and how can we do more in those markets in North America, Middle East and Far East, but also how can we do more in the rest of the UK? We should not forget that this is a hugely important market for food and drink products. On the longer term, getting into the whole labour issue, automation and advanced manufacturing apps are going to be critical. They will accelerate the need for companies to look at this very critically. With that, there are whole levels of innovation and high levels of productivity, but there is also a danger that that will lead to less people being employed in the sector, or indeed we then have to look at how we can migrate those people to more highly, more value-added jobs and roles. That will be the key consideration from a perspective of how we address that in supporting companies. Thank you very much and thank you all of the panel for the answers that you have given today. If there is something that we have missed and that you feel is important for the committee to consider, I would urge you, as I did the previous panel, to write in and let the clerks have your views so that they can make sure that we get them and that they will do that. It has been a very interesting session. I am not sure, David, that you will have got your plug-in for a 50 per cent increase in your budget, but it was a nice try. Thank you very much for all your input. Our next meeting next week will consider a transport update from the Minister of Transport in the Islands and some statutory instruments. That concludes our meeting today. Thank you very much.