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EVID4 Evidence Project Final Report (Rev. 06/11) Page 1 of 76

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Evidence Project Final Report

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Project identification

1. Defra Project code FFG 1141

2. Project title

The UK Cereal Supply Chain

3. Contractor organisation(s)

European Food and Farming Partnerships LLP,

Mermaid House,

3rd Floor, 2 Puddle Dock,

Blackfriars,

London, EC4V 3DB

54. Total Defra project costs £ 62160

(agreed fixed price)

5. Project: start date ................ May 2012

end date ................. September 2012

mailto:[email protected]


6. It is Defra‟s intention to publish this form.

Please confirm your agreement to do so. ...................................................................................... YES x NO

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Executive Summary

Project aims This project was commissioned by Defra to identify ways in which the UK cereals industry can continue to increase its competitiveness and resilience in a global marketplace. The work aims to identify and build on current best practice in the sector with a view to enhancing and broadening understanding and application where there are opportunities. The project report will be used by Defra to understand the role of CAP reform and the use of policy levers to improve competitiveness; and by the Home Grown Cereals Authority (HGCA) to identify and prioritise activities that support cereal supply chain improvement . Evidence for the report was gathered from a number of different sources including desk research, specially commissioned research amongst representatives of the supply chain and case studies highlighting examples of best practice in the cereals sector. The global marketplace faces the dual challenge of volatility and the need to produce ‘more from less’ It is important to set the findings of this report within the context of a global marketplace and the food security challenge described by the Government‟s Chief Scientific Advisor, Professor Sir John Beddington. The challenge is framed by the need for a world population of 9 billion people to be fed healthily and sustainably by 2050. Cereals and rice form the staple diet across the world and in the future world production will need to increase substantially whilst at the same time conserving natural resources of energy and water: in other words producing „more with less‟. To achieve this will require all those in the supply chain to work together more effectively to identify and implement savings and efficiency gains. As price support for EU farmers has been dismantled over the last 15 years UK producers, food manufacturers and consumers are exposed to much greater global market volatility. Within the last 5 years this has been greatly exacerbated by substantial price spikes due to increasing world demand and variable harvests. The view is that the world is entering a new era of significantly higher and more volatile cereal prices.


UK is self sufficient in cereal supply Within the UK the value of cereal output is estimated at £3.2 billion, with production of 21.5 million tonnes (2011 harvest) which is currently more than sufficient for the country‟s own processing needs. Exports total between two and four million tonnes, with imports of around two million tonnes of crops (e.g. hard red wheat for milling) not easily grown in the UK. Wheat, barley and oats make up over 99% of the UK cereal area, with wheat being the most significant of these. This report focuses on wheat and barley. UK cereals are mainly used for animal feed, food manufacturing and brewing Mapping of the UK cereal supply chain demonstrates the range of routes that cereals take from farmers through to end product or consumer. The main products include animal feed, flour derived from milling wheat, malt from barley, cereals for breakfast cereal manufacture, wheat for starch and bio-fuel manufacture. Grain merchants are an integral part of the supply chain The majority of the cereals are sold at harvest, stored on farm or stored in central (often cooperative) stores. Deliveries to first stage processors are generally managed by merchants who remain an integral part of the supply chain, acting as the coordinators for the numerous and fragmented farming supply base and the relatively few processing and export customers. Over 70% of the national crop is handled by the largest six merchants. The animal feed sector is the single biggest user of grain The animal feed sector remains the largest single user of cereals in the UK, accounting for some 9.6 million tonnes in 2011. The two largest feed manufacturers with national coverage account for around 50% of the market. Milling remains the largest sector for human consumption of cereals utilising 5.1 million tonnes in 2011, producing 4.1 million tonnes of flour. The two largest millers, account for 40% of flour production. The fortunes of the two malting sectors for brewing and distilling (totalling 1.8m tonnes), have been in marked contrast over recent years. A fall in beer consumption, and hence demand from brewers, has been offset by a rise in global demand for whisky that has seen the distilling sector continue to expand. The decline in UK barley production over the past 20 years has led to a number of stronger supply chain relationships developing within the malting sector to maintain a UK production base and to ensure security of supply. The breakfast cereal sector continues to grow in value and in 2011 was estimated to be worth £1.48bn, using 350,000 tonnes of wheat. The decline in production of group 3 wheat, on which there is a high dependence in breakfast cereal manufacture, has been a concern. Previous supply chain work was led by the Cereals Industry Forum (CIF) CIF was set up in 2002 as partnership between HGCA and industry. It developed a series of business improvement tools including Cropbench, Probe Analysis, Masterclass, Value Chain Analysis (VCA) and Risk Management training. Of these VCA, was the only initiative that identified improvements across the supply chain; the other tools focusing on individual business performance. VCA identified nine categories of issues grouped under three broad headings where improvements were necessary; crop management, supply chain relationships and commercial drivers. CIF was disbanded in 2008. The project research with cross industry participants identified barriers and enablers to improve supply chain competitiveness This research highlighted the perception that progress has been made over the last decade but that there is still considerable scope to improve efficiencies and hence competitiveness in the cereal supply chain. Issues raised could be categorised into four main themes:

Further improving supply chain efficiency A major barrier to growing milling wheat and malting barley is a lack of incentive however, there was a feeling that a real difference could be made by the development of longer term and stronger collaborative relationships between farmers and processors / manufacturers.


Specification of grain is considered a barrier. If a wider range of products could be utilised by the processor with farmers batching up appropriate lots (correctly analysed and despatched) it may be possible to avoid or greatly reduce rejections. A more collaborative approach to logistics both on-farm collection and inbound deliveries could achieve significant efficiency gains. There is a need to continue to invest in the improvement of on-farm and central storage.

Improving risk management Many farmers still do not know their cost of production. Training should remain a priority and the RDPE skills programme could support this. There was a feeling that farmers need to understand the range of risk management tools available to secure future grain prices. A whole supply chain approach to pricing risk can offer the greatest potential. Security of supply is of concern for some food companies. This is promoting interest in establishing back to farm supply chains to help protect their raw material supply.

A need for more research and innovation Increasing production whilst using less resources requires the development of the right tools to inform decisions, particularly around GHG emissions. Varietal development is considered key. Processors should be encouraged to take a wider view of usage characteristics in terms of varietal selection which may enable a wider range of higher yielding varieties to be utilised.

The need to improve trust, transparency and communication across the supply chain Strong views were expressed for the need to improve trust. Much of this surrounds the assessment of quality i.e. what the farmers believe they are despatching and what the processors believe they are receiving. Research should be undertaken to establish the true picture and identify key areas to target. An underlying barrier is the attitude of those in the chain which tends to be self-centred rather than collaborative. Farmers need to gain greater understanding of the needs of their buyers and the chains they operate in. This could be assisted by events such as „walking the supply chain‟ and „meeting the processor‟ as have been run by HGCA in the past. Merchants are a vital link in the chain but it was felt could act as a barrier to communication between farmer and processor. For more collaborative supply chains this needs to be overcome as is demonstrated in many of the case studies.

Case studies provide exemplars of good practice in improving supply chain competitiveness There are many supply chains that have developed strong collaborative relationships for the benefit of the participating businesses, including farmers. The case studies researched in the report indicate what can be achieved, in many cases overcoming the barriers identified in this research. However there is not an industry blueprint; in broad terms change will occur as a result of raising awareness amongst farmers, merchants and processors of the different approaches to improving supply chain efficiency, encouraging existing supply chains to examine how they operate and the future demands of food and drink manufacturers looking to secure their supply chains. The case studies support this awareness raising. Role of HGCA There is a need for leadership to provide a stimulus to supply chains to address some of these issues and address the enablers outlined from the study. A Centre of Excellence is proposed. This should not be considered a new CIF, rather a group dedicated to supply chain competitiveness; addressing and prioritising issues and leading the dissemination of good practice. Such a format and remit would have to be considered carefully in consultation with the industry. HGCA is the obvious organisation to take the lead both in consultation and delivery.


Role of Defra There was no call for any form of political intervention or market management by Defra other than minimising regulation. There was a view that Defra plays an important role in research and development as well as encouraging and facilitating training aimed at achieving greater cereal supply chain competitiveness. Sustainability was raised in the research but at a very superficial level; at farmer and first processor level a feeling that this was of increasing importance but there was a lack of clarity as to exactly what was being looked for in this complex area. Defra may consider it has to provide more clarity to the industry as to the objectives and actions needed to deliver cereal supply chain sustainability. There is a need for capital investment, particularly in both on-farm and central grain storage. By influencing CAP reform to secure potential grant aid it was felt that Defra could provide the major stimulus to encourage industry investment. Policy Levers CAP reform proposals include the potential for extending the adoption of Producer Organisations (POs), Interbranch Organisations (IBOs) and Producer Groups (PGs) to a wide range of agricultural sectors beyond the current fruit and vegetable regime. The report considers what implications these proposals might have on the cereal sector and whether they would support or potentially hinder the supply chain function in the UK. There is not perceived to be market failure in the cereal supply chain and no excessively dominant players so the establishment of POs would not appear to be necessary from a market failure perspective. Producer Groups do, however, have a wide ranging collaborative benefit and in practice there is nothing to stop their formation now. There could be two benefits if support for PGs is adopted across a wider range of product sectors within the current round of CAP reform:

The adoption of PGs as part of the reforms could act as a clear signal to both farmers and their supply chain customers that they have to work together to manage the challenges of the market place. It will signal to farmers that they have to structure themselves to deal more effectively and collectively with their customers and by doing so achieve an improved balance of power.

Any proposed funding support for a defined period to establish the PG will act as a stimulus to overcome the fears around costs, resourcing and risk in setting up the appropriate structure and developing the necessary activity to achieve the supply chain objectives.

Project Report to Defra

8.


THE UK CEREAL SUPPLY CHAIN

a report for Defra on the UK cereals supply chain to identify ways in which the industry can improve

competitiveness in a global marketplace

September 2012 A report commissioned by Defra and conducted by EFFP, Cranfield

School of Management and AEA


Acknowledgement Many thanks to the wide range of industry professionals who were kind enough to give their time for the telephone interviews and workshop. Their insight, knowledge and guidance were highly valued, without which this report could not have reflected the views of the industry.


Contents

2. Project Objectives ............................................................................................................. 9

3. A Global Perspective of the Cereals Market .................................................................... 10

Cereals within the context of future World demand .................................................. 10

Cereals… a new era ................................................................................................ 10

UK in a global context ............................................................................................. 11

4. UK Cereal Supply Chains from Farm to Processor / Manufacturer .................................. 12

5. Review of Previous Work and Activity ............................................................................. 18

6. Current Industry View...................................................................................................... 21

7. Role of Defra and HGCA ................................................................................................. 33

8. Industry Best Practice ..................................................................................................... 34

9. Conclusions ................................................................................................................... 38

10. CAP Reform and the potential role of Producer Groups, Producer Organisations and

Interbranch Organisations in the Cereal Sector ................................................................... 41

11. Case Studies ................................................................................................................ 43

Appendix I Research Methodology .................................................................................... 64

Appendix II Telephone discussion questions ...................................................................... 65

Appendix III Raw Score Data .............................................................................................. 68

Appendix IV Workshop Attendees ....................................................................................... 69

Appendix V Breakout Group Questions ............................................................................... 70

Appendix VI Graphic results of research questions ............................................................ 71


2. Project Objectives

Overall aim This project aims to collate and distil evidence from across the cereals supply chain to report existing best practice for initiatives that are enhancing competitiveness and sustainability of the sector and to identify opportunities to further support progress and knowledge transfer. Specific objectives The specific objectives for delivery of this project are outlined below. They are measurable and time bound: Objective1: Identify and map the current UK cereal supply chain structure and its inter-relationships Measure: Cereal supply chain map and commentary report Objective 2: Appraisal of current supply chain effectiveness and collaborative working within the cereal supply chain Measure: Interviews and a report highlighting the key issues affecting collaborative relationships and cooperation with examples of effective best practice Objective 3: Workshop appraisal of project findings and identification of solutions to supply chain challenges. This objective is interdependent on the outputs from objectives 1 & 2 Measure: Workshop conducted with key industry stakeholders Objective 4: Industry insight work to provide case studies illustrating supply chain performance, collaboration and exemplar practice Measure: Cereal supply chain case studies Objective 5: Review proposed CAP reform delivery mechanisms to identify potential policy levers and knowledge transfer opportunities applicable to the cereal supply chain; in particular the potential role of Producer Groups, Producer Organisations and Interbranch Organisations Measure: Summary of CAP policy reform opportunities and knowledge transfer mechanisms for the cereal supply chain Methodology The key work areas were:

Mapping of the UK cereal supply chain through desk research and consultation with representative organisations. The interrelationships along the chain will be studied and best practice that will promote competitiveness identified.

Targeted interviews with businesses across the supply chain to consider factors that will influence change.

An industry workshop to test the findings of the desk research and interviews and consider the opportunities for greater collaborative working along the supply chain to improve competitiveness.

Identification of potential opportunities within the CAP to stimulate change and whether there is an increased role for producer groups and organisations in achieving improved competitiveness.

Outputs The outputs of the project include:

- Cereal supply chain map covering different product routes (milling, malting, animal feed etc.) - An evaluation and prioritisation of findings from the research assessed by stakeholders and

businesses - Identification of CAP supported policy levers that might accelerate change - Recommendations on optimising knowledge transfer with industry in future programmes aimed at

boosting supply chain competitiveness Following the award of the contract, discussions with Defra and HGCA reinforced their priorities.

Defra: To understand the role of CAP reform and the use of policy levers to meet the needs of the cereal industry in being competitive in a global context.

HGCA: To identify and prioritise, activities that support supply chain improvement. Partnership working The team delivering this project was an industry partnership of complementary skills comprising EFFP with practical experience in helping farmers and food businesses change the way they work together; Cranfield University, a world renowned centre for supply chain expertise and AEA, a global environmental consultancy.


3. A Global Perspective of the Cereals Market

Cereals within the context of future World demand The government‟s „Future of Food and Farming Foresight‟ team investigated the global challenge of food and farming and how a future global population of 9 billion people by 2050 can be fed healthily and sustainably. The report

1 by the Government‟s Chief Scientific Advisor, Professor Sir John Beddington was published in

January 2011.

The report evidence makes clear that between now and 2030 global food systems face enormous challenges, as great as any that it has confronted in the past. To address the unprecedented challenges that lie ahead, food systems needs to change more radically in the coming decades than ever before. The report aims to help people think creatively and act decisively to deliver what has already been termed the “Greener Revolution” with Sustainable Intensification cited as the route to be followed. The report concludes that action will need to be based on sound evidence and investment in research into modern technologies. The Report also provides valuable insight into how the farming and food industry in the UK can contribute to the transition to a green economy by increasing sustainability, seizing opportunities and providing innovative solutions for the future.

Cereals… a new era Cereals and rice form the staple diet across the world. The impact of these issues on cereal production cannot be overstated and signals a new era in our thinking in terms of production and supply chains. Historically, the business focus at both the farm and processing levels has been on maximizing the productivity of labour and capital, with little regard for consumption of resources of energy and water. The key difference in the future will be that production will need to increase whilst at the same time conserving natural resources; in other words producing „more with less‟. To achieve this will require all those in the supply chain to work together to identify and implement savings and efficiency gains. Impact on global pricing As price support and tariff protection for EU farmers has been dismantled over the last 15 years the impact has been to expose UK producers, food manufacturers and consumers to global markets and the volatility of those markets. For long periods over the last century cereal prices have operated in two relatively stable bands. From 1907 – 1973 this ranged up to $100 per tonne, achieving peaks in periods of war and troughs in the Great Depression. In 1973 a major „shock‟ occurred with the failure of crops in many parts of the World and a resultant step change in nominal prices that persisted through to 2007. Throughout this period, however, prices continued to fall when measured in real terms i.e. adjusted for inflation. However since 2007 further large increases in cereal commodity prices indicate a move to a new era of with increased volatility and higher prices measured in both nominal and real terms, as the fragile balance of supply and demand tightens. The impact of this „new era‟ for farmers, food manufacturers and consumers is, particularly when taken in conjunction with the Sir John Beddington‟s „2030 Challenge‟ hugely significant. The drive by supply chains to achieve efficiency and competitiveness has never been greater.

1 Foresight. 2011. The Future of Food and Farming. Government Office for Science, London


Figure 2 Political intervention Political intervention within Europe will largely focus on the next round of CAP reforms to be implemented from 2015. The challenge will be the ability of the member states to agree policies that will address the issues outlined above to deliver a competitive industry, capable of increasing production but in a sustainable way. The use of policy levers within the CAP will be critical in determining a successful outcome.

UK in a global context Within the global context the UK is currently the 14

th largest producer of wheat, contributing just over 2% of the

global total of 694 million tonnes (m/t) in 2010 (FAO Stats 20102). China (115m/t), India (80m/t) and USA

(60m/t) are the leading global wheat producers with France (38m/t) being the 4th

largest globally and largest EU producer. Germany (24 m/t) is the second largest wheat producer in the EU. The implications for the UK is that its level of production has limited impact on overall supply and demand balance but it is heavily influenced by what happens in the rest of the world. The UK cereal industry is generally self-sufficient in supply although certain grain types not grown need to be imported. Cereal production in the UK is worth £3.2 billion

3 and is more than sufficient for the country‟s processing

needs. Exports total between two and four million tonnes, depending on the season. The UK usually imports some one million tonnes of bread-quality wheat which cannot easily be grown in the UK, along with imports of maize for animal feed rations. There are approximately 50,000 cereal farmers however only 9,000 cereal holdings above 100 ha in the UK. In practice, due to short term tenancies, contract and share farming arrangements the numbers of active cereal farmers will be significantly less. Ancillary sectors account for thousands of jobs in trading, distribution, processing and retail. The retail sales value is three to five times that of the farm gate value of cereals. Table 1: UK supplies of total cereals

000 tonnes 2007 2008 2009 2010 2011

Production 19,130 24,283 21,618 20,946 21,484

Imports 2,765 2,594 2491 2,220 2,017

Exports 2,440 3,462 3,450 4,463 3,174

Source: Defra Statistics4

2 FAOSTAT. 2012. Available from http://faostat.fao.org/site/291/default.aspx

3 Defra Statistics. 2012. Agriculture in the UK. Available from : http://www.defra.gov.uk/statistics/foodfarm/cross-

cutting/auk/ 4 Defra Statistics. 2012. Agriculture in the UK. as above

http://faostat.fao.org/site/291/default.aspx

http://www.defra.gov.uk/statistics/foodfarm/cross-cutting/auk/

http://www.defra.gov.uk/statistics/foodfarm/cross-cutting/auk/


Annual cereal output is determined by the area planted and the yield achieved. Area planted has been influenced by a number of factors including the area of compulsory and voluntary set aside, profitability and attractiveness of alternative crops (e.g. oilseed rape) and grass based livestock systems; as well as environmental schemes aimed at converting cropped land to pasture (e.g. ESA scheme). While wheat area has remained around 2 million ha over the past decade actual production has varied between 10.8 and 16 million tonnes as illustrated in table 2. Table 2 Cereal Output for England 2001 to 2011 (m/tonnes)

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Wheat 10.8 15 13.4 14.4 13.8 13.7 12.1 16.0 13.1 13.7 14.0

Winter barley

2.3 2.9 2.4 2.2 2 2.1 1.9 2.3 2.2 2 1.8

Spring barley

2.1 1.3 1.7 1.5 1.5 1.4 1.3 1.7 2.3 1.3 1.6

Oats 0.5 0.6 0.6 0.5 0.4 0.5 0.5 0.6 0.6 0.5 0.4

Total cereals

15.7 19.8 18.1 18.6 17.7 17.7 15.8 20.6 18.2 17.5 17.8

Source: Defra Statistics

5

Wheat, barley and oats make up over 99% of the UK cereal area. The significance of wheat as the major cereal in the UK is illustrated in the graph below. In addition to annual variations in yield notable regional variations also occur. For the 2011 harvest the impact of the dry spring resulted in lower wheat yields in the Eastern region, the largest wheat growing area of the UK, which therefore has a disproportionate effect in total production. Over the last 20 years growth in UK yields has slowed substantially. Such is the concern that the yield plateau is currently under review by HGCA and others.

4. UK Cereal Supply Chains from Farm to Processor / Manufacturer See supply chain maps on following pages

5 Defra Statistics ibid


Figure 3 (source EFFP)


Figure 4 (source EFFP)


At farm level The decision on what to grow is taken based on a range of factors including resources of land, labour and capital, suitability of soil type, crop rotation, climatic conditions and perceived profitability of the crop. Seed and variety is the important starting point, with either home saved or purchased seed and choice of variety determined by suitability of growing conditions, yield potential, management ability and infrastructure on farm (e.g. drying and storage). Once harvested the majority of the cereals are stored on farm, sold at harvest or stored in central (often cooperative) stores. A high proportion of on farm storage dates from the 70‟s and 80‟s (EFFP 2007

6) and there is evidence that constraints exist in terms of rate of drying and segregation. Central

storage has been growing over the last 10 years supported by RDPE grants, as farmers see the benefits this can provide, particularly in meeting the quality requirements for the human consumption market. The largest, Camgrain now handles over 370,000 tonnes of crops per year on behalf of 350 members. However, on farm storage still accounts for more than 90% of the total and is a critical factor in determining marketable grain quality. The challenges involved with on farm storage are the variability in quality of volumes of grain. Segregation of type (e.g. milling and feed quality) is essential and variety is desirable. On-farm processing is usually confined to drying and cleaning grain but can rarely accommodate relatively small differences in for instance protein or nitrogen levels. Limited laboratory testing on farm means the producer and buyer do not exactly know what is despatched on the lorry until tested at point of delivery. This can cause disputes and is raised later in the report. The merchants‟ role Deliveries to first stage processors are generally managed by merchants who remain an integral part of the supply chain, acting as the coordinators for the numerous and fragmented farming supply base and the relatively few processing and export customers. The structure of the merchanting sector was radically altered in the last decade when poor margins and increased exposure to volatility led to a number of significant mergers. Frontier Agriculture is now the largest privately owned merchant; it was created in 2005 following a joint venture between Associated British Foods (trading as Allied Grain) and Cargill (trading as Banks of Sandy). The largest farmer owned cooperative is Openfield Limited, which was formed in 2008 following the merger of Grainfarmers and Centaur Grain. These two merchants now handle around half of the UK cereal crop. Four other merchants with national coverage are ADM Direct, Gleadell, Glencore and Nidera all of which are part of multinational commodity trading companies. Over 70% of the national crop is handled by the largest six merchants. Regional merchants still retain a presence with strong local relationships and service levels continuing to attract farmer customers. A number of these are largely farmer owned, such as Wessex Grain and Grain Co, while others are long standing businesses such as Bartholomews in the South, Harlow Agricultural Merchants in the East and Bradshaws in Yorkshire. Cereal supply chain…first stage processors First stage processing takes place across a number of main product categories supplying the food and drink industry, the animal feed sector and industrial use, as summarised in table 3 . In addition seed production accounts for approximately 0.45m/t annually. Table 3. Main UK cereal uses in 2011 (million tonnes)

Crop Milling Malting distilling

Breakfast Cereal

Manufacturer

Animal Feeds Industrial Starch and

Biofuels

Wheat 5.1 0.35 6.2 1.4

Barley 1.8 3.4

Other 0.48

Source: Defra Statistics

7, nabim

8

6 EFFP. 2007. A survey of the Grain Handling Facilities in Farms in the South of England and East Midlands.

7 Defra statistics.

8 Nabim. 2012. UK Flour and Milling Industry. National Association of British and Irish Millers. London


Cereal supply chain…Milling Milling remains the largest sector for human consumption of cereals utilising 5.1 million tonnes in 2011, producing 4.1 million tonnes of flour. The by-products are predominantly wheat feed and some bran. As illustrated in figure 5, white bread flour remains the largest output with around half of the production. Bread flours are primarily derived from nabim Group1 and 2 wheat varieties that are characterised by high protein levels and strong, elastic gluten qualities. The biscuit and cakes flours are derived from Group 3 wheat where an extensible but not elastic protein quality is required. For 2011 88.5% of the wheat milled in the UK was UK grown. With most plants now able to operate 24/7, overcapacity in the milling sector has been a recognised feature of the industry for some time. This has resulted in continued rationalisation that has seen the industry contract to the current position of 32 companies operating 56 UK mills. The two largest millers, accounting for 40% of flour production, are Rank Hovis and ADM with 7 and 8 mills using 1.4mt and 1.1 mt of wheat respectively. Other key millers with more than one site include Allied Mills, Carrs Milling, Heygates and Whitworth Bros. Smiths Milling ceased trading in February 2012.

Figure 5 UK Flour production by category (%)

Source: nabim

9

Cereal supply chain - Malting, brewing and distilling The fortunes of the two sectors utilising UK malt have been in marked contrast over recent years with a fall in beer consumption, and hence demand from brewers, being offset by a rise in global demand for whisky that has seen the distilling sector continue to expand. The five largest UK maltsters supplying the sector are: Boormalt (4 sites), Bairds Malt (5), Muntons (2), Simpsons (2), and Crisp Malting Group (6) with a handful of smaller traditional maltings also in existence. The only large scale integrated maltster and brewer is Coors in Burton on Trent while Diageo and Highland Maltings operate integrated malting and distilleries. WM Grant operates a grain distillery in Glasgow. Collective usage of malting barley for 2011 was 1.766 million tonnes. The decline in UK barley production over the past 20 years has led to a number of stronger supply chain relationships developing within the malting sector to maintain a UK production base and to ensure security of supply. The sector has also become increasingly vulnerable to the consolidation of the brewing industry that now has over 50% of production dominated by four multinational brewers. Breakfast cereals manufacturers The sector continues to grow in value and in 2011 was estimated to be worth £1.48bn (Mintel

10). 89% of the

market is the ready to eat cold sector dominated by Kelloggs, Cereal Partners (a joint venture between Nestle and General Mills) and Weetabix. These three account for around 60% of the market. Individual segments within the ready to eat sector are children, staples, healthy muesli and adult indulgence. Market shares have been influenced by consumer reaction to sugar and salt levels in particular. Weetabix with an 8% share remains the number one brand with sales just over £100 million.

9 Nabim. ibid

10 Mintel. 2010. Breakfast Cereals UK. Mintel group Ltd. London.

0

10

20

30

40

50

60

1989 1999 2009 2011

White bread

Brown bread

Wholemeal

Biscuit

Cake

Pre paked household

Self raising & ingredient

Starch & other


The hot cereal sector accounts for the remaining 11% of the market and following strong growth over the past decade porridge is now the UK‟s most popular breakfast cereal. PepsiCo‟s Quaker Oats is a leading brand. The industry continues to evolve with a number of takeovers in recent years. In the muesli segment Associated British Foods took over Jordans in 2008 while Wellness Foods bought Dorset cereals for £50 million in the same year. More recently Bright Foods acquired Weetabix in May 2012, valuing the company at £1.2 billion. On the production front reformulation in response to the healthy eating agenda has occurred while Mycotoxin concerns have impacted the sector with a number introducing thresholds below the legal maximum. In setting more rigorous standards this sector increasingly requires the high level of service and due diligence safeguards that dedicated supply chain partnerships are able to provide. The decline in production of group 3 wheats, on which there is a high dependence in breakfast cereal manufacture, has been a concern. Animal Feed The feed sector remains the largest single user of cereals in the UK, accounting for some 9.6 million tonnes in 2011. Around 4.3 million tonnes of grain is processed and fed on farm with 3.6 million tonnes of cereal being used by the compounders and straight feed manufacturers. A further 1.7 million tonnes of cereals are used by the Integrated Poultry Units (IPUs) that formulate and mill their own feed. In addition to whole grain cereals the feed sector remains an effective outlet for by products with diet formulations including some 1.343 million tonnes of cereal derived by-products from the human food chain that are utilised as feed. This included 837,000 tonnes of wheat feed from millers, 358,000 tonnes of distillery by-products such as dark distillers grains and other products such as malt residual pellets. The two largest feed manufacturers with national coverage and accounting for around 50% of the market are ABN (part of Associated British Foods) and BOCM Pauls, who have recently announced plans to merge with ForFarmers from the Netherlands to create the EU‟s largest feed company. Figure 6 Animal Feed Cereal Ingredients 2011 („000 tonnes)

Industrial starch Starch and glucose manufacturing has been the subject of rationalisation in the past decade, partly as a result of changes to the EU sugar regime that resulted in cereal derived sugars becoming less competitive. Tate & Lyle have withdrawn from the market while French owned Syral have closed plants at Greenwich and Icklingham. Roquette has a starch facility at Corby while the UK‟s largest facility is the Cargill plant at Trafford Park, Manchester. Cargill purchased the former Cerestar site in 2002 and converted production from imported maize to wheat in 2005, now using over 1 million tonnes of wheat per annum. The starches, fructose and glucose syrups produced are utilised by the processed food and confectionary industries. Biofuels The nascent biofuel industry is currently enduring a difficult and protracted gestation. While small pilot plants have been operation the two largest ventures on Teeside (Ensus) and Humberside (Vivergo) are still to reach full capacity, with each plant originally planning on using over one million tonnes of wheat a year. Ensus was commissioned in 2010 but failed to reach capacity before a temporary shutdown in May 2011. It is expected to retart in autumn 2012.

11 Ensus is owned by US private equity companies Carlyle Group and Riverstone.

Vivergo is a joint venture with three shareholders: AB Sugar (45%), BP (45%) and Du Pont (10%) and is currently undergoing commissioning. Frontier Agriculture is to source the 1.1 million tonnes of wheat that the plant will eventually require.

11

Ensus. Ensus put out a press statement in March 2013 to say that the plant is again closed. No date

for reopening was given, but it will depend on changing market conditions.

Comp Blend = compounders and feed blenders IPU = Integrated Poultry Units

Source Defra statistics1. AHDB

HGCA1


5. Review of Previous Work and Activity Independent Reviews of the Cereal Sector Many of the initiatives over the past decade to improve the efficiency of English agriculture stem from the trauma of Foot and Mouth, following which there was a realisation that the approaches to agriculture needed to be rethought from first principles. The findings of the Policy Commission on Farming and Food were published in January 2002

12, with over 100 recommendations to help identify a new strategy for a sustainable,

diverse, modern and adaptable farming industry. One recommendation of the Policy Commission was to set up the Food Chain Centre (FCC) and with cereals being added to the FCC list of priorities. This led to a partnership with HGCA and industry to establish the Cereals Industry Forum (CIF). The CIF was established in late 2002 with the aim of identifying and promoting best practices within the cereal supply chain, spanning all sectors of the cereal industry. To assess the opportunities and threats faced, CIF instigated a major independent review of the sector, commissioning two independent research reports: firstly by Prospect Management Services (PMS) (Thelwell 2004

13) and secondly by the Scottish Agricultural College (SAC) (Kerr et al 2004

14). PMS reviewed the

international competiveness of UK cereal production and supply chains, conducting benchmarking across 12 countries including Australia, France, UK, Ukraine and USA. The SAC review complemented the PMS work by applying diagnostic SWOT analysis of the UK cereal sectors to identify underlying strengths and weaknesses. Although using differing approaches the two reports identified a number of common strengths of the sector and a rather longer list of weaknesses and challenges that needed to be addressed. The outstanding feature of the UK was seen as the strength of the assurance, traceability, quality systems and regulatory controls in comparison to competitor countries. UK growers operate high input high output systems which provide a stable supply of raw materials with an infrastructure that offers opportunities for economies of scale in the supply chain. The list of weaknesses includes high land, labour and transport costs, together with the impact of climate on crop quality. Both reports noted an apparent lack of trust and communication within the supply chain. A growing concern highlighted was the erosion of the UK research base that was beginning to impact on productivity gains. Overall the reports identified a lack of confidence in the future that was impeding innovation and entrepreneurship in certain processing sectors. Compounding the concerns identified in the SAC and PMS studies were a number of other factors. Reflecting a period of low profitability in the sector, structural changes and consolidation were occurring, resulting in several joint ventures and business takeovers along the supply chain. On the political agenda, CAP reform in the Mid Term Review was redefining the support mechanisms with policy changes reflecting international trade agreements. As a result decoupled payments were being phased in as part of the shift to a single farm payment. Recognising the shifting market place the HGCA board conducted further industry consultations and surveys that were summarised in the Report of Cereal Industry Review (Turner 2004

15). This painted a

compelling case for action and utilising the findings a successful bid secured funding of £2.6million from DTI for a three year period between 2004-2007. Industry Response With funding in place the CIF were able to implement the review recommendations by developing five core initiatives that enabled the industry to tackle the issues identified. Business improvement tools were developed and delivered by a number of independent providers and engaged participants from all sectors of the cereal supply chain as follows:

Cropbench – A benchmarking tool for arable farmers with additional support through Arable Business Group structures. 50 groups established and 550 participants engaged Probe Analysis – Promoting Business Excellence. A benchmarking tool for downstream businesses such as merchants, cooperatives and processors. 48 companies engaged

12

Policy Commission. 2002. Report on the Future of Farming and Food. Cabinet Office London

13

Thelwell and Ritson. 2006.Global Benchmarking nad Competitive Analysis of the Cereals Sector. Prospect Managemetn

Services PMS

14

Kerr,G. K Bevan, P Leat, J Booth, G entwistle, P Cook. 2004 Competitiveness of the UK Cereals Sector. SAC Penicuik. 15

http://www.hgca.com/publications/documents/cereal_industry_review_final_report.pdf

http://www.hgca.com/publications/documents/cereal_industry_review_final_report.pdf


Masterclass – A continuous improvement process that involves all staff to deliver practical shop floor solutions.12 companies engaged Value Chain Analysis – A diagnostic tool to identify improvements across the supply chain rather than just within a single business. Based on lean production principles this work was conducted by Cardiff University and Cranfield School of Management. 9 analyses conducted Risk Management training – Regional farmer meetings at two levels covering hedging crop marketing using futures and options and currency issues relating to single farm payments.

The five projects above ran until early 2008. HGCA has continued to support Cropbench and risk management training. CIF review findings On completion of the programmes the outcomes of the CIF initiatives were reviewed by both the HGCA and independently by Professor Andrew Fearne. Geraghty and Barnes (2008

16) reported on Cereal Probe and

Value Chain Analysis with Batchelor and Watts (200917

) reporting on CropBench. Fearne evaluated CropBench (2008

18) and produced a combined Probe, Masterclass and Value Chain Analysis (2008

19) report.

The Value Chain Analysis (VCA) diagnostic tool is designed to support business improvement from a supply chain perspective with multiple participants involved in delivering shared benefits. This is unlike PROBE and Masterclass, which focused entirely on the performance and management of the individual business or the Cropbench and Risk Management tools that tend to focus on individual upstream businesses. The VCAs conducted included a wide cross section from plant breeders through to retail and as such provided the broadest insight of the challenges the sector faces. Using principles from lean manufacturing VCA focuses on process improvement and the elimination of waste in the supply chain. By conducting detailed supply chain mapping it was possible to identify the value added processing stages, reduce the amount of time spent on non-value adding stages and minimise areas of duplication that may exist. Conducting VCAs proved challenging as the historic prevalence of adversarial and opportunistic downstream relationships resulted in less than half the VCAs involving the final customer. However, a number of consistent messages emerged which endorsed similar findings identified in the business specific PROBE and Masterclass programmes. From the VCA review of the eight cases studied nine categories of issues emerged that could be grouped under three broad headings: Crop movement; Relationships; and Commercials.

Crop management Transport and delivery – with increasing fuel costs efficiency is essential and reduced wastage from double handling, empty miles and wasted time at loading and tipping were seen as an areas for clear savings. Storage and inventory – with a requirement to carry stock from harvest to harvest inventory is a long period of non-value added time for the cereal sector. Whilst the unprocessed grain must be stored, improved service levels will reduce the inventories required to be held by processors with the conclusion that more advanced storage is appropriate for the premium markets. Quality and testing – highlighted that duplication of testing is prevalent and rejection levels remain stubbornly high, particularly for the human consumption markets. With climate change increasing seasonal variations quality is likely to remain a key challenge. Relationships Relationships and trust – the range of relationships remains diverse, from highly collaborative to purely transactional with little more to discuss than price. A reluctance to engage in closer, more collaborative relationships was prevalent but where good practice could be shown to be delivering lasting longer term benefits to all parties, opinions and therefore approaches can be altered. Information and communication – where relationships are based on price and perceived competitive advantages, information is often seen as power and as a result information flows are restricted and inefficient. This is a constraint on overall efficiency improvements Production and planning – clear scope exists for improving supplies of grain that better meet the customers‟ requirements, principally through targeted agronomy and new varieties that meet

16

Geraghty R. C Barnes. 2008 Cereal Chain Improvement Programme Cereal Probe and Value Chain Analysis. Cereals

Industry Forum. London 17

Batchelor J. J Watts. 2009 Cropbench Project 21-1086/AGD 442 Final report. Cereals Industry Forum . London 18

Fearne, A 2008.An evaluation of on farm benchmarking ( Cropbench). Broad Oak Reseach Ltd. Kent. 19

Fearne, A. 2008. An evaluation of Probe, Masterclass and Value Chain Analysis. Broad Oak Research Ltd. Kent.


processing functionality needs. Commercials End product availability – with high service levels demanded by retail and food service outlets managing stock levels to ensure availability Value added – with an inherently higher cost base than many commodity producers the UK cereal sector should exploit opportunities to differentiate products to create value added opportunities. With customers seeking to meet consumer demands for provenance or healthier eating options the scope for supply chains to collaborate on new product development remains. Cost and price – a key feature of a number of the areas outlined above and a pivotal component of supply chain contracts. Benchmarking was viewed as an opportunity for more collaborative approaches to help identify and deliver cost savings to benefit the supply chain.

Opportunities to roll out initiatives The reviews also identified a number of learnings from the work undertaken to date, indicating where challenges would be faced if the pilots were to be extended. These included:

Recruitment (particularly for PROBE and VCA) proved much more difficult than anticipated. This may

have resulted in some businesses agreeing to participate without a full understanding of what was

required of them. Those with a high level of commitment initially invested considerable time and effort

in the process and as such benefited the most.

Turning diagnosis into action is the major challenge. It is dependent on the commitment of the individual business to drive continuous improvement and the realisation of the benefits a more collaborative approach to trading can deliver.

A number of generic areas for improvement were apparent from the pilot reviews which will enable a greater alignment between service provision and business needs.

Five Years on As the CIF work drew to a conclusion the global commodity price spikes of 2008 were escalating, heralding a new era of cereal market dynamics. The realisation dawned that emerging economies with expanding populations were going to create sustained demand for food and resources at the same time that climate change was affecting production capabilities. While many businesses may feel detached from the implications of feeding a global population of 9 billion sustainably, the relevance of challenges they face has shifted perceptibly. The table below illustrates how the importance of various challenges at the farm level is altering and indicates where influence can be made to greatest effect. The importance of improved supply chain efficiency as identified by the CIF programmes is more relevant than ever. Table 4 Key challenges…

Source: EFFP


6. Current Industry View Research methodology Research was conducted by extended telephone interviews followed by a one day workshop with samples of 28 respondents and 22 participants respectively drawn from a cross section of the agri-food cereals supply chain including farmers, merchants, processors, manufacturers and representative organisations. Respondents were asked to agree or disagree to a series of 19 statements on a five point scale:

Disagree strongly

Disagree Neither agree nor disagree

Agree Agree strongly

1 2 3 4 5 This was followed by a series of open questions. See appendices (I) to (VI) for details of the sample, questionnaire and results. The research took place in May and June 2012. Key Messages Overall, respondents were in agreement that progress had been made in the cereal supply chain over the last decade but that there is still considerable scope to improve efficiencies. This would imply the initiatives carried out by the Cereal Industry Forum and other work in the last decade has yielded benefits but the industry continues to move on in its search for supply chain improvements. Following detailed discussions in both the telephone interviews and the workshop, four main themes emerged:

Further improving supply chain efficiency

Improving risk management

A need for more research and innovation

The need to improve trust, transparency and communication across the supply chain

Each of these themes is examined in detail. There is an analysis and interpretation of the research findings followed by a list of barriers and enablers arising from workshop discussions together with a view of which enablers are likely to provide the greatest industry gain. Prioritisation of these enablers has been arrived at partly through telephone discussion (which provided an element of quantitative research) but largely through the workshop that subsequently took place (which provided qualitative views and feedback). Here participants were posed a number of questions in group break-out sessions to help identify solutions to enhance supply chain competitiveness. 1. Improving supply chain efficiency A majority of respondents agreed that progress had been made in cereal supply chain efficiency over the last decade but that there was still scope for further, significant improvement. In response to the following statements „Progress has been made in the cereal supply chain efficiencies over the last decade’ and „there is still scope to improve efficiencies in the cereal supply chain‟ mean scores of 3.8 and 4.3 respectively, were some of the highest seen in the research (Appendix VI statement 1 & 2). Farmers are not growing what the market requires Fundamentally there appears to be a misalignment between what farmers are growing and what the market requires. There is a lack of incentive to grow for the quality market (App VI statement 17) and a clear view that the volatility of the global cereal market gives rise to short term planning, as there is little assurance that a commitment to growing a higher value but lower yielding / higher cost cereal crop will be sufficiently rewarded. In the absence of clear signals from the markets the easy or „default‟ option is to „grow the biggest pile of wheat at lowest cost‟. This was illustrated by response to the statement „Farmers grow what the market (ideally) requires‟ with a neutral mean score of 3.0 (App.VI statement 16). The majority of respondents went on to disagree with the statement that „The premiums available for growing quality cereals are sufficient to provide adequate supplies’ (mean scores of 2.5 for milling wheat and 2.9 for malting barley –App. VI statement 3). Opportunities exist to improve logistics There was a strong view that there are „Opportunities to significantly improve logistics from farm to first processor‟ with a high mean score of 3.9 (App VI statement 9). At the farm, location and infrastructure, dictating access and loading speed were cited as inefficiencies, but so too were attitudinal factors around the willingness of the farmer, or otherwise, to prioritise collection over other activities. On arrival at the processor a key issue raised was that of lorries queuing due to overbooked slots, time spent waiting for grain test results and an inadequacy of the infrastructure to match rate of unloading. There was also a view expressed that


processors were less concerned about this end of the chain as it was not a direct cost to themselves, but concentrated on their outbound efficiency to satisfy the needs of their customers. Grain storage: Central versus on farm Central grain storage was put forward as the „best opportunity to maximise supply chain competitiveness. Although there was support for this (mean score 3.1) a standard deviation of 1.4 (which was the highest seen in the research) indicated that this option was „not for everyone‟ and views were split (App. VI statement 8). Most agreed that the product coming out of central stores would most closely meet buyer specification, to the extent that vendor assurance, offered by some stores greatly reduces the need for inbound testing at customer sites. This is due to the processing role undertaken by these stores that have the scale to dry, blend and segregate much more effectively than on farm. On the other hand, product coming direct from farm is likely to be more variable in relation to the specification required (one respondent described the practice as „buyer beware‟). The onus is then on the customer to sort out and further process what they receive. Some processors are content to do this and consider it is part of their role. However, it does potentially lead to disputes about quality and penalties. Most respondents believed that the continued development of central storage was good for the industry in meeting customer needs, particularly for quality grain destined for human consumption. However, over 90% of grain is stored on farm and developing efficiency around on-farm storage will continue to be priority. There were a few views expressed that central stores are advantaged by receiving RDPE grant aid, unavailable for on-farm storage. Positive views on collaboration In general, respondents were very positive about collaboration across the supply chain. At the horizontal (farm production) level it was felt that it helps achieve scale and that in turn can enable the necessary investment in equipment and development of skills (but there was a warning that two poor farm businesses collaborating does not result in one good one). There is a massive amount already happening, particularly in the East of the country which does not show through in official statistics. Very good examples of real collaboration along the supply chain were discussed (illustrated in section 8 and in section 11) and are viewed as successful in improving efficiency in the chain. However it is acknowledged that such arrangements account for a relatively small proportion of grain produced, with the majority still traded on a non committed basis. The weather has a key impact on cereal quality Respondents were asked „What are the main factors that affect the overall quality of UK cereal production’? The weather was not surprisingly cited by nearly all. Whilst it might be considered a factor over which farmers have no control, many went on to note that the spread of performance indicated that some farmers managed their crops in adverse conditions much better than others; due to a combination of management and agronomic skills as well as capacity and quality of machinery and equipment. It was also noted that if „average‟ yields could be raised to those of the top 25% it would have a very significant impact on output and supply chain efficiency. There was also a view by a number of respondents that UK farming had to improve its capability in dealing with greater variation in climatic conditions, such as high summer rainfall, as this was becoming increasingly common. It was felt that plant breeders have an important part to play in the development of more robust, climate resilient varieties. Need for more consistent and ‘user-friendly’ environmental risk measures Further evidence of a supply chain challenge was highlighted when those in the telephone survey mainly disagreed with the statement that „The supply chain is managing environmental risk effectively‟ (mean 2.7-App. VI statement 10). Clearly logistical efficiency plays a significant role in reducing environmental risk, through efficient vehicle use, minimising traffic and fuel consumption. This question also raised issues of husbandry practices in growing the crop, optimising fertiliser use and minimising carbon footprint. There was a view that current methods of calculation of carbon use are confusing and inconsistent. Lack of data Finally in this section, a further key finding from the workshop was that work needs to be undertaken to review the scale and location of cereal supply chain inefficiencies. Much data is historic or anecdotal and an updated evidence base would allow more effective targeting of actions. For instance processors report a wide range in percentage of product delivered „outside specification‟ but what is the scale of this?


Theme 1: Improving supply chain efficiency

Barriers

Enablers

Farmers – growing what the market requires?

Lack of incentive to grow for the quality market. At present growing for the animal feed market is easier and as profitable with a significant majority of producers not motivated or bothered about quality wheats or malting barley.

Longer term supply agreements give confidence to produce higher value / specialist crops Greater assurance around premia and securing base price through risk management tools to provide more reliable price forecasting Greater collaboration throughout the chain to build confidence amongst supplying farmers that they are in a long term relationship. Demonstration of good practice is a potential catalyst (e.g. malting industry examples) but there is no „whole scale industry intervention‟ that can enable this. It will depend on individual supply chains believing it is right for them – largely driven by processors wishing to secure supply in the „new era‟

Grain ‘out of specification’ / quality issues and better matching farmer’s grain to the most suitable destination

Farmers do not reliably know the quality they dispatch to the processor, leading to disputes on delivery. Reported as low as 65% conformity in certain seasons.

Farmers should take responsibility for quality of products despatched to processors. Improved on farm or independent testing to avoid disputes at delivery (see also issue 4 – Trust)

Range of specifications too narrow in the UK – lack precision in relation to value. In dfficult seasons (2012) greater flexibility appears to be achieved.

Close collaboration with processors to determine sensitivity around optimum specification – greater scale through central storage or on farm collaborative units would allow batching of greater number of specifications e.g. 11%, 12% and 13% protein linked to more blending to specification e.g. Australia has more precise measures and bands

Need for greater logistics efficiency

Efficiency of on farm collection

On farm: partly attitudes and partly infrastructure. „Walk the chain‟ & demonstration events to show best practice

Inbound logistics to processor Inbound logistics to processor to be as efficient as outbound by:

1. Attitudal change 2. Investment 3. vendor assurance to allow quicker turnaround /

out of hours delivery 4. Improved coordination – back loading etc

The requirement for infrastructure investment

Farm storage infrastructure lacking – unable to optimise grain quality to processor need Failure to manage crop after harvest

Incentive to invest at both farm level (collaboration at farm level to achieve) and ongoing investment and development of central storage facilities achieved by confidence in the supply chain and assisted by grant aid (e.g. RDPE)

Agronomic skills development

A greater understanding of what each manufacturing process requires to deliver the best end product i.e. matching grain performance to functionality required (e.g. quantity of protein v. quality)

Farmers and processors working more closely to define and prioritise quality requirements and the protocols to achieve.


Weather – the greatest impact on „yields and quality‟. On the face of it no scope to influence, though agronomic skills play a part – the spread of yields between top 25% and others, on similar soil types suggests some are more capable through crop management (e.g. soil management, timeliness, equipment) or agronomic skills (choice of variety, fertiliser and crop protection).

Understanding how the best producers minimise impact of adverse weather – skills training, Monitor Farms Ability to influence crop quality in difficult years through attention to storage, blending and cleaning

Agronomic skills have been increasing and professional agronomists deliver a high standard of advice. However there is a wide performance spread in cereal yields between the top 25% and the rest. Whilst soil and climate are factors, ability of the farmer plays a major part

Agronomy skills development and uptake of new technology (e.g. precision farming) amongst the wider arable farming population. Both industry and government have a role with training / skills development and Knowledge Transfer programmes e.g. RDPE, Monitor Farms Yield plateau research work is now published and provides insight into agronomic challenges

What are the benefits if this does happen?

Greater incentive to grow for the quality market

Improved output across a wider range of specifications produced with less

Value reflected across a wider range of specifications (providing specifications can be utilised by processors)

Improved consistency of grain delivered

Logistics savings with fewer delays and redirections due to out of spec. grain

Optimisation of logistics planning to save financial cost and GHG emissions (through vendor assurance and out of hours delivery) with fewer vehicle delays

Investment in storage and conditioning will result in a higher quality more consistent product delivered to customers.

Why is this not happening at the moment? There is a combination of factors that conspire against these efficiencies being driven out for the benefit of all those in the chain, much of this centres around a lack of joined up thinking and a collaborative approach along the whole chain.

In practice if the incentives are not considered adequate for growing quality cereals then it will not happen and only the market can determine the premia available. That has to be a commercial decision by those in the chain. However many of the other efficiencies (such as the accuracy of grain sampling and analysis coupled with inefficiencies in logistics) are down to lack of attention to detail and insufficient determination by all to raise performance.

Which enablers are likely to give the greatest return to the industry? Many of the cereal supply chain inefficiencies identified could be reduced by greater collaboraton along the chain to understand where the pinch points exist and what each party has to do to create value for the chain as a whole.

Identifying, scoping and then targeting logistics inefficiences is likely to produce significant tangible return in the short term because of the sheer scale of product being moved. This does require detailed analysis within chains to target areas for improvement so that the efforts one party make (e.g the farmer) add to those of another party (e.g. the processor) rather than being cancelled out by inefficient practices in other parts of the chain.

Investment in primary processing, storage and infrastructure, will improve quality of delivered products.This will be justified providing there is a sharing of financial benefits this will bring, adequate to support the necessary investment to make it happen.


2. Improving risk management Based on the telephone interviews it appears that farmers have some awareness of financial risk management tools but are often reluctant to adopt them. Scores for both measures were below 3 ( mean scores of 2.9 and 2.7 respectively – App. VI statement 11 & 12). Most considered the use of financial risk management tools which include „options‟ and „futures‟, as a means of hedging future prices. It was generally accepted that farmers needed a merchant to utilise such tools although one large farmer interviewed operated independently, but admitted this was complex. While the complexity of hedging mechanisms can be a barrier to their use, the existence of LIFFE (futures market) is a major benefit to the sector. Participants in the chain (manufacturer, processor or merchant) may take the opportunity to hedge prices on some part of their requirement. This can then allow an element of forward pricing further down the chain which can be passed to farmers, offering the greatest potential for stability and forward planning. The role of merchants and buying groups in managing input requirements was noted and provided an opportunity to manage input risks, both price and availability There was some discussion on how overall margins could be protected given the potential to hedge input costs such as fertiliser whilst at the same time hedging the price received for grain. It was noted Chicago trades urea up to three years forward, but no use of this is directly made by farmers. There was a concensus that awareness training related to risk management tools, such as that provided by HGCA was highly valued. However there was a view expressed that most farmers who undertook training did not implement such practices. It was recognised that the skills within merchanting businesses do afford farmers the opportunity to access expertise in risk management and should be used. Whilst options and futures can enable better risk management of the underlying grain price, premia such as those for milling wheat or malting barley remain very exposed to seasonal volatility. It was felt that greater support from retailers might help address premium risk issues. Risk management also extended to other areas both for farmers and processors. Amongst farmers there is still little evidence (despite the development of „Cropbench‟ by the Cereal Industry Forum) that they have a clear understanding of production costs. Such basic information would enable a more considered view as to what price to lock into in a forward sale, rather than adopting a „seat of the pants‟ approach which appears to still be the basis on which many make a marketing decision at present. For processors there are growing concerns regarding security of supply in certain supply chains. On a domestic basis the impact of the newly created biofuel plants has yet to be fully felt but there is a fear that this will divert crops from existing supply chains. Likewise if arable land continued to be taken taken out for the production of energy crops e.g. for anaerobic digestion plants, this could start to have an effect on domestic supplies. One food manufacturer raised concerns about security of supply and consequential availability and price for their products due to the critical shift in world supply. A strategy to deal with this could be a local, committed supply chain. But the manufacturer was also aware that it could have the unintended consequence of exposing them to the risk of crop failures amongst their dedicated local group, due to increasing UK climatic variation.


Theme 2: Improving risk management

Barriers

Enablers

Business management

A lack of knowledge / understanding of cost of production which can be used to inform marketing decisions

Skills / training – greater promotion and use of „Cropbench‟ and other business management tools. Improved record keeping

A silo mentality focused on the price today – without understanding what price it is necessary for the business to achieve, fear of missing the „top‟ of the market. Premiums can‟t be hedged using available financial instruments

In supply chains with dedicated groups it is possible for the complete chain to take positions to help reduce volatility Supply chain agreements to help manage risk around premiums for all involved

Financial risk management tools

Awareness and access to risk planning tools (many farmers have had training but don‟t have the confidence to implement). Understanding what the risks are and the cost of using instruments

Risk assessment training workshops (as currently delivered by HGCA). Greatest benefit will be achieved by a whole supply chain approach requiring wider involvement of merchants and processors to bridge the divide between theoretical understanding of risk management and putting it into practice.

The ability to hedge fertiliser and other input prices could be a major benefit

„Planned purchasing‟ and commitment to allow buying groups / merchants to optimise purchasing

Security of supply

Growing concerns from some processors / food manufacturers about security of supply. Market volatility causes „tensions‟ – who will win?

Development of dedicated / collaborative supply chains for those food businesse for which it is a concern – e.g. setting up grower groups, achieving monetary and non monetary benefits for all parties in the chain. Market volatility is a barrier – but it may be possible to develop formulas for sharing risk and reward.


1. Better management of volatility for all parties in the chain

2. Greater security of supply for processors improving planning

Why is this not happening at the moment? Historically, growers have operated on the basis of growing and selling as discrete activities where importance is placed on finding the optimum time to go to market to achieve the best market price. The advent of hedging techniques, performance planning and monitoring software, forward contracting and collaboration appears to have been adopted by „the few‟ rather than „the many‟, as these are still not widespread practices. Changing attitudes and behaviour is well recognised as a long term process. With growing concerns from some processors and food manufacturers regarding security of supply this may help to drive dedicated, collaborative supply chains where risks are mitigated through forward planning and contracting. Which enablers are likely to give the greatest return to the market? Understanding cost of production is a prerequisite for any profitable business and likewise should be the case for growers. So this is a vital enabler which should help in any selling activity whether it be through a supply chain or direct to the market. However the challenge is to get farmers to see the benefits and become engaged in doing this. The global nature of the cereals market means that volatility is likely to be an on-going feature with the likelihood of greater uncertainty, not less in the future. Seemingly the best way forward, particularly where a particular specification of wheat or barley is critical, is to secure commitment of farmers (e.g. dedicated grower groups) and use risk management tools throughout the chain (where possible for inputs and outputs) to help protect returns.


3. Need for research and innovation There was general concern in the telephone discussions and workshop about the slow down in growth in cereal yields over the last 20 years from around 2.5% per annum in the 80‟s to under 1% per annum currently. Varietal development was considered a barrier, particularly with varieties that are more robust to climatic variation. It was felt by many that closer collaboration was needed between processors, farmers and plant breeders to understand and define key usage characteristics, which would allow breeding progress rather than holding on to the older quality varieties „because they worked‟, whilst yields of group 4 feed wheats moved ahead with newer varieties. Discussion also centred around matching agronomic practices with processing requirements so the grain meets the functional requirements of the end product. Anecdotal evidence indicates that only around 25% of varieties drilled actually meet the specification that they have the potential to achieve. While some work has been undertaken in this area much has focused on crude quality parameters such as 13% protein levels, rather than protein quality. This challenge may be assisted if there was a means of testing growing crops throughout the season to determine the likelihood of meeting quality criteria and therefore the most appropriate levels of inputs that would help achieve the potential of the crop. Mycotoxin control was a concern for the industry as a whole and the repondents felt that more research should be committed to this (though they did not say who should pay for it). Crop establishment and soil management was considered to have considerable scope for savings, both financially and in terms of CO2 saving and as mentioned previously a need for consistent approach to carbon measurement. Concern was raised about the balance between pure and applied research. Some good examples of near industry market research were cited such as Null-Lox spring malting barley. (This is a conventional spring barley developed by Carlsberg and Heineken Research using traditional breeding techniques. Null-Lox varieties have the staling enzyme LOX bred out to produce fresher-tasting beer for longer and with better head retention). However it was felt there were still opportunities to achieve practical implementaion of basic research. This would ensure better value for money from funding awarded from organisations such as Biotechnology and Biological Sciences Research Council (BBSRC). The rationale for the development of a „Centre of Excellence‟ was raised by a number of respondents. The intention is that this would be the repository of supply change knowledge and best practice as well as identifying areas where there is need for development to improve supply chain competitiveness. Currently HGCA has a lead role in prioritising research needs and the issues raised in this section would no doubt fall within its remit. Consideration should be given as to whether the remit should be extended to a more proactive role along the chain to promote best practice and encourage a whole chain solution to some of the challenges outlined within all the four themes identified. See table on following page for barriers and enablers


Theme 3: Lack of research and development

Barriers

Enablers

The environmental impact – understanding and measuring ‘Achieving more with less’

„More from Less‟ will become greater priority but tools lacking to make informed decisions

Development of measures and tools to inform decisions on resource use that go beyond economic return e.g. GHG emissions

Grain quality & variety – anecdotal evidence suggests only 25% varieties drilled meet the specification they have the potential to achieve

No satisfactory test for functionality available at point of intake

Develop intake test for functionality Multiple testing on farm to increase certainty. Feasibility scoping needed (HGCA).

Managing the growing crop to optimise quality – no in field test to provide reliable estimation of potential quality which would dictate inputs

Develop growing crop test that allows farmers to match inputs to crop potential (e.g. to avoid unnecessary nitrogen applications). Feasibility scoping needed (HGCA)

Varietal development (and hence yield) of quality wheat / barley constrained by specific characteristics that may or may not be critical in the processing of the grain.

Closer involvement and vision of processors in defining usage characteristics in varietal development.

Are current varieties suited to changing / variable summer weather patterns?

Research and analysis (e.g. harvest 2012 results) Greater varietal development of robust climatic varieties.

Development of supply chain knowledge & disemination of best practice

Lack of cross industry focus on what can be achieved and how to do it.

More consultation with the industry to determine the best way of addressing challenges and achieving information disemination. Potential for a „centre of excellence‟ with very specific supply chain efficency remit – to help develop knowledge and understanding of supply chain practices and solutions, focusing on the benefits. A role for HGCA to lead on – both in industry consultation and delivery.



1. „Optimising‟ the potential of the crop by understanding yield and quality potential under a range of

growing conditions

2. Optimisation of inputs by knowing crop potential – „more with less‟

3. Cross industry focus and dissemination of knowledge and best practice

Why is this not happening at the moment? R and D expenditure has declined over the last two decades, which is argued to have had an impact on yield growth and other technological developments.This is the subject of a separate Defra study and will not be commented on in this report. The Cereals Industry Forum, managed by HGCA, completed its programme in 2007. This initial piece of work identified areas of supply chain activity which if improved, could lead to overall improvements in efficiency. HGCA took these up and has sought to implement them widely. They include a grain passport, grain sampling and other logistical issues. HGCA has sought to improve the understanding of supply chains through its Meet the Processor programme set up in 2011. HGCA has also established a new Business Improvement Programme, which continues CIF‟s work to improve grower awareness of good business practice. HGCA also manages the Cereals Liaison Group which brings together all parts of the supply chain, and seeks to identify areas for improvement that would be beneficial to all businesses in the supply chain. Championing improvements in supply chain efficiency is not easy in a climate of strong competition between businesses. HGCA‟s role is to raise awareness of the benefits of such an approach, which it tries to do, even among those businesses in the supply chain that are not levy payers. The challenge of „more from less‟ is relatively new and there has been an absence of measures and tools to inform decisions on resource use that go beyond the economic return. Which enablers are likely to give the greatest return to the industry? The development of specific tests would be very instrumental in informing crop management, however these do not currently exist and would require extensive research, significant investment and a long lead time to make available to the industry so it is necessary to have realistic expectations. However the introduction of more uniform GHG measurement tools is moving forward and could be in regular use in the near future. The Centre of Excellence would have a major impact on the cereal supply chain. Its remit would need to be considered carefully, to ensure it focuses on issues that will improve competitiveness and does not become a general „talking shop‟. It needs to embrace and secure support from the whole supply chain and be visionary in what can be achieved. It should not be thought of as a revival of the CIF.


4. Improving trust, transparency, communication and collaboration The majority of respondents felt that communciation between farmers and processors was not effective, indeed in telephone discussion and the workshop this came across as a very major issue with strong views expressed. (App. VI statement 15). This concern has arisen in previous research work (SAC 2004)

20 and whilst the industry may have taken steps

over recent years, it is still considered a barrier to the competitiveness of a supply chain. Issues of mistrust, lack of transparency and poor communication at all stages of the chain were expressed. On a positive note, farmers and processors recognised their shortcomings and were strongly of the view that potential collaboration between farmers, merchants and processors could help reduce risk and improve competitiveness. A mean score of 3.9 is one of the highest from the research (App. VI statement 13).

A commonly held view was that farmers do not always treat their buyers as „customers‟, particularly in periods of high prices and relative shortage. The situation can reverse in periods of oversupply. Respondents cited greater progress on collaboration when pressure on supply has been consistent for a long period of time (e.g. the case with malting barley).

Merchants were recognised as a vital link in most supply chains but there was a view expressed by farmers and processors that they also acted as a barrier to communication. It was suggested by farmers and processors that it may not always be in the short term interests of merchants to share information, as their method of reward is traditionally dictated by pricing spread. Indeed there was a fear, at both ends of the chain, that a small number of large merchants were dominant. This could pose a difficulty in establishing a collaborative approach to supply chain challenges.

A key barrier to improved relationships is the slow shift in perceptions. Historic conflicts remain for long periods to perpetuate feelings of mistrust. Many of these concerns relate to quality testing results (also discussed under theme 1 – Improving supply chain efficiency) and the slow communications that often occur in informing the farmer supplier of problems. Farmers are often, by default, in the hands of the buyer when it comes to establishing the quality of what is delivered. Buyers are generally adamant that variability in on-farm stored crops can mean that farmers‟ own tests do not always reflect what goes on the lorry. Farmers are often of the view that buyers use quality measures to control their supply. The scale and cause of the problem needs to be researched and understood.

It was noted that where supply issues are addressed before grain is physically delivered, relationships improve significantly. This is most certainly the view of those who advocate central grain storage, such stores having on site laboratories to accurately determine quality.

The general view was that the number of quality parameters is increasingly complex in nature. Concise communications and the clarity of information have helped to address this challenge e.g. the Mycotoxin Working Group providing a unified industry approach. Merchants, it was felt, can provide a valuable conduit for this information.

Overall faster communications and information flow were areas that would lead to increased trust and better relationships. Examples from the red meat sector and some recent cereal work highlight the potential for Electronic Data Interchange (EDI). See table on following page for details of barriers and enablers

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Kerr,G. K Bevan, P Leat, J Booth, G Entwistle, P Cook. 2004 Competitiveness of the UK Cereals Sector. SAC


Theme 4: Improving trust, transparency, communication and collaboration

Barriers

Enablers

Scale of the problem – size of the prize

Starting point is to understand the size of the problem: What is the true scale of rejected and out of specification delveries? What are the reasons for rejections? In which sector is this most challenging? Are the penalties appropriate in relation to the loss of value?

A robust quantitive research review of the level of rejections and out of specification deliveries to set out the facts clearly to the industry; both processors and farmers. To identify those factors that are within the control of processors and farmers in order to to overcome this loss of value. Demonstrating the size of the prize, both in financial and environmental terms.

Attitudes and transparency

Farmers do not always treat their buyers (merchants or processors) as customers

Develop attitudal change by helping farmers understand and become a closer part of the chain they operate in. „Walk the Supply Chain‟ & „Meet the Buyer Events‟ More collaborative long term arrangements to overcome indifference to customers

Merchants vital but can act as barrier to communication between processors and farmers; creating lack of transparency and trust

Collaborative working throughout the chain to develop longer term approach particularly to higher value markets

- stronger price signals

- Cost of production contracts? Trust – must have confidence that growers can and will deliver

Farmers need to collaborate to be able to fulfil supply agreements. This could enable bulking up a greater range of qualities if more exact testing can be achieved.

Millers – often poor communication with suppliers and see collaboration as threat

Some millers are real exemplars of best practice and can demonstrate potential benefits

Historical (and current) distrust within the industry not helped by lack of interface opportunities between growers and processors

Independent facilitation of communication between growers and processors such as HGCA‟s „Meet The Processor‟ (MTP) events and possible support with structuring and setting up supply chain groups

The way in which issues are communicated - no „common language‟

Encourage all to focus on „food as an ingredient‟ in discussion on quality, mycotoxin levels

Distrust regarding issues arising from „out of spec‟ deliveries

Some growers keen to establish independent vendor assurance to resolve issues surrounding „out of spec‟ deliveries

Use of IT systems

Lack of user uptake of IT software and systems

Educating growers on the benefits of utilising IT systems and improving awareness of their existence was seen as critical to encourage greater adoption. Benefits include faster returns of quality analyses – potential is now within 20 minutes of testing The creation of a „common‟ IT platform was not strongly supported on the basis it would simply lead to greater cost and complexity and act to erode rather than enhance competitive advantage

Lack of flow of information / knowledge across the supply chain

Electronic Data Interchange (EDI) is a positive solution to issues surrounding flow of information across the chain (though there is indcation that this is not being met with universal support across the industry).



Communication, trust and transparency were key issues. They embrace many facets but in workshop discussion it was very clear that testing of grain and communication of results were major issues – to overcome this supply chain issue would have a big effect on trust from farm to processor.

Whilst there may be shortcomings in the mechanisms to achieve a greater level of trust, much could be developed by more awareness of the chain as a whole by bridging the merchant, in a constructive way, to ensure all parties in the chain had an appreciation of their individuals needs.

Why is this not happening at the moment? Historical working practices and disputes between farmers, merchants and processors are deep seated and like any other cultural issue unlikely to change without some kind of shift in perception. Each part of the chain is rather entrenched. Which enablers are likely to give the greatest return to the industry? A robust quantitive and independent research review of the level of rejections and out of specification deliveries to set out the facts clearly to the industry; both processors and farmers. This would provide a baseline from which the industry as a whole can progress. Changing attitudes can be a lengthy and challenging process but improving communication along the chain will be a prerequisite to achieving change. Supply chain collaboration, from farmer through to processor and manufacturer embracing transparency, sharing of information and understanding of the respective challenges, will be the major driver to improving efficiency. However, these collaborative chains will not suit all and many will continue on a „trading basis‟. Notwithstanding this, accurate information flow on quality and other measures will still provide efficiency gains.


7. Role of Defra and HGCA

Respondents felt that HGCA should have the lead role in helping industry achieve supply chain competitiveness. A mean score of 4.2 in response to the statement „ HGCA has an important role to play in helping cereal supply chain competitiveness‟ was one of the highest ratings in the research. Conversely, respondents felt that Defra had a lesser role to play and should not engage in any form of „market management‟.

There was no call for any form of political intervention from Defra other than minimising any regulatory framework, for example cross compliance („light touch regulation‟). This may reflect the current higher prices and profitability of cereal production but also an industry that recognises that it has to solve its own challenges. There was however a strong view that Defra had an important role in facilitating relevant research and development, as well as encouraging and facilitating training and skills development (and ultimately knowledge transfer) which would achieve greater cereal supply chain efficiency. There is a recognised need for capital investment in the cereal sector and careful targeting of Pillar 2 funding to support infrastructure projects is key. By influencing CAP reform to secure the availability of grant aid, it was felt Defra could provide the major stimulus to encourage the industry investment to improve supply chain efficiency. It was also felt that HGCA is the organisation best positioned to work across the supply chain to help resolve industry issues and improve competitive advantage. Areas suggested included:

- Forming a „Centre of Excellence‟ to provide supply chain information and promotion of best practice,

bringing together all parts of the supply chain – working with trade bodies and organisations with a

clear remit around the core issues specific to supply chain development and efficiency.

- Events aimed at bridging the gap – e.g. Meet the Processor. Events delivered in the last year have

met with good demand from farmers but greater processor uptake will be required to extend the

programme.

- Risk Management Training with strong involvement of merchants.

- Promotion and support for benchmarking

- The development of communication (e.g. electronic cereal passports (EID) or similar) for which the

majority of respondents (though with important exceptions) were in favour.


8. Industry Best Practice

The barriers and enablers identified from the research have been recognised by many farmers, processors and supply chains in the recent past. Indeed a number of the significant issues were recognised in the CIF work over five years ago. Many supply chains have therefore adopted good practice to help address particular barriers. The purpose of this section is to illustrate a number of interesting cases where this has happened. The majority of these involve cooperation and collaboration between farmers and their supply chain customers. It is not suggested that these represent the answer for all, far from it, individual supply chains must consider what if any changes they need to make based on their specific circumstances. Some of the examples below and others are discussed in more detail as full cases studies in section

Examples of current best practice

Improving supply chain efficiency Growing what the market requires

Sainsbury‟s „in store bakery‟ flour supply chain - Camgrain is supplying 60,000 tonnes of regionally

sourced wheat to Sainsbury‟s 360 in-store bakeries. This initiative started with Sainsbury‟s wish to

source from the UK and Camgrain was seen as the ideal partner as they operate centrally stored grain

on behalf of their members. The sophistication of the Advanced Processing Centre at Camgrain

enables the exact specification of wheat to be produced through conditioning and blending. This is

then despatched on a „Vendor Assured‟ basis to Whitworth‟s for milling. This relationship is constantly

developing with all three parties working together to further add value and improve quality.

Muntons‟ Malt Supply Chain - Muntons plc has been trading for over 80 years, producing malt and

malted ingredients for Brewers, Distillers and the food industry within UK and International markets.

Significant capital investment was required by Muntons for grain intake, first stage processing and

storage at their site at Bridlington in Yorkshire. At the same time they were increasingly looking for

security of supply and had concerns that they would build the facility at a cost of £5m and then not

achieve consistency of supply to fully utilise the facility. As a result Muntons Malt Supply Chain Ltd

was formed as a joint venture between Muntons and their supplying FCBs; Openfield and Grainco.

The investment took place, with long term contracts developed and part of the arrangement being the

provision of conditioning and storage of the crop. As a result their supplying farmers do not have to be

concerned with the issues around the need for careful storage of malting barley, which is a factor that

has in the past detracted from growing the crop. A further outcome is the development of a Malting

Barley Forum aimed at focusing on efficiencies in production methods with the underlying objective of

producing „Low Carbon Malt‟.

Improving Logistics

Various studies21

have identified the inefficiencies in moving grain from farm to first processor, arising

from poor coordination of transport movements, empty back loads, slow on farm loading and poor

intake speed at processor delivery points. As fuel costs increase and carbon becomes an increasing

feature of any supply chain this challenge needs to be grasped. Openfield, in conjunction with DHL,

was determined to tackle this with the creation of a logistics „control tower‟ to plan and oversee all

movement of grain from members‟ farms to achieve maximum efficiency whilst still using local

hauliers. Now in its fourth year of operation the savings in cost have been substantial.

Infrastructural Investment

North East Grains (NEG) and Simpsons Malt – NEG is a cooperative, many of whose members supply

Simpsons Malt in Berwick with malting barley. NEG has an ideal site for expansion of its members‟

21

Against the Grain – Centaur Grain 2007 and Project Marlin – EFFP 2010


grain storage operation but the capital required to do so was prohibitive. On the other hand Simpsons

wanted to grow more barley locally which would require quality storage. By developing an agreement

with NEG to contract the use of a new storage facility for a rolling 3 year period it enabled NEG to

raise £1.5m finance (aided by an RDPE grant). The construction of a 20,000 tonne store with state of

the art drying was undertaken, dedicated to malting barley contracted to Simpsons. This

infrastructural development would not have been possible without this collaboration as farmer

members would not have been able to provide the capital to „buy‟ their storage rights quickly enough.

NetworkGrain UK– is a collaboration between 14 farmer-owned central storage co-operatives who

operate across the length and breadth of the UK‟s prime cereal growing regions from Aberdeen in the

North, Kent in the South East to Truro in Cornwall. Through joint co-operation, NetworkGrain UK sets

clear standards for supply of its vendor assured grain. All member stores work together to better meet

market needs, sharing skills and information, and driving out logistical and operational inefficiencies.

Over the last 4 years the NetworkGrain members have invested approximately £40m, aided by £14m

RDPE grant to improve their facilities and as a group now handle over 1.1m tonnes grain per annum.

This has enabled them to achieve ever higher standards of grain quality and specification for their

customers through benchmarking and improving performance, developing skills, sharing information

and reducing operational inefficiencies.

Keysley Grain Storage – this is a smaller scale initiative demonstrating that effective investment can

still be achieved through more local collaborations. Keysley had provision to expand their „on farm‟

storage in Wiltshire but needed commitment beyond their farm to make the proposition viable. At the

same time a number of neighbouring farmers had storage needs, particularly with the increasing short

term tenancies that have become the norm, often with inadequate building. The Keysley family set

about securing agreements from near neighbours to handle, condition and store their grain. As a result

they have been able to construct 10,000 tonnes of storage and drying facilities at a cost of £750k,

aided by £300k of RDPE grant aid.

Agronomic Skills Development

The Monitor Farms programme operates in Scotland and the North East of England with cereal activity

focused in Scotland and run by SAOS. Monitor Farms are normal, commercial farms, typical for their

area (so that other farmers in the group can benefit from the learning), where the farmer opens up the

business to a local group who become involved in the decision making process for the farm. The

monitor farmer, aided by a facilitator and a community group of farmers, sets an agenda to improve

the profitability, productivity and sustainability of the farm business over the three years of the project.

Six meetings are held a year, together with an open day.

The concept, adopted from New Zealand, allows farmers to share experiences, find out how others

have tackled problems, and adopt best practice. The emphasis is strongly on practical farming and

good business decisions rather than theory. Because of the practical and „local‟ approach it has

caught the imagination of farmers with excellent involvement and attendance at meetings.

The Carling Western Growers‟ Group was established to source 20,000 tonnes of Molson Coors‟

annual barley requirements. This initiative is a mutually beneficial long-term supply chain relationship

between Molson Coors, Frontier (the merchant) and around 70 British growers. Molson Coors needed

to address their strategic concerns in securing a long-term sustainable malting barley supply from

British farmers to support their 100% British barley brand proposition. The close relationship between

the three parties has enabled a focus on a wide range of efficiency issues, in particular agronomy.

The RDPE skills programme offers an excellent opportunity to provide training and skills development

– the new programme to 2014 has commenced and there is specific provision (Lot 2) for „Knowledge

Transfer, Innovation and Technical Skills for Agriculture, Horticulture & Forestry.‟ This could support

supply chains in targeting efficiencies at farm level.


Improving risk management Financial risk management

HGCA risk management training provides information and helps farmers to understand the options

available to reduce pricing risk. The training has been well received but subsequent uptake is low.

(Working closely on delivery with merchants who can implement price risk management may help).

Few individual businesses operate price risk management (such as futures and options)

independently. One such business is Brixworth Farming, a large farming operation which involves a

number of collaborative joint ventures. By their own admission „it is complex‟ and the operational

features of futures, in particular margin calls can result in a major cash requirement during the growing

season.

Offre et Demande Agricole (ODA) is a French company providing advice and assisting farmers in the

implementation of risk management strategies. The core offering is the provision of independent and

reliable information derived from a team of expert agricultural analysts in Europe. To make best use of

ODA‟s information services, the company also offers training, advice and straightforward strategies to

all market participants.

Security of Supply

Weetabix Wheat Supply Group – the growing of Group 3 wheat has become less popular, but is an

essential ingredient for the manufacture of breakfast cereals and biscuits. To help secure supply

Weetabix has established a dedicated supply group of 200 farmers within a 50 mile radius, to supply

approximately 100,000 tonnes per annum of group 3 and 4 wheat, direct from on farm stores. To

achieve this Weetabix work through three merchants. The group is now in its third harvest year and

probably the most challenging with grain quality impacted by the poor summer and wet harvest.

To ensure strong communication with their supplying farmers they have a discussion group made up

of 15 leading producers which meet four times a year to consider production and supply chain issues.

There is also a twice yearly meeting for all producers to which the majority attend. The ambition within

Weetabix is to develop the relation further

Weetabix research has shown that its customers consider that local sourcing is important to them and

this has value in their marketing activity.

Improving trust, transparency, communication and collaboration The supply chains described above, by their very nature require greater trust and strong communication to ensure they secure the commitment of all parties and likewise are collaborative in nature. The following two examples further demonstrate the benefits of collaboration, in the first example over a sustained period of time and in the second a collaboration having profound effect on the brand and its marketing.

Warburtons wheat supply chain, one of the longest supply chain collaborations between farmers and a

food manufacturer, was set up nearly 20 years ago to encourage production of Group 1 wheat to

supplement their supplies of imported hard red Canadian wheat.

Warbutons has a long-term contract with Openfield specifically to allow it to focus on some of the

bigger challenges facing sustainable supply chains that would not be possible with the one year

arrangements that are typical within the industry. Developing a variety suitable for Warburtons takes

between seven and 11 years and working with growers and plant breeders is a vital part of this

collaboration to ensure the right varieties can be produced to meet product requirements and are also

attractive for farmers to grow.


Colman‟s Mustard Growers – The growing of English mustard seed has been in decline for over 15

years due to a decline of mustard seed yields and crop quality, therefore reducing the profitability for

the grower. Unilever was finding it increasingly difficult to meet demand from English suppliers and

had to source increasing amounts of seed from overseas. Unilever were keen to maintain the strong

„English‟ brand of Colman‟s Mustard and to develop relationships with local growers, so they needed

to explore ways in which they could support and encourage farmers to keep growing the crop whilst

also maintaining production efficiency and competitiveness. As a result the English Mustard Growers

Co-operative was formed, with a business plan to re-establish mustard seed as an important and

profitable crop within the East of England. This three-year plan will ensure that the majority of mustard

seed for Colman‟s Mustard is grown locally to the production site in Norwich, which will support the

English provenance message. It will also significantly help Unilever with risk management with regards

to security of supply.

The group is now working closely with Unilever and other partners to develop yields and crop husbandry, and has purchased specialist equipment to improve the initial conditioning of the harvested crop so that the quality of seed does not deteriorate in store. The key benefits for the farmer are improved long-term profitability of the crop and reduced risks, but most significantly they will be able to continue to grow, what is a very important break-crop, on a commercial basis.

Creating change There are many examples of best practice that have come about in order to overcome challenges faced by particular businesses and supply chains. The drivers for the development of these supply chain solutions are a response to the business and external environment pressures at one or more stages in the chains. The development is more often than not lead by a consumer of grain, from processor to, in the case of Sainsbury‟s, a retailer whose objective is to move away from grain trading to a more secure and long term source of supply. The important principle in all this is that there is not an industry blueprint; therefore it is not possible to recommend a series of interventions that will make supply chains do things differently. It is a case of demonstrating what can be achieved, what are the potential benefits and what are the commitments required by all parties.


9. Conclusions The findings from this research are consistent with issues recognised and pursued by the Cereal Industry Forum (CIF) between 2002 and 2008 This new study highlights that whilst progress in cereal supply chain efficiency may have improved over the last decade many of the original issues identified remain. From the CIF work that took place the most relevant from a supply chain efficiency perspective was Value Chain Analysis (VCA), the workstream where multiple participants were involved in identifying and delivering shared benefits. The other key areas of work, Cropbench and PROBE, centred on individual business analysis. It is of particular note and of no coincidence that the four themes identified in this study align extremely closely to the issues identified from the conclusions of the CIF work. The cereals market has undergone dramatic change and volatility over the last 5 years World events have moved on since the demise of CIF, with a marked change in balance of supply and demand. Most recently in 2012 this is illustrated by rising cereal prices and global food shortages following the worst drought in the American Midwest for half a century and extreme weather conditions elsewhere. Much greater market volatility has become the norm, but also there is an increasing awareness of the „sustainability‟ issues that must considered alongside „production and profit‟. The outlook for farmers and food manufacturers is increasingly uncertain For farmers the safety net of CAP protection and support is being reduced and this is likely to continue. For manufacturers security of supply appears to be recognised as a potential long term issue with increasing worldwide competition for grain, high prices and within the domestic market the impact of a growing UK biofuel industry to factor in. Market and cultural factors highlight why some of the issues and opportunities identified have not been addressed before now The industry research indicates some of the shortcomings in supply chain competitiveness and priorities for change. The case studies demonstrate what can be achieved so the question is why such positive initiatives have not developed more rapidly? This can be examined from the perspective of both the farmer and food companies. Many farmers have been content to operate on a trading basis, growing the highest yielding crop and chancing the market. This is an even easier decision in periods of high prices. There is also the issue identified in the research of lack of trust in others within the supply chain. For some farmers this has been a barrier to change. Furthermore whilst attitudes may change there will remain a core of farmers content with the status quo and reluctant to get too close to anyone else in the chain. This maybe the right strategy for some and there is no problem with this. However others have indicated a willingness to change if the issues highlighted can be addressed, which bodes well for the future. Food companies, as the customer, provide the greatest stimuli in the creation of new supply chain arrangements. Up to relatively recently the majority of food companies were content with short term „commodity trading arrangements‟ for their procurement but now many asking whether this is a short term phenomenon of high and volatile cereal prices, or is this the new norm? Whilst these new supply chains arrangements illustrated in the case studies may appear attractive, many are relatively young with key learnings and experiences still coming through. So both farmers and food companies remain cautious of the sustainable, long term benefits of such arrangements. Detailed discussions from the research identified a series of enablers that would improve industry competitiveness

Improving supply chain efficiency

A major barrier to growing milling wheat and malting barley from the perspective of farmers is a lack of incentive. Initially this is considered to be around premia which is largely determined by the market, however there was a feeling that a real difference could be made by the development of longer term and stronger collaborative relationships between farmers and processors / manufacturers that result in greater confidence and commitment. This in turn can enable all those in the supply chain to work together to achieve efficiencies and unlock value. Specification of grain is considered a barrier, on the one hand farmers too often despatching a product outside the specification of the buyer whilst on the other hand processors too rigid in their demands. If a wider range of products could be utilised by the processor with farmers batching up appropriate lots


(correctly analysed and despatched) it may be possible to avoid or greatly reduce rejections. Logistics is very much in the spotlight – it is felt a more collaborative approach to both farm collection and inbound deliveries could achieve significant efficiency gains. Longer term there is a need to continue to invest to improve storage, both on farm and central storage. Confidence in the supply chain will help to achieve this over the longer term but the level of investment in storage is high and there needs to be an incentive through grant aid.

Improving risk management

At the basic level farmers need to know their costs of production and this has to remain a priority. Only when this factor is known can informed marketing decisions be taken including the opportunity to lock into future prices. Training should remain a priority and the RDPE skills programme could support this. There was a feeling that farmers need to understand the range of risk management tools available to secure future grain prices and the awareness training provided by HGCA is important. However there was recognition that the use of such tools should be implemented by merchants and processors due to their complex nature. Indeed a whole supply chain approach to pricing risk can offer the greatest potential in achieving stability and forward planning. Security of supply is of growing concern for some food companies. With this comes a greater interest in establishing back to farm chains to help protect their raw material supply. This is likely to stimulate the development of more collaborative chains.

Need for research and development

The challenge of increasing production whilst using fewer resources is vital to the competitiveness of the UK cereal sector and its ability to manage within the global challenge. The development of the right tools and measures to inform decisions is critical, particularly around GHG emissions. There was a desire to be able to predict more reliably the potential of the growing crop in meeting quality criteria and hence optimise management of the crop. However it is accepted this, even if feasible, is some way off. Varietal development was considered key, not only in breeding but encouraging processors to take a wider view in varietal selection by looking at usage characteristics. This may enable a wider range of higher yielding varieties to be utilised, which may not be perfect in all characteristics but used in conjunction with others could be more cost effective. The rationale for the development of a „Centre of Excellence‟ with a very specific supply chain efficency remit was proposed. The aim would be to help develop knowledge and understanding of supply chain practices and solutions, focusing on the benefits that could be achieved. The intention is this would be the repository of supply change knowledge and best practice as well as identifying areas where there is need for research and development to improve supply chain competitiveness.

Improving trust, transparency, communication and collaboration

Very strong views were expressed for the need to improve trust. In many respects this is the most critical of the findings, if trust and transparency are not embedded the likelihood of other initiatives working is slim. Much of this surrounds the assessment of quality; i.e. what farmers believe they are despatching and what processors or merchants claim they are receiving. A starting point, to distinguish between hearsay and fact, should be to undertake robust quantitive research to establish the level of rejections and out of specification deliveries. This would set out the facts clearly to the industry; both processors and farmers and act as a baseline. It will then be possible to identify those factors that are within the control of processors and farmers, and in doing so demonstrate the size of the prize, both in financial and environmental terms. An underlying barrier is the attitude of many of those in the chain which tends to be self centred rather than collaborative. Farmers need to consider their buyers as customers and develop greater understanding of the chains they operate in, appreciating the challenges of others. A lack of interface opprtunities could be addressed by events aimed at „walking the supply chain‟ and „meeting the processor‟, such as those run by HGCA in the past. Likewise it was felt merchants, undoubtebly a vital link in the chain, act as a barrier to communication, reluctant to let farmer and processor get too close. For more collaborative long term supply chains this needs to be overcome to achieve the necessary trust and communication, as is demonstrated in many of the enclosed examples of best practice (section 8) and case studies (section 10). These exemplars work on the basis of tranparency, trust and communication along the chain. The ultimate manifestation of trust which is already being achieved, by for instance Camgrain (see section 8 – Best practice), is vendor assurance where farmers (through their central store) guarantee


the quality of delivery to the extent that testing and delays are minimised. Overall this subject area, also cited by CIF as a major challenge, can be overcome by a combination of understanding the chain, a collaborative approach to addressing issues (rather than a silo mentality) and a flow of communication and timely information.

Case studies provide exemplars of good practice in improving supply chain competitiveness but there is not an industry ‘blueprint’ There are many supply chains that have developed strong collaborative relationships for the benefit of the participating businesses, including farmers. The case studies indicate what can be achieved, in many cases overcoming the barriers identified in this research. However in the end it will come down to the drivers and perceived benefits within individual chains that will create change. Some food and drink manufacturing businesses will see real benefits in doing things differently and will engage with farmers to do so. Others, both food companies and farmers, may be content with the status quo as it „works for them‟ and they believe it will continue to do so. So there is not an industry blueprint, but change could occur as a result of:

Raising awareness amongst farmers, merchants and processors of approaches to improving supply

chain efficiency.

Encouraging supply chains to examine the way they operate and consider how to improve their ways

of doing things.

Providing stimuli with the provision of bespoke training and skills development.

Encouraging Industry Investment

Identifying effective R & D

Role of Defra There was no call for any form of political intervention or market management by Defra other than minimising any regulatory framework. This may reflect the current higher prices and profitability of cereal production but also an industry that recognises that it has to solve its own challenges. There was a strong view that Defra has an important role in facilitating relevant research and development, as well as encouraging and facilitating training and skills development aimed at achieving greater cereal supply chain competitiveness. There is a recognised need for capital investment in the cereal sector. By influencing CAP reform to secure the availability of grant aid, it was felt Defra could provide the major stimulus to encourage the industry investment particularly in grain conditioning and storage. Specific policy levers, such as the role of producer organisations, which might be possible in the next round of CAP reform, were not explored in detail within the interviews or workshop, largely because participants in the cereal sector have a very limited understanding of what these levers are. As a result these are discussed in section 10 to consider if they have a place in helping develop supply chain competitiveness. Role of HGCA Changes will come from individual supply chains determining the course of action that will be of benefit in their individual circumstances. However there is a need for leadership to develop the necessary stimuli and help address some of the enablers outlined from the study. It was felt that HGCA is the organisation best positioned to work across the supply chain to help resolve industry issues and improve competitive advantage. Areas suggested included:

- Forming a „Centre of Excellence‟ to help address supply chain issues, provide information and

promote best practice.

- Responsibility for training and skills development in improving supply chain competitiveness,

particularly around building relationships in the chain (e.g. meet the processor) and risk management.

- The promotion and development of faster, more effective methods of communications (e.g. electronic

cereal passports (EID) or similar)


10. CAP Reform and the potential role of Producer Groups, Producer Organisations and Interbranch Organisations in the cereal sector CAP reform includes discussions around the development of Producer Organisations (POs) and associated structures. Defra who commissioned this study has requested this section, examining the potential role of these structures, is dealt with separately to the main report – so that consideration can be given to how policy levers can be used to help increase cereal industry competitiveness and address some of the challenges identified in the cereal supply chain study. Proposals for CAP reform have been tabled, within which there is an intention to extend the role of Producer Organisations, Producer Groups (PGs) and Interbranch Organisations (IBOs) beyond fresh produce to other sectors of agricultural production as well as promoting Co-operation across a wide range of activities. The purpose of this section is to consider if these structures might help address some of the issues and challenges within the cereal supply chain. CAP Proposals The new regulations are due to come into force on 1 January 2014. It is understood that the key driving force behind the proposal to introduce Producer Organisations (POs) for all agricultural sectors is to enable producers to consolidate their marketing activity and hence have a stronger negotiation position within the marketplace. However unlike the Fruit and Vegetable Aid Scheme which provides access to funding for PO‟s based on a percentage of turnover, this is not the case in the current proposals. Would these structures be relevant to the cereal sector in the UK? Producer organisations In the cereal sector where the majority of crops are sold to marketing intermediaries or by cooperatives or farmer controlled businesses to processors rather than direct to retail the benefits of PO formation are less obvious. If the cereal sector were to adopt a Producer Organisation led approach it would be vital that the sector learnt lessons from the fresh produce sector and developed clear, unambiguous objectives. There are a number of significant differences between the cereal sector and the fresh produce sector which need to be considered. There has to be a compelling reason for creation of POs in other sectors, for instance where there is market failure and the need to provide a countervailing force in a hostile marketplace. This is cited as one of the reason for the proposed creation in the dairy sector. Unlike fresh produce, cereals are relatively non-perishable and there is a transparent and relatively sophisticated world market in existence already which reacts instantly to supply and demand changes; and has a very active „futures‟ market. There are many financial instruments used to arrive at a “market price” on a daily basis for cereals and despite a number of very large trading businesses both in the UK and across the world there is much competition and no one player dominates. This suggests that there is no “market failure” and therefore less of a requirement for a countervailing force within the sector than is the case for fresh produce or milk. Another significant difference between fresh produce and cereals is the nature of the growers‟ customers. In the case of fresh produce the major routes to market are either through marketing intermediaries to retailer or direct to retailer where there is a high level of dominance and control by the supermarkets. In contrast for cereals there are many processing and manufacturing intermediaries between farmer and consumer. There are also (as the cereal supply chain map in section 4 illustrates) a range of different uses for cereals other than human consumption that crops can be diverted to as an alternative marketing route. Thus the cereal farmer, despite the issues raised in the research in section 6, is not so wholly at the behest of dominant downstream businesses. At present there is nothing to stop farmers collaborating to gain strength in the market place. There are a number of well recognised co-operatives, the largest and best known being Openfield which markets on behalf of some 4,000 farmers and handles around 20% of the annual UK cereal crop. In comparison the largest


merchanting business is Frontier (50% owned by the multi-national commodity business - Cargill) with around 25% of the cereal market. This therefore poses the question as to whether there is a real need and resultant benefit for PO‟s in the cereal supply chain in regard of grain marketing. Interbranch Organisations There are a number of organisations in England which would appear to perform some if not all of the functions of Interbranch Organisations, such as AHDB. Other examples include the British Growers Association (formerly the Processed Vegetable Growers Association) and the „livestock‟ associations such as the National Sheep Association and National Pig Association. Within the context of the cereal industry it is not clear how EU policy intervention will act as a stimulus to form IBOs. Industry representation is well catered for within England and Wales through such organisations as the NFU and levy bodies. However there could be potential from groups of smaller farmer controlled businesses to create more of an umbrella organisation. A good example where such an organisation has been created is Network Grain, the organisation representing 15 central cooperative grain stores in England and Scotland. This was formed in response to a business need to enable stronger positioning of their products in the market. In the supply sector it is conceivable that there could be a role for an IBO across co-operative buying groups supplying inputs for farmers and there are already some loose affiliations such as Saturn, a joint venture between Anglia Farmers, AtlasFram and Woldmarsh buying groups. Two questions remain, however, what are the benefits and what is stopping this taking place at present? Assuming there was little or no grant aid to set up IBOs it is unlikely that things will develop at any faster pace than at present, just because the concept is encouraged within CAP reform. If in contrast there is funding it is conceivable that a number of IBOs would be formed, but it is important this is happening for the right reasons, based on a sound business case. Potential role of Producer Groups Within the current EU legislation the role of producer groups is seen very much as a transitional structure to eventual PO status. It is not clear from the proposals whether this is considered to be an absolute requirement. Cooperation and collaboration is recognised to have many benefits, whether it be horizontal; farmers working more closely together in achieving greater efficiency in production, sourcing inputs or improving strength in marketing; or vertical; farmers working closely with their supply chain customers (processors / manufacturers) to enable greater efficiency and hence value to all in the chain. There are many excellent examples where this is taking place (illustrated in a number of case studies in section 8 and 11 in this report). Once the collaboration becomes more than a handful of producers and extends into the supply chain there are greater complexities and risks that need to be more formally addressed. Beyond a certain size groups are likely to incur operational costs in their own right and may have the need for capital investment. For the agricultural industry to make further step changes in cooperation and provide its customers with more organised dedicated supply arrangements the creation of producer groups could assist towards this objective. It would provide the structure through which for larger groupings of supplying farmers could communicate (and negotiate) with their buyer; ultimately to achieve a better result for all concerned. In practice there is nothing to stop „producer groups‟ being formed now. However there could be two benefits if support for PGs is adopted across a wider range of product sectors within the current round of CAP reform:

The adoption of PGs as part of the reforms could act as a clear signal to both farmers and their supply

chain customers that they have to work together to manage the challenges of the market place. It will

signal to farmers that they have to structure themselves to deal more effectively and collectively with

their customers and by doing so achieve an improved balance of power.

The proposed funding support for a defined period to establish the PG will act as a stimulus to

overcome the fears around costs, resourcing and risk in setting up the appropriate structure and

developing the necessary activity to achieve the supply chain objectives.


11. Case Studies A number of case studies are illustrated in this section to demonstrate effective collaboration, increased competitiveness and efficiency brought about by producers working together usually in conjunction with the processor or food company. Structures illustrated include informal groups, more structured producer groups, more formal cooperative or farmer controlled businesses and a producer organisation. The case studies address not only the positive aspects of what has been created but also the challenges faced.by the participants and their objectives in taking the group forward in the future. The following case studies have been selected:

Case Study Description

1 Muntons Malt Supply Chain Two farmer controlled businesses supplying malting barley to a maltster who has invested in storage for the use and benefit of the members of the supply group.

2 Crisps ABC Grower Group A dedicated grower group supplying malting barley to a maltster. This is not a legal entity but has a strong steering group of producers, merchants and the processor to develop protocols and address supply chain issues.

3 Network Grain A formal collaboration of grain storage businesses aimed at promoting the benefits of centrally stored grain and collective marketing through Openfield. Also working together to develop skills and raise performance

4 Weetabix Wheat Supply Group An informal producer group supplying group 3 wheat to Weetabix and through the group developing stronger communication between producers and the manufacturer

5 United Potato Farmers A formal supply group providing crisping potatoes into McCoys Crisps (United Biscuits)

6 Openfield Control Tower A collaboration between Openfield and DHL to improve logistics and transport efficiency for grain moved from farm or cooperative grain store to first processor aimed at reducing financial cost and environmental impact

7 English Mustard Growers A small co-operative formed to ensure continued production of English Mustard for Colmans

8 Freshgro An established and very successful Producer Organisation processing and marketing carrots on behalf of it members


Muntons Malt Supply Chain

Introduction

The Muntons Malt Supply Chain project aims to link farmers growing malting barley with their end customer - brewers and distillers - via the maltster (Muntons Malt). The objective is to secure supply for Muntons, so in turn they can provide consistent products to their customers. To do this they need to create confidence amongst farmers to grow a crop that requires a high level of management. This link is facilitated through a grain processing and storage facility at Bridlington in Yorkshire acting as the hub through which this collaboration works.

Reason for initiative

Muntons plc has been trading for over 80 years, producing malt and malted ingredients for brewers, distillers and the food industry within the UK and International markets. Significant capital investment was required by Muntons for grain intake, first stage processing and storage at their Bridlington site. However the risk was that they would build the facility at a cost of £5,000,000 but fail to secure the barley year in, year out to fully utilise it. Discussions with EFFP resulted, in order to consider ways of working closely with farmers to overcome this risk and to gain a number of additional benefits.

How did the initiative develop? What / who was the driver?

Meetings were initiated between Guy Newsam of Muntons and 3 grain marketing co-operatives: Grainfarmers and Centaur Grain (who merged to become Openfield) and Grainco. These farmer controlled businesses (FCBs) were keen to develop business with Muntons centred on a new grain intake and storage facility. At the time Muntons had a number of long term “living contracts” with customers. This made it possible to look at developing a whole supply chain solution. Following a number of successful meetings it was agreed by all parties to put a collaborative structure together to build and manage the new facility and Muntons Malt Supply Chain Ltd was formed. This new business had a board comprised of directors from Muntons, Openfield and Grainco. The structure of Muntons Malt Supply Chain Ltd (MMSC) is such as to allow several different businesses to work together collaboratively for mutual benefit. With the help of a successful RDPE grant application the necessary capital was in place and work started on the new barley intake, processing and storage facility for 24,000 tons of barley. The new facility was opened in April 2009 and has been full to capacity since that opening. The relationship between Muntons and the FCBs has continued to strengthen and trade between them has increased five fold. The MMSC board were keen to engage more effectively with their farmer suppliers as a result of which the Malting Barley Forum was formed. The aim of the forum was to:

To improve the communication between growers of malting barley and the supply chain

To facilitate the Muntons Supply Chain Contract

To share best practice and encourage improvements in yield, quality and environmental sustainability.

A number of seminars, open days, supply chain events, visits and Regional Forums attended by brewers, distillers with Muntons and their farmer suppliers were held to meet these aims. Working with the farmers a protocol was developed to produce Low Carbon Malt by using more sustainable production methods


including fertilisers that had a lower carbon footprint. A carbon calculator was developed and available on the Muntons website for farmers to assess their carbon footprint for malting barley production, and how it would be affected by changes in management. A number of brewers such as Daniel Thwaites have bought into the project and have brewed low carbon beer from malt produced through the MMSC supply chain. What were the challenges and how were they overcome?

At the concept stage it was intended to have “branded barley contracts” with brewers and distillers to bring all parties together and manage risk in the supply chain. However a large barley harvest in 2009 &2010 coupled with a drop off in demand due to global recession resulted in malting barley prices falling significantly and many end users looked to move away from collaborative contracts to opportunist buying on the spot market. The MMSC were able to adapt to this change in circumstances and the relationship developed between Muntons and the FCBs was strong enough to survive and grow in this difficult trading period. Today concerns by distillers and brewers over future supplies of malting barley has brought a number of these businesses back to the table to look at long term contracts. This is particularly driven by the substantial increase in demand by Scottish distillers as their demand for spirits into Asia continues to grow.

What are the benefits / what has been achieved?

Muntons has security of supply of high quality malting barley and the farmers have a secure market

Crop integrity maintained by using state of the art drying facilities and high quality central storage enabling them to closely meet customers‟ needs and to support and secure the integrity of their customers‟ brands

Better quality malt produces more beer/ spirits - there is less wastage where the use of higher quality malt produces greater availability of the sugars necessary for brewing /distilling

Storage for producers included in the contract saving the farmer money and reducing the need to invest on farm

Reduction in environmental impact of the malting barley supply chain and reduced Carbon footprint, at Muntons and on farm. The barley drier alone will cut CO² emissions by around 650 tonnes per year compared to farm based drying. In environmental terms this would require the planting of approximately 236 hectares of mature woodland to produce a similar reduction in CO²

A bonus paid to farmers reflecting the supply chain efficiencies being unlocked as a result of the whole chain collaborating for mutual benefit

Risk management – reduction of storage risks i.e. rejection and price volatility

Training and knowledge transfer for farmers leading to improved yields, quality and reduced production costs as well as a better understanding of the supply chain they are a part of

What was learnt?

There are real commercial benefits from collaborating along the whole supply chain and an opportunity to create a competitive advantage by working together to unlock supply chain efficiencies. However the end user, being brewer or distiller is critical and can destabilise the chain unless that relationship is strong

A strong but flexible resilient business structure is required to be able to adapt to changing market

Independent facilitation is important to develop collaborative supply chains and help partners through difficult problems and issues

A whole chain approach can achieve improved sustainability and reduce the carbon footprint of supply chain activity

A good understanding of the issues and challenges of each link in the supply chain by all parties is important to create a sustainable supply chain partnership.

What continues to drive the participants?

Muntons are keen to grow and further develop the relationship with the FCBs and their farmer growers, to secure consistent supply of the best quality malting barley. Muntons will look to use MMSC to grow markets, develop long term relationships with customers and add value by differentiation where ever they can. This does depend on convincing end users of the benefits that such a chain can offer and considerable resource is devoted to this activity.

The grain marketing FCBs have enjoyed the special relationship they have with a customer through MMSC. They are keen to further grow the business through MMSC and develop further integration with end users. This gives them a secure customer, opportunities to add value and unlock supply chain efficiencies.


Going forward end distillers and brewers are increasingly keen to have security of supply, security of quality and some certainty around price in a volatile world. Product quality and innovation is also vital. Muntons puts considerable resource into research and development through their Centre for Excellence, the home of Muntons product development. This purpose built facility gives the space and technology for product development, renovation, innovation of malt and malted ingredients and retail products. This is a very important factor in securing the commitment of end users.


“A malting barley partnership – working together, delivering excellence”

Why was the Group set up? The ABC Grower Group was established in 2006 with the aim of helping secure the future of malting barley production in Norfolk and the surrounding area. The potential risks of both growing malting barley and producing malt have increased significantly due to a combination of price volatility, competition from other crops and local weather events, which caused threats to both the quantity and quality of the malting barley crop. The aim of the Group is to help growers, merchants and Crisp Malting Group (CMG), to work together to minimise risks and to maximise the benefit for all involved in the supply chain. The quality of the final malt product is key to CMG‟s customers and this process starts by securing the best malting barley available. CMG‟s aim was therefore, not just to secure a tonnage of crop, but also to support local farmers and thereby secure the best growers in the region in terms of crop quality.

Who is involved? The ABC Grower Group consists of approximately 220 malting barley growers from Norfolk and the adjoining parts of Suffolk and Cambridgeshire who supply CMG. CMG is a significant user of quality malting barley and has its largest site at Great Ryburgh near Fakenham in Norfolk. The Group also works with and through, two grain merchants, Adams & Howling, based near Norwich and H.Banhams, based near Fakenham. The merchant‟s role is to help secure the necessary crop quantities and quality with the growers and then organise the necessary logistics. Their role, which includes on-farm sampling, is critical to making sure that the process of malting barley supply works efficiently. Since 2006, the ABC Grower Group has built its tonnage year by year and this now represents a significant proportion of CMG‟s annual requirements at its East Anglia sites. This has enabled CMG, growers and merchants to manage their risks and improve the efficiency of the malting barley production supply chain, helping to make the whole supply chain through to consumer more efficient and competitive. It is also giving customers excellent traceability and provenance of their malt, as well as reducing the overall „food miles‟ of their products.

What are the benefits of the ABC Grower Group to the farmer? Growers of malting barley benefit by belonging to the ABC Growers Group by:

Having a greater certainty on their crop marketing with a three-year agreement on a minimum crop

tonnage.

Having a range of marketing options to help growers manage their risks and market their grain in a way in

which suits the specific needs of their own business.

Gaining a fair price with high levels of transparency, which is very competitive with the market.

Being part of an exclusive group, who get preferential treatment to others who just „trade‟ their malting

barley with CMG.

Gaining access to other niche market opportunities and securing the best destination for all their malting


barley, whatever the quality

Receiving good payment terms and high levels of financial security.

Receiving access to delivery and quality feedback via the merchant, updated daily.

Access to regular themed grower meetings to help growers learn about malting barley production.

As well as commercial and operational advantages, growers also have access to a dedicated ABC Growers Group web-space site to obtain relevant market and crop information and are able to share information and knowledge. In addition themed grower meetings are organised to help growers develop knowledge and skills about malting barley production.

The Steering Committee brings together growers, merchants and CMG The ABC Grower Group is not set up as a separate business but operates through its Steering Committee to help the businesses involved in supplying CMG under a three-year contract to work together for mutual benefit. The Steering Committee consists of four nominated growers, plus representatives from the two merchants and CMG. The objectives of the Steering Committee are to:

ensure fairness and transparency

ensure that the prices paid are competitive within the market place

help develop and improve supply contracts

represent the growers in the ABC Grower Group

mediate on any specific grower issues

lead the Group‟s development work on improving malting barley production

It meets quarterly to agree the contract, seasonal variations to the contract, help set the agenda for grower meetings and to feedback growers‟ views and perceptions on how the supply arrangements have performed.

The Contract aims to meet the needs of growers and CMG The Steering Group devises contracts that are fair to all parties and to ensure that the supply chain remains competitive. The merchants then promote this contract to the grower membership to secure the tonnage that CMG needs. The key features include:

A three-year contract, with preferential specifications and delivery.

CMG nominate the varieties it requires for the following year.

Contract specification is more flexible for group members and rewards growers for quality that exceeds the minimum thresholds (e.g. bonus payments for low moisture, screenings and nitrogen).

CMG and the merchants will work together to secure the best market for All the grower‟s contracted malting barley, whatever the actual quality, even if this means that it fails to go for malting.

Group members will be given preference on delivery times.

Group members will be given the option and preferential access to CMG storage, at a competitive rate.


The growers commit the amount of tonnage that they believe is right for their circumstances and contract through the merchants to supply CMG. The grower then chooses one or a combination of the pricing options to suit their needs. Option A – Fixed Price. This can be agreed with CMG at any stage from signing the contract to the date of

delivery. Option B – Market Tracker. The forward market price is tracked by CMG and the merchants and an average

price determined. Growers may exit the tracker to take a price at any stage, which is determined from a combination of the tracker price and the current fixed price.

Option C – Post Delivery Price. Grower delivers the crop at harvest to CMG but delays fixing a price. The latest this can be done is 31

st December. A deduction is made for storage of the crop.

Option D – Premium over LIFFE November Wheat Futures – The ex-farm price is set as a premium over the November wheat price. The premium is set in August for Winter Barley and September for Spring Barley.

Learnings This is an excellent example of how farmers, merchants and maltster work together to optimise the benefit for all, without the need for setting up a separate business. The Steering Committee is key to the supply chain‟s success and is the main route for strategic communication, addressing issues that cannot be resolved in day to day communications and focusing on how the contract is developed for the benefit of all parties. With the pricing models agreed in advance, the well-established group is able to concentrate on improving efficiency, from growing the crop through to delivery to CMG. The commitment by farmers is matched by a commitment by the merchant and CMG to prioritise their crop, which in a difficult season is a real advantage ensuring that it does not simply become „rejected malting barley‟. Without this end to end approach and commitment from key links of the chain, it is unlikely that many of the farmers would continue to grow malting barley, as it is seen as a high risk crop with a volatile market price. Without the ABC Grower Group, Crisps Maltings would have a far more difficult and costly job in sourcing the supply of its essential ingredient.


NetworkGrain UK – central grain stores working together NetworkGrain UK represents fourteen central grain stores all of whom are farmer cooperatives sharing a common aim of improving returns to their members. By working together – under the NetworkGrain UK banner, these stores believe they are better placed to attract new members, persuade more customers of the value that centrally stored grain can deliver and help one another shorten supply chains to become more efficient. The Network recognises that farmers, primary processors, manufacturers and retailers all need to work together to create valuable premium products with the objective of improving returns to all participants of a supply chain. By working together under a NetworkGrain UK banner, individual stores gain the combined critical mass needed to deliver tangible efficiencies across the supply chain for the benefit of the end-user and farmer member. The business exists to maximise the potential of central stores through the provision of high quality services that improve their product, efficiency and effectiveness. How did the initiative develop? At a workshop that took place in June 2007 Chairman and managers of nine central stores met to consider ways by working together they could ensure the future prosperity of their storage businesses, which up until then had operated in relative isolation. Also with the exception of one or two stores their focus was on the important job of conditioning and storage rather than on marketing a product that could potentially meet customer requirements rather better than the majority of grain stored on farm. As a result of this workshop it was decided to explore opportunities for more collaborative working between the stores. This resulted in the production of a project plan under the title Oystercatcher. Funding for the initial development of the initiative was provided by an Agricultural Development Scheme grant and the facilitation of the collaboration was overseen by EFFP. The business that emerged from these initial meetings, NetworkGrain

UK, is a cooperative that is owned

equally by its ten founder member central stores. Each store can elect its own representative to be a Director of Network Grain. The Directors are ultimately responsible for setting the direction of the business and for ensuring the business is run in the interests of its members: the stores themselves.

Aberdeen Grain


A number of challenges - how were they overcome?

1. Gaining commitment from store managers

Keep them involved in designing the programmes delivered by NetworkGrain

Regular communications including, face to face meetings and workshops. A social media

platform „Viewpoint‟ is used to facilitate communication. Members can discuss topics, seek

advice from others, post articles and information and generally keep in touch and learn from

one another

2. Variation in the size and facilities available at each store. The stores in the West Country in particular

are smaller and have more basic facilities. There was a danger that they felt outside the mainstream

activities of the larger stores.

NetworkGrain helped by initially encouraging stores to work with their immediate neighbours

which helped critical mass for the smaller stores.

Over time the smaller stores have felt less threatened, seeing the capability of the larger

stores as an advantage, helping their own marketing effort.

Much investment has taken place (often supported through RDPE). NetworkGrain has helped

demonstrate that the smaller stores need to invest and given them the confidence to do so as

they feel part of something bigger and more sustainable.

3. Achieving consistent performance across the stores

A set of performance standards was developed

Key Performance Indicators were agreed and performance was measured and benchmarked

across the stores

Training and skills development was provided to raise store performance (some of this was

supported by the RDPE skills programme)

4. Funding the activity-

In the early phases of the development of the initiative public funding was needed to develop

the business plan for NG. Now income for NG is supplied from a small levy that is raised in

proportion to the throughput of each store.

5. Not duplicating the activity of the marketing agent.

A marketing organisation is appointed to handle the sale of the majority of grain from the

stores and is fully involved in the project. It allocates a senior manager to work closely with the

NetworkGrain board of directors and alongside EFFP who have responsibility for delivering

much of the activity agreed annually in the business plan.

Real benefits to UK consumers of grain For large users of grain it is possible to draw on the volumes available from the entire network and not just isolated stores. This means that the stores can more precisely meet the quality specifications demanded by consumers. Because every load leaving the network is tested using up to date, on site laboratory facilities the consumer has the assurance that what arrives to be processed is precisely what is ordered. Stores are able to respond to customers‟ demands quickly as they have the ability to load lorries quickly and efficiently. Benefits to the farming industry Central stores are an extremely efficient way of storing grain, removing all of the headaches associated with on farm storage. Once the grain leaves the farm it becomes the responsibility of the stores to segregate and process and to deliver maximum value for members. NetworkGrain believes that farmers generally


underestimate the cost of storing grain on farm with the assumption that labour used to handle the grain is free, ignoring losses that occur in poor facilities and failing to consider the need to reinvest. One of the aims of NetworkGrain is to explain to farmers the benefits of central storage so that they can make an informed decision on what is the best storage solution for their needs. There is much information that has been produced by specialists, assessing factors such as internal rate of return and discounted cash flow which supports the case for central storage. However these are complex and the role of NetworkGrain is to translate this into clear and straight forward messages for prospective farmer investors. This communication process is ongoing, as the catalyst for a decision by a farmer to invest in central storage is usually when the on farm storage is deemed to be inadequate, the farm business expands or there is a specific market opportunity. The proof of success can be measured by the rate of growth in NetworkGrain capacity over the period 2006-2010, averaging 9% per annum. In 2006 nine members of the network had a combined capacity of 456,000 tonnes. Today the member stores (now 14 in total) have over one million tonnes of storage capacity.

Weald Granary Members of NetworkGrain are continually striving to do more Stores value the information that is collated and shared and they are committed to the skills programme that will ensure that store operators have the competence that will lead to even greater improvement in store performance. Most stores have undertaken an improvement programme to increase capacity and develop loading / unloading, cleaning and drying facilities. All have a programme to further grow their capability over the coming years and to attract new members and tonnage. There are also a number of other potential new central store businesses in the fledgling stages of development in various parts of the UK. NetworkGrain UK will help support the development of these and encourage farmer membership. There is considerable scope to include other stores in the network providing they are prepared to meet the standards that the existing members are committed to achieving.

Network Grain Store Location Tonnage Number of Members

Camgrain Cambridgeshire 250,000 350

Camgrain - Kettering Northants 60,000 -

Weald Granary Kent 65,000 200

Hampshire Grain Hampshire 56,000 98

Wiltshire Grain Wiltshire 100,000 125

Devon Grain Devon 20,000 109

Cannington Grain Devon 50,000 130

Kernow Grain Cornwall 20,000 65

Arable Crop Storage (Camgrain) Warwickshire 37,000 66

Woldgrain Lincolnshire 57,000 68

Lingrain Lincolnshire (Boston Docks) 47,000 65

Honey Pot Lane Lincolshire 32,500 51

Aberdeen Grain Scotland 75,000 150

Angus Cereals Scotalnd 30,000 30

Union Grain Lincolnshire 25,000 37


Buying British for a British Brand

Aim Weetabix is one of the best known and most popular global cereal brands. In recent years they have carefully researched what their customers expect in terms of the ingredients that make up the products they buy. The key conclusions are:

Their customers want to know where their food comes from

That it is sourced locally within the UK

That it is produced in an environmentally sensitive way to a high standard of quality and safety

This prompted Weetabix to look carefully at their supply chain and the decision was taken in 2009 to develop a wheat supply group. This would consist of a group of environmentally aware, local farmers who are trusted to produce the quality of grain needed for manufacture of Weetabix and provide:

– A secure and fully traceable supply chain

– A consistent approach to quality (e.g. mycotoxins)

– A group of growers who will work closely to develop further mutual benefits

Establishing the Group The manufacture of Weetabix requires a blend of Group 3 and 4 wheats. Supply of Group 3 wheat was a key motivation for Weetabix as these are considered less attractive to grow with only a relatively small premium yet a high risk of quality shortfall. The thinking was that a group approach could develop and share knowledge surrounding the factors that influence quality and in doing so help mitigate this risk. The factory has an excellent cleaning plant constructed in the late 90‟s which allows Weetabix to take grain straight from farm rather than central stores, which has some potential attraction for farmers and enables full traceability back to farm. Weetabix established a protocol as a basis for the group development. Producers need to be ACCS accredited and a member of the Entry Level Stewardship scheme, as well as undertaking full record keeping. Seven varieties were specified as being suitable. The intention was the farms would be within a 50 mile radius of the factory. Merchants manage the supply contract The farmers have a contract with one of three designated merchants who manage the supply, ensure protocols and agree pricing terms. The establishment of the group was viewed very positively by cereal producers in the catchment area and enough tonnage was committed in 2 weeks of the invitation to participate. Audits were carried out on the designated farms and the first grain was received from September 2010. The group now consists of 200 farms.


Positive progress in the first two seasons In 2010 and 2011 the supply group was producing better and more consistent quality of wheat, with improved density and less screenings. By focusing on the crop the factors that influence yield are increasingly being understood. Importantly this was starting to provide consistency of supply into Weetabix. The farmers benefit from a small financial incentive, having a known outlet for their nominated tonnage to Weetabix and confidence to grow Group 3 wheat in the rotation. A benefit for both parties is that the group provides a means of communication which can help address respective challenges. Twice yearly meetings are organised to which all producers are invited and a discussion group consisting of 15 leading farmers meets four times a year to review the supply chain and its issues with the merchants and Weetabix team. The challenges of 2012 harvest 2012 summer and harvest has proved a nightmare for most cereal producers and the Weetabix group is no exception. The very wet, cold summer with a lack of sunshine has resulted in very poor samples and increases in mycotoxin levels. The low specific weights have particularly challenged the manufacturing process and much of the crop has failed to hit target specification. 2012 will no doubt test resolve on all sides and short term arrangements may have to be made to secure some supply outside the main group. Despite the difficulties it is likely that the group is still providing benefits to Weetabix in what would otherwise resulted in an even more serious sourcing problem. The future The intention is to continue to work with the group, ideally developing closer communication which will enable production and quality issues to be tackled jointly with the intention that producers can improve yields and reduce cost of production; whilst at the same time addressing environmental credentials of biodiversity and carbon footprint.


Establishing a farmer owned business to secure supply, investment and manage price risk The McCoys brand is one of the strongest names in UK crisps and is now built firmly on a dedicated supply of potatoes from farm to factory. This case study demonstrates how a forward thinking company worked with farmers to devise a methodology for calculating cost of production that would create stability in producer returns as well as security of supply and price stability for the manufacturer. The UB challenge In the early 2000‟s UB supplied itsTeeside factory with crisping potatoes largely from the open market through potato merchants. A network of regular supplying producers existed but was in decline due to growers struggling with volatility in both yield and price, coupled with the technical complexity of growing the crop. In practice growing crisping potatoes was ceasing to be a key enterprise on potato growers‟ farms. United Biscuits were becoming increasingly beholden to imported potatoes at significant cost to UB. Securing a sustainable supply of the right quality crisping potatoes is vital to maintain the right look, taste and texture of crisp for the McCoy‟s brand. But growing crisping potatoes requires a large amount of investment, particularly in infrastructure and storage and supplies can be volatile owing to the impact of the weather. UB recognised they had to develop a supply chain that would secure a proportion of their needs and also help manage price risk. Finding the farmers The growing of crisping potatoes was on the decline at the time and finding keen local producers was going to be a challenge. EFFP identified a range of producers, the UB and McCoys name helped in this as it is a strong brand, offered kudos and the factory was well known to growers, but that was only the start. Finding beneficial arrangements for both parties was the key to potential success. Reaching agreement The initiative commenced in 2007 but it took over a year to develop the supply chain to the point at which the first crop would be planted (spring 2009). During this time potential producers dropped out, considering it was not for them; and new ones joined. Both parties wanted volume commitment and price security but at the outset the gap between the two was substantial. The development of a pricing formula based on cost of production and yield was the critical ingredient for success. To develop this UB commissioned EFFP and Cranfield to work with producers to understand the relationship between input costs, yields and a fair output price. At the end of this process a formula was agreed to which both parties signed up. Structuring the supply chain The second challenge was to develop a business structure to manage the supply of potatoes into McCoys. Clearly UB wanted the group to manage themselves and the farmers were also keen to crystallize their own structure and United Potato Farmers Ltd (UPF) was formed, representing the potato growers. The group employed a manager and was also successful in securing RDPE grant funding to help develop the necessary infrastructure.


Now successfully delivering 25,000 tonnes of potatoes per year The supply chain is in its fourth year of operation and has grown to 25,000 tonnes produced by 12 growers, mostly in the Yorkshire area, close to the factory and minimising transport costs. The intention is to increase the tonnage still further over the coming years. The benefits for United Biscuits include:

Increased supply chain transparency and communication with the farmers

Improved confidence in security of supply, with farms in the vicinity of the factory

The pricing model has helped to manage price risk

For United Potato Farmers Ltd the benefits are;

Security of demand from a well known and strong brand, McCoy‟s, with the potential to grow

The confidence to invest in building a strong and efficient crisping potato supply chain

The pricing model has helped to manage price risk

What has been learnt? The key learning is that these chains take a long time to develop, particularly for such a specialist crop. The devil is in the detail and all parties have to understand completely what it means for them. Importantly it is necessary to „stress test‟ the agreement at the extremes, as weather and price volatility have become the new normal. Pricing for potatoes in excess of the contractual agreement is a good example; likewise the challenges associated with the impact of weather on 2012 crop quality will test the resolve of both UB and its farmers. Having a strong and focused farmer Chairman of UPF, Ian McCartney has been vital for the successful running of the group and relationship with UB. The farmers and UB are setting themselves performance targets, such as how to increase volumes in a sustainable manner as well as achieving increased supply chain efficiency with the aim of delivering both economic and environmental benefits. The approach has been successful to the extent that UB are now developing the principle for the supply of Group 3 wheat, a vital ingredient in their biscuit manufacturing.


Openfield Logistics – a new approach to logistics in the cereals sector

In November 2008, Openfield - the UK‟s largest cooperative grain marketing business - launched a new logistics control tower in partnership with DHL (Openfield Logistics); a control tower that would handle upwards of 20 percent of the UK‟s cereal crop in a move that was heralded by many in the industry as being one of the most significant events in the cereals sector for 20 years. The control tower is a joint venture between Openfield and DHL that seeks to improve the logistics operation from farm to first processor, reducing costs and improving service levels in a way that doesn‟t damage the sustainability of the haulage industry. Attacking inherent inefficiency It is broadly accepted by the industry that whilst the cereal supply chain is highly successful in moving significant volumes of grain, it doesn‟t actually more this grain as efficiently as it could or indeed in a way that meets the expectations of customers. When the cereals chain is looked at in its entirety from farm to consumer it is apparent that there is a high degree of polarisation in terms of the efficiency and value being realised. Between the processor and the retailer for instance, the amount of deliveries made on time and within specification is 98% plus, whereas between the farm and first processor the equivalent measure is a mere 68%, 7% do not turn up at all and 6% are rejected. In essence cereal logistics from the farmgate to first processor is localised, fragmented and not very effective. Developing the initiative For many years DHL has been running the outbound logistics for Rank Hovis Mills, one of Openfield‟s key customers, and it was through this relationship that Grainfarmers (who subsequently merged with Centaur Grain to form Openfield) started to question what they could do to improve the efficiency of their logistics and more importantly to improve the service offered to their customers. This led to a series of exploratory discussions with DHL; however, early on in these discussions it became apparent that whilst efficiencies could be gained, these benefits would be substantially improved if Grainfarmers could find a collaborative partner in the cereals sector who was prepared to come on board as well. Centaur Grain, as another farmer owned grain marketing business was the obvious choice; but they were also competitors so each party had to be sensitive to each other‟s position. To help manage this EFFP was employed by both parties to broker discussions and bring them together. The process itself took over two years to achieve, hindered in some respects by the subsequent merger of Grainfarmers and Centaur Grain to form Openfield, but in the main it was the magnitude of the project being developed that took the time. Establishing a control tower which would handle 20 percent of the UK‟s cereal movements, with the resulting changes it would require across a traditional industry needed a high degree of detailed analysis, engagement with stakeholders and commercial modelling to identify both the operating model and crucially the value that could be created.


The challenges – coping with negative vibes...and a wet harvest One of the biggest challenges that faced the launch of the control tower was the amount of negativity that came from the industry; hauliers felt threatened and many across the industry appeared to be eager for the initiative to fail. On a positive note, Openfield‟s customers, such as Rank Hovis Mills were very positive about the move as they could see the benefits it could bring to them in terms of improved service levels. To overcome this challenge, a great deal of focus was put behind the development of the business case and in the identification and mitigation of risks to ensure that the control tower did not fail. This was followed by engagement with stakeholders (farmers and hauliers) to explain how the changes would impact them; in hindsight it is recognised that the level of engagement was not enough. From an operational point of view, the level of innovation being introduced into the control tower created challenges in terms of system integration, introduction of new processes and in changing internal mindsets. This required detailed project administration, a programme of change management and the experience of DHL to ensure successful delivery. Lastly, launching the control tower in 2008, following the wettest and one of the largest harvests for many years created its own unique challenges. The control tower on day one found itself having to manage over 850 loads per day. What have been the benefits? From a financial point of view the control tower has been able to contain its costs at 2008 levels curtailing inflationary pressure over the period which is a significant benefit. However, it is some of the other benefits that are more interesting, and in the long-term more financially rewarding. One of the most telling is the reduction in delivery times. The control tower has reduced the average delivery time from 1.6 hours in 2008 to 1.17 hours for 2012. This is a reduction of 25 minutes per delivery. When gains on collection are added in, the waste associated with the time to make a delivery has been reduced by nearly 15%. This releases on average 7.5 hours a week resulting in the potential for a haulier to carry 1-2 extra loads a week with the subsequent benefit in margin.


The following chart shows the average tipping times in hours over this period:

Lessons have been learnt but the potential for the future is huge... Without doubt, more should have been done prior to the launch of the control tower to communicate with farmers and hauliers and the wider industry to mitigate the fears from some and negativity from others. From an operational standpoint, more resources should have been in place from the onset to capture information flow. The amount of information and physical paperwork generated in the cereals sector is overwhelming when compared to other industries; whilst the control tower has now developed the systems to manage this, initially it was difficult. The control tower has delivered a great deal since its launch in 2008, but there is a sense that the journey is only beginning. The drive to bring innovation and new technology to the cereals sector brings with it exciting new opportunities. Data exchange, information flow, improved service levels and the use of in-cab technology are all initiatives that are keeping the control tower enthused.


Ensuring that English farmers continue to “Cut the Mustard!”

Why was the Group set up?

On 4

th February 2008 a meeting was called in the Cambridgeshire Fens to consider if there was any future in

the few remaining English mustard seed growers continuing to grow the crop. The farmers, the food manufacturer (Colman‟s / Unilever) and other interested bodies were all represented. The key areas of debate were that farmers‟ returns were reducing due to poor prices and declining yields and other crops were becoming much more profitable. Whilst farmers wanted to continue to grow for reasons of tradition (some farming families had grown for Colman‟s for over 100 years) and crop rotation, they would not continue if there was not a major change in profitability. The food processor (Colman‟s owned by Unilever) stated that they could buy Canadian mustard seed at less cost and at a higher quality than could be sourced from local farmers and with less administration / overhead costs. However, they wished to continue to buy locally for reasons of security of supply and ensuring that their Colman‟s English Mustard actually contained English Mustard seed, but this could not be at the expense of losing competitiveness with other mustards in the market place. The other key strategic factor for Unilever which would impact on their sourcing was the decline in land available on which to grow mustard. Mustard seed cannot be grown on land that has grown Oil Seed Rape, which is the main alternative crop, due to the fact that volunteer plants, which can continue to geminate for years after the crop has been grown, contaminate the mustard and make it unusable. Therefore once a mustard grower moves to Oil Seed Rape, they are very unlikely to return. The idea of the formation of a growers‟ group was proposed at the meeting and a feasibility project was set up to explore the potential benefits and implications objectively for all parties. The farmers and Unilever shared the costs of this feasibility study equally, recruiting an independent consultant to carry out the research and produce a report. The results of this project were fed back to all parties and it was agreed to go ahead with the formation of the English Mustard Growers as a farmer co-operative.

Who is involved? A group of 12 farmers from Norfolk and Cambridgeshire area formed the English Mustard Growers Cooperative (EMG) as an Industrial and Provident Society in 2009. They are governed by a board of six farmer member directors and although they do not employ a manager, they do have a part-time secretary and accountant to administrate the business. The group also contract with a specialist seed company and an agronomic business to help develop production performance.


What were the key challenges? There were three different but interlinked challenges to be addressed; improving the profitability of the crop for the growers and improving the consistency of quality of mustard seed delivered for processing whilst maintaining the competitiveness of the whole supply chain. The strategy used to meet these challenges was for EMG to take control of developing yields and quality, supported by additional funding from Unilever and the Rural Development Programme for England. This allowed the group to identify and correct problems with the seed stock, set up trials and knowledge transfer sessions to improve agronomy and crop husbandry, and purchase group-owned drying and cleaning plants to ensure, even in the most difficult year, the quality of the mustard seed could be maintained. In addition to the above, the role of director on a co-operative board was also new to many of the farmers. This challenge was address by organising a number of director training courses for the farmers elected to the board.

What are the benefits of EMG to the farmer?

The farmers are now able to keep growing mustard, not only for the sake of tradition, but because it produces competitive gross margins, give benefits as an important break crop and helps manage risks by diversifying cropping.

The farmers are able to control the programme of seed and agronomic development and employ their preferred specialists. This has helped increase yields and gross margins.

The farmers now have access to specialist mobile cleaning and drying equipment, which is used to supplement individual farmer‟s existing on-farm equipment to help ensure that crop quality is maintained even in a season with adverse weather.

The farmers are now learning how to improve their production techniques from each other. They organise regular group meetings and field walks to share information and ideas.

The farmers can now negotiate their contract with Unilever on an annual basis collectively. This helps both the group and Unilever come to a mutually beneficial agreement.

Learnings

It is necessary to understand the aims and objectives of all parties in the supply chain. Ensuring they can be aligned, as EMG did with the initial research, is a key starting point.

Forming a grower group can benefit both growers and food processors, but it is important to make sure that all those involved understand both the benefits and implications to both parties before commencing with the formation of the group.

Independent and objective advice helps farmers and food processors to come to a long-term, mutually beneficial, agreement, even where there has been a long-term relationship.

Growers are willing and capable of managing the crop development, if the correct incentives are provided.

Developing the skills and knowledge of the farmers in operating and leading a cooperative business is very important for the continued success of the business.


Freshgro – a successful Producer Organisation and Cooperative

Company profile Freshgro was set up in 1998 as a cooperative venture by nine of the area‟s major sandland producers. It now grows 10-12% of the UK carrot volume and 90% of UK Chantenay supply. Freshgro has a farming base of over 20 000 acres, in order to grow and market both conventional and organic vegetables. It also produces piccolo parsnips, asparagus and other root crops. It has nearly 2 acres of factory space from which it supplies all the major retailers as well as many smaller outlets, caterers and processors. Business structure and development Freshgro is a grower owned co-operative and has Producer Organisation status. It is a limited liability company now with 12 members with one £1share each. The company started full trading in June 1999 - mainly supplying dirty carrots to packers but had some washing facilities at one of its members farms and rented offices in Tuxford. In 2003 the company purchased a 10 acre freehold site Inkersall - Off A614 15 miles north of Nottingham with planning for 75,000 sq ft buildings. This enabled it to conclude itd first PO programme. 2004 saw the development of the first building providing carrot washing and refrigeration. 2006 saw the second building constructed, a white wall factory for retail packing and new offices and people facilities. In 2007 further retail packing was developed and specific focus on marketing the Chantenay Brand. 2008 saw the end of the second PO programme and the start of a period of consolidation. This was impacted by the recessionary pressures of retailers and lenders coupled with the well publicised confusion around PO status. Much of the focus has been on debt reduction and management of waste. Over this period however growth in turnover has occurred from £2.9m in 1999 to approximately £14m in 2008 since when it has remained fairly steady. Of particular note is the spread of customers with the five largest customers accounting for nearly 50% of the turnover: Business Aims The aim of the business is to:

To improve quality and efficiencies

To provide professional management

Achieve orderly marketing of the crop for its member growers

Develop expertise and provide technical advice

Add value to the members‟ crop and develop innovation

Pooling Protocol A cornerstone of the coop is the pooling of products for marketing, the purpose being to share and distribute the income, costs and risks of clearly defined produce types in a fair and even manner. This provides the


company and its growers with the ability and freedom to market the right crops to the best customers in a commercial competitive manner. Therefore there is a need to create a fair system of sharing the revenue and the costs of the pool whilst motivating and encouraging the production of quality and high serviceability to their customers. The pooling protocol achieves:

Orderly Marketing

Financial sharing of risk, in regard to:

- Crop loss

- Market forces

- Costs

Encourages and rewards timely quality crops

Role of POs in the Fresh Produce Sector Freshgro is one of the UK‟s most successful POs and the scheme, particularly in their early days helped the business develop. Freshgro is bucking the trend of decline in UK production of fresh produce over the last decade, despite the availability of the PO scheme which aims to support and encourage good marketing. However the confusion over PO eligibility over the last 3-4 years has caused uncertainty and stagnation for many cooperatives. Learnings applicable to the cereal sector It is difficult to draw conclusions from the fresh produce sector that might be applicable to the cereal sector should POs be adopted more widely. POs in the fresh produce sector consist of a relatively few businesses that supply perishable products direct to their end customer (usually a supermarket) or at most through an intermediary and benefit from some countervailing power in marketing. This is very different from the cereal sector which operates in a global market, with many producers, albeit with relatively few merchants but in a market which has clear pricing benchmarks. Where producers wish to work more closely together to supply a processor or food company there are many opportunities through established coops, supply groups or merchants and it is not clear what role or benefits PO status would add. As with any venture and as proven in this case study the business should firstly develop its plan. Thereafter it can look for support in implementation from various sources. If being a PO helps achieve the business plan all well and good. If simply creating a PO is the objective, one has to ask why?


Appendix I Research Methodology Research methodology Quali-quantitative research (QQA) A quali-quantitative methodology was selected for this research in order to get a more in-depth understanding of the thoughts and commentary underlying the raw scores. The first stage used a questionnaire with 19 closed questions followed by 15 open discussion questions conducted by telephone interviews lasting approximately one hour. Respondents were asked to agree or disagree to a statement on a five point scale:

Disagree strongly

Disagree Neither agree or disagree

Agree Agree strongly

1 2 3 4 5

The second stage involved a structured, one day workshop, to share the findings from the questionnaire and to elicit views on short to long term developments that could potentially overcome the barriers identified and address supply chain issues. Breakout groups within the workshop addressed a number questions arising from the discussion in the first part of the day. Sample taken from a broad cross section from the agri-food supply chain The research aimed to counsel opinions on the structure and practices within the UK cereals industry and the ability to be competitive within a global marketplace. In order to obtain a holistic perspective, the sample was taken from a cross section of the agri-food supply chain including farmers, merchants, processors, manufacturers and representative organisations. Sample sizes for stage one and stage two were 28 (telephone interviews) and 22 (workshop participants) respectively. 12 of the workshop participants had undertaken the telephone interviews. The project remit did not include retailers as it was considered that the main issues surrounding efficiency lay upstream in the chain, from farm to manufacturer. However, it was recognised that end to end supply chain efficiencies will be harder to achieve it they are not engaged, as their practices impact both positively and negatively on the supply chain as a whole. Research timing The telephone interviews took place across May and June 2012 with the follow up one day workshop on 28th June 2012. Research analysis Statistical analysis of the raw data was conducted by Cranfield Business School of Management. A base sample of 28 for the telephone interviews limits the level of statistical analysis that can be done to a mean score and standard deviation.


Appendix II Telephone discussion questions Please comment on the following statements using the scale of 1 to 5 where 1 is strongly disagree and 5 is strongly agree [or 0 don‟t know ]

# Questions Score

1 Progress has been made in cereal supply chain efficiencies over the past decade

2 There is still scope to improve efficiencies in the cereal supply chain

3 The premiums available for growing quality wheat are sufficient to provide adequate supplies

4 The premiums available for growing malting barley are sufficient to provide adequate supplies

5 Cereal farmers plan and grow effectively for the food market

6 Cereal farmers plan and grow effectively for the feed market

7 Cereal farmers only think about marketing once their crop is harvested

8 Central grain storage offers the best opportunity to maximise supply chain competitiveness

9 Opportunities exist to improve farm to first processor logistics

10 The cereal supply chain is managing environmental issue(waste carbon) effectively

11 Farmers are aware of the management tools available to reduce risk

12 Farmers are keen to adopt market risk management in their businesses

13 A collaborative approach to managing risk throughout the chain (farmers, merchants, processors) could help cereal industry competitiveness

14 Global commodity crop trading has a major impact on crop price volatility

15 Processors and manufacturers communicate effectively with farmers to identify what they require from their suppliers

16 Farmers grow what the market (ideally) requires

17 Processors adequately incentivise farmers to produce what they require

18 Defra has an important role to play in helping the cereal supply chain improve competitiveness (competitiveness includes production level and efficiency)

19 HGCA has an important role to play in helping the cereal supply chain improve competitiveness (competitiveness includes production level and efficiency)


Discussion Topics

There are now 16 open questions to gather your views on how the cereal supply chain operates. We would also like to identify any opportunities that you feel may exist to improve working practices and supply chain performance. We will start with farm production issues and work through logistics, processors, investment, risk and the role of government

Crop production – factors affecting supply chain competitiveness

1. What are the main factors at the farm production level that are affecting supply chain performance? [for example]

a. Are new technologies and innovation at the farm level aiding competitiveness further down the supply chain

b. Are alternative land uses (other crops, livestock systems and environmental schemes) affecting cereal supply chain competitiveness (could refer to CAP proposals – (eg upper level for SFP, min. no. crops etc).

2. Can collaboration between cereal farmers enhance supply chain competitiveness? a. Thinking of both production level and marketing b. Why are they not doing so now?

General

3. What are the main factors that affect the overall quality of UK cereals production? a. What 3 factors will enhance production of quality cereals ( or crops that meet their

market specification) Investment

4. What investment in the cereal supply chain would yield the greatest efficiency gains? a. Investments at the farm level b. Investment in logistics c. Investments in storage d. Investments in R&D e. Investment at processors / manufacturers f. Investments elsewhere in the supply chain

5. What is preventing this investment

[eg. confidence, capital availability, return on capital, who gets the return – farmers invest for benefit of manufacturers]

Logistics and environmental

6. How can improvements in efficiency in logistics / transport be most readily achieved? a. Where is the key benefit in improving supply chain logistics: is it economic ; social or

environmental benefits?

7. What are the main environmental issues faced at your stage of the supply chain?

a. Are you able to effectively manage these issues

b. Do you have adequate advice and information

Risk management awareness and control

8. Where in the cereal supply chains is the greatest exposure to risk?

9. With increasing global price volatility do all stages of the cereal supply manage the

associated risks effectively?

10. What measures should be in place to manage risk more effectively?


Processors and manufacturers

11. What are the main barriers to stronger supply chain relationships

a. between the farmers and merchants?

b. between the merchants and first processors?

c. Between the farmers and first processors?

d. How do food and feed sectors differ

e. What 3 factors can improve the relationship between farmers and processors?

12. Where are the best examples of an efficient cereal supply chain relationship? 13. How can farmers and processors collaborate more effectively to achieve supply chain

competitiveness?

Role of Government / CAP reform

14. How can Defra / government help supply chain competitiveness e.g. CAP pillar 2? (excluding SFP)

Finally.....

15. Thinking of the things you have raised what are the three things you would like to change to increase supply chain effectiveness?

16. In the next 5 years which 3 areas would you like government to support to increase supply chain effectiveness?


APPENDIX III Raw Score Data


Appendix IV Workshop Attendees

First name Second name Sector Company

Richard Lynch Advisor SA Partners

Gary Markham Advisor Grant Thornton

Mike Hambley Farmer Farmer

Andy Ward Farmer Farmer

Nick Rowsell Farmer Farmer

Andrew Ramply Farmer Farmer

Ian Piggot Farmer Farmer

Steve Northern Farmer Farmer

Andrew Flux Merchant Frontier

Lee Gamble Merchant Openfield

David Elderkin Merchant Fengrain

Simon Wilcox Merchant Wessex

Philip Darke Processor Camgrain

Neil Pearmain Processor Muntons Malt

Peter Jones Processor Premier Foods

Hazel Doonan Trade Body AIC

Martin Grantley-Smith Facilitator HGCA

Hannah Dumper Trade Body HGCA

Pat Thornton Trade Body HGCA

Phil Bicknell Trade Body NFU

Rachel Carrington Trade Body NFU

Martin Savage Trade Body Nabim

Marion Rawlins Observer DEFRA

Carlos Menna Facilitator Cranfield

Denyse Julien Facilitator Cranfield

Siôn Roberts Facilitator EFFP

David Neal -Smith Facilitator EFFP

Adam Scott Facilitator EFFP


Appendix V Breakout Group Questions

Red Group:

What can be done to improve the flow of information within the chain?

How can transparency and trust be improved to achieve this?

What are the barriers and enablers to bring this about?

Purple Group:

How can the cereal supply chain work better to manage risk for the benefit of all?

What are the barriers and enablers to bring this about?

Green Group:

How do we unlock value in the chain by:

- Increasing the percentage of grain grown that meets buyer specification?

- Better link agronomy with its impacts on functionality performance in the

- manufacturing process. And in doing so achieve „more with less‟?


Appendix VI Graphic results of research questions




Prepared by:

David Neal-Smith EFFP LLP Mermaid House, 3rd Floor, 2 Puddle Dock, Blackfriars, London, EC4V 3DB Tel: 0207 332 2868 / 07793 443496 [email protected] www.effp.com

Dr Carlos Mena Senior Lecturer, Logistics & Supply Chains School Of Management Building 38, Cranfield University, Cranfield, Bedfordshire MK43 0AL www.cranfield.ac.uk

mailto:[email protected]

http://www.cranfield.ac.uk/


References to published material

9. This section should be used to record links (hypertext links where possible) or references to other published material generated by, or relating to this project.

References are noted throughout the document


Documents

Evidence Project Final Report - GOV.UK