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10 Conclusions and recommendations

Market information and likely opportunities for growth of the organics sector

10.1 The demand for organic food has grown to approximately 2% of all UK food sales. However, specific data relating to Scotland, is scarce or non-existent. In terms of market share, and market direction, the main multiple retailers tend to think UK, rather than devolved regions. Specific targets have been set out in the Organic Action Plan for Scotland. Estimates and predictions for Scotland may be extrapolated from UK data sources. However, this ignores regional differences in production potential, infrastructure, market characteristics and consumer buying trends.

10.2 The position organically produced food occupies in the market, and consumer perceptions in particular are critical aspects. Current market trends, identified by Scottish Food and Drink, include more "international" eating habits, increased convenience in preparation; healthier eating; concerns over food safety, additives and genetic modification; new channels to market, including food service, home shopping/delivery and e-commerce; increasing product customisation and one-to-one marketing; the importance of brand identity and strength; creation of niche opportunities.

10.3 Soil Association projections for retail sales are bullish, but TNS, and an independent retailer consultant are much less optimistic. Retail sales growth is suggested to be, at least in the multiples that control 80% of sales, now slow or static.

10.4 A consistent finding of the study is the occurrence of information deficits at all levels within the supply chain. This deficit concerns supply and demand information. There is a shortage of hard data on organic supply in Scotland at all stages in the value chain in terms of what, how much and when produce and products are grown/processed/sold.

10.5 Notwithstanding this, specific market opportunities have been identified. Moreover latent opportunities might be unlocked through stakeholder collaboration. Specific opportunities appear to lie in the following areas:

• on the basis of Scottish production or branding in the marketplace, opportunities are felt to lie in fresh produce (horticulture and cereal crops) and value added products (including beers, wine and spirits, baby food and frozen food).
• there may be potential growth into retail channels where organic produce has failed to penetrate fully. Organic products do not appear to have penetrated in a major way the farmers' markets in Scotland.
• outgrade produce may offer supply opportunities outside the retail multiples. Producers and processors selling into major retail outlets are inevitably faced with outgrades that fail to meet very stringent quality standards.
• a number of multiple retailers run supplier development programmes: these are in themselves opportunities to develop/realise product potential. However in order for smaller businesses to access these programmes they may require initial support and advice to help them develop their "pitch" to the managers of these programmes.

10.6 Our findings highlight latent opportunities that might be secured through greater collaboration in the value chain. Collaboration is required:

• horizontally between producers to meet the demands of retail outlets. A lack of willingness or ability to collaborate means that existing or latent market demand and opportunity remains untapped. There appear to be cultural barriers here to be overcome.
• vertically and horizontally to overcome market failures (specifically in logistics) in supplying into retail channels. This should be done in the context of exploring wider market opportunities for collaboration between suppliers to achieve benefits of scale.
• to enhance and encourage the proliferation of quality through the organic system in Scotland. Networking between organisations in the value chain should be considered as a means of addressing issues of competence either by facilitating partnerships or through exposure to good practice.

10.7 Opportunities demand specific types of collaboration. In certain circumstances co-operation on a regional or local basis may be more successful as it is consistent with themes of local production, identity and branding. The approach is more likely to generate better member loyalty, as well as making infrastructure and physical linkages easier for example.

10.8 In addition to the scarcity of information at the Scotland level, there are also issues concerning the dissemination of the information that is available. There appears to be a shortcoming in the signposting of market information, and in some cases this impacts on market signals. The producer meetings suggested enhanced methods to improve access to market and supply information are required. Despite present efforts, there remains a perceived gap.

10.9 Finally there may be an additional issue of know-how and motivation on the part of stakeholders themselves. Some stakeholders will be better able to access information disseminated in particular ways. This may be as important as the availability of information.

Existing peer-reviewed research knowledge relevant to Scottish organic farming systems

10.10 Although the objective as far as possible was to consider research findings from refereed scientific papers, the scope was extended to include edited conference papers and similar publications. This proved essential as the number of refereed publications on organic farming system research is limited.

10.11 The CABI on-line database of organic farming publications was interrogated, which includes in excess of 120,000 references. A spreadsheet of current projects in the UK was compiled based on a list collated for Defra project OF0338 in 2003. Only projects dealing specifically with organic food and farming were included, errors and omissions were corrected and more recent projects added.

10.12 We had considerable difficulty in getting details of current UK research projects, and finding reports and other outputs of past projects. For several reasons, much organic research is not published in peer reviewed journals, and much is hardly published at all apart from informal reports to funders. There is a significant amount of useful information gathered at considerable public cost that is unavailable to end-users. At least part of the research issue appears to be the dissemination and knowledge transfer practices associated with the research portfolio and ensuring that research findings are readily accessible.

10.13 Of 160 current and recent organic farming research projects in the UK, there is a predominance of crops and horticulture research. Only 12 projects had a substantial environmental component (only one in Scotland), noteworthy given that this is the main reason for EU support for organic conversion and the extent of the uncertainties surrounding environmental benefit, particularly in extensive hill livestock systems. There are no original studies of food quality or human health, the main perceived benefit of consumers of organic food.

10.14 Organic farming systems work to the same biological principles irrespective of geographical or political boundaries. Therefore, unless dealing with crops or livestock not found in Scotland, or a specific local initiative, there will be some, if not considerable relevance in the majority of these projects, to Scottish conditions.

10.15 We made the initial assumption that all work funded by SEERAD is relevant to Scotland. In addition to work done in Scotland, or funded by SEERAD elsewhere, the following are of particular relevance to Scottish organic farming systems:

• the upland beef and sheep system research at ADAS Redesdale in Northumberland. This represents the dominant land use in Scottish organic farming and there is no comparable long-term study in Scotland. Redesdale is 10 miles south of the Border, and includes farms in Scotland in its linked-farm studies
• the Defra-funded participative research project ( OF0315) on weed control led by HDRA. Stakeholders have directed effort principally at perennial weeds such as docks and thistles. Control of these weeds was raised at all producer consultation meetings as key technical issue. The HDRA project includes a useful website that includes basic weed biology and control information. Much will be relevant to Scottish conditions and could be used as an aid by the advisory services. This study should also help identify areas for further research
• a range of studies funded by the Welsh Assembly Government and the Countryside Council for Wales relevant to upland livestock farming. The farm structure and environment is different in Wales, but these studies could be relevant to some aspects of the Scottish situation.

10.16 Our consultations suggest that priorities for research in Scotland should be support to producers, to support developments in their supply chains, and to research the true environmental impact of organic systems, particularly hill and upland. The current SEERAD research programme does not appear to meet these needs well, but rather seems to revolve around the activities and specialisms of key organic farming research groups in Scotland.

Organic farming systems that are either beneficial or harmful to the environment or natural biodiversity in Scotland.

10.17 A generalised quantification of environmental impact of organic farming systems in Scotland is not possible. A comprehensive review by Shepherd et al. (2003) highlighted the many confounding factors that make generalisations potentially misleading. A lack of UK, and particularly Scottish, field research data on the environmental impact of organic conversion from hill and upland systems also limits what can be deduced. The ethos and enthusiasm of individual farmers will also have an important influence on the conservation value of a particular farm whether organic or conventional.

10.18 Conversion to organic methods on mixed arable and livestock farms will, on average, result in improvements in biodiversity, and in soil and water quality. However, on some farms and situations, some impacts of organic farming may be negative. Conversion of lowland and improved upland grass-based farms will realise less environmental benefit compared with mixed farms, because the diversity of habitat will be less and the pre-conversion levels of pesticide use will be less than on farms with crops. Conversion of unimproved hill grazing is unlikely to yield significant environmental benefits as the changes to land and stock management following conversion are likely to be minimal. However, direct field measurements are lacking, and none were found relating specifically to Scotland. Current estimates of environmental impact are largely based on desk studies and many assumptions about how the organic standards and derogations are actually applied in practice.

10.19 According to producers themselves, further research is needed to provide greater clarity on what environmental benefits are required to be delivered by producers, by SEERAD in particular and by consumers more generally. Research is also required to determine whether support for organic farming is the most cost-effective way of gaining desired environmental benefits nationally.

Constraints to the organic farming system in Scotland highlighting need for further research

10.20 The original specification for the research sought to identify constraints to organic farming in Scotland. We deliberately set out to consider the constraints inherent in the organic system in Scotland. Our findings in this part of the study therefore refer to constraints in not only producing organically but also ensuring that organic produce reaches the consumer. Our findings vindicated the approach, with many producers citing the main constraints being market or marketing related rather than technical barriers to production.

10.21 Retailers highlighted two major constraints to the sales growth of locally sourced organic produce. Firstly, the growing season is a major constraint if there is a desire to substitute imports by sourcing locally. Secondly there are constraints on promoting organic produce to consumers. Promoting the claimed benefits of organic products is difficult - particularly for smaller retail businesses. Promotion of a consistent message is also frustrated by the various certification standards.

10.22 Organic processors also face constraints. The numbers of processors are low but represent a critical part of the system given the opportunities in added value products. Rather than limiting growth, these constraints appear to threaten what is sometimes a barely viable position in the market. For example, it would appear that organic standards have a direct bearing on the viability of organic processing in Scotland.

10.23 Our fieldwork revealed a number of constraints acting on producers. The overall clear priority issue with producers surrounds difficulties in marketing, particularly lamb. Without further development of the market, technical and scientific research is of secondary importance to most producers.

10.24 The second main constraint emerging from the producer consultations is a lack of information on market requirements, prices, supply and demand, sources of inputs and on specific technical issues. Even where technical information is available the limitation may be one of ready access, in a form readily digestible by farmers and growers. The organic helpline and demonstration farm network managed by SAC was well thought of, but there was a view that finite resources were likely to constrain its overall level of activity.

10.25 There is a feeling of disconnection between producers and other sectors higher up the supply chain. This is felt both in terms of the lack of an overall perspective on the potential size and direction of the organic market, and a lack of transparency in how costs and returns are apportioned across the supply chain. Better co-operation between producers would be beneficial, but this has not worked well in the past.

10.26 Producers highlighted the need to improve elements of the organic infrastructure. Of specific concern was the provision of abattoirs willing to accept organic livestock. At least one primary processor is looking at whether cattle stops might be a feasible means of circumventing the problem.

10.27 There is reluctance by arable and horticulture farmers to convert to organic production. There is a shortage of hard data from Scotland on why there is this reluctance. Conversion payments may play a role, however the results of three surveys in England and Wales, and the views of the researchers and advisers consulted, agree that the predominant reason is almost certainly a concern about marketing. Further work is required to produce data on the reluctance of arable and horticulture farmers to convert to organic production.

10.28 Stakeholders throughout the supply chain highlighted the poor logistics infrastructure as a major constraint in the organic system. The inadequate infrastructure would appear to be a function of a number of variables. These include market maturity (scale of demand), geography (physical impediments) as well as productive limitations (small scale production units).

10.29 Opportunities may lie in making innovative uses of existing infrastructure. For example one consultee aspired to an "organic wagon" on the Inverness-London train. Moreover we understand multiple retailers routinely 'share' their respective logistics infrastructure and this may harbour opportunities for the organics sector.

10.30 Overcoming issues of scale in logistics would demand producer collaboration. By using the locational information on producers and primary processors collated for this study, it is possible to begin to identify geographic clusters of businesses that might be able to form "logistics rings" to mutual benefit. Central point (depots) on appropriate scales to handle pooled farm inputs may also hold potential.

10.31 A significant risk to this approach is the willingness of stakeholders to collaborate, an activity the organic sector has not a good track record in.

Further research required to help organic producers in Scotland produce organic goods that the market wants, using practices which show clear environmental benefit

10.32 As the current research does not appear to reflect the research priorities of the consultees, SEERAD should consider re-focusing its organic farming research programme. The focus ought to be on a) resolving producer and market constraints and b) gaining data on environmental impact to aid policy direction. To achieve this, the aims of research contracts may need to be more closely specified and tendered.

10.33 Our recommendations for further research have been divided into two knowledge domains: economic/socio-economic and scientific/technical. This reflects the broad nature of the research work (already mentioned) and the fact that producers have consistently raised market related concerns as well as technical issues.

Economic/socio-economic

Information Deficits

10.34 Our findings clearly illustrate a range of information deficits. We recommend further work be conducted to resolve these. Further research is required:

• to produce Scotland-specific information on organic supply. This may be achieved in the first instance by pulling together and standardising the information already collated by the likes of Soil Association, SOPA and BDAA.
• to understand levels and nature of demand. For smaller producers the need to understand the nature of the consumer and retail information is important. Views on growth potential vary across the value chain. This highlights the need for quite specific enabling market intelligence for smaller producers and processors.
• to understand the motivations of Scottish consumers. Whilst there is interesting evidence from the Soil Association's work on purchasing triggers of UK consumers, there is a lack of information on the motivations of Scottish consumers. The Soil Association work, in particular, should be analysed and "translated" for the Scottish context.

Opportunities

10.35 Our findings reveal a number of specific market opportunities. Further research is required to realise these. Specifically:

• why organic produce has not penetrated specific retail channels and identify any opportunities that may still exist.
• to explore further ways of selling at reasonable price the inevitable "outgrades" produce into other markets.
• to ensure continued awareness among Scottish producers and processors of the drivers behind and the opportunities offered by the multiples' supplier development programmes.

10.36 Further research is required to secure latent opportunities through collaboration. Different modes or collaboration may yield different benefits. For example 'bonding' collaboration between similar organisations may yield economies of scale, whilst 'bridging' collaboration between different organisations in the value chain may capture opportunities. The following ought to be considered:

• explore and develop more effective ways to encourage further collaborative ventures between producers in order to address the demands of retail outlets at all scales of production and supply.
• examine the issue of logistics in assessing the market opportunities and barriers facing organic producers in Scotland supplying into different retail channels and at different scales needs in order to identify where critical market failure exists and can be addressed.
• as different opportunities demand different forms of collaboration, further understanding is required of how best to encourage effective and lasting co-operation in the value chain taking into consideration the stakeholders involved and location. Co-operation between farmers, including novel business models for co-operation, such as partner farms should be explored.

Dissemination

10.37 Our study highlights issues that reach beyond the need for new knowledge through additional research. Dissemination of existing knowledge appears to be a key problem in several respects:

• further work should be undertaken to identify signposting issues at all stages of the value chain and where this impacts on market signals consider options for intervention.
• consideration should be given as to how consumer information and other available market intelligence is disseminated to and made actionable by the supply chain actors in Scotland.
• there is a case for SEERAD to fund a study to identify the most effective methods of information provision to producers, and in a form likely to promote better understanding and uptake.

10.38 There may be a case to establish a new mechanism to collate and co-ordinate marketing and technical information. The case for a 'centre', virtual or otherwise, which could fulfil a role similar to Organic Centre Wales should be appraised in the context of the recommended exploratory research. It is unlikely that, on a national basis, this kind of mechanism would co-ordinate supplies with market demand, as suggested by some producers. Such an overall market co-ordinating role would be very ambitious, and based on other experiences of agricultural co-operation, organic and conventional, would be unlikely to succeed. However such a centre could draw together, synthesise and make available technical information, developments in standards issues and overall market intelligence. In essence, it could act as a central repository of information, but also as a focal point for the organic sector in Scotland.

Constraints

10.39 The results of our research highlight a number of constraints on the organic market in Scotland. We recommend a number of research themes to resolve these constraints. These include:

• research to resolve retailer issues:
• further research on how to optimise branding/labelling on the basis of location of origin is required. The significance of produce/product branding as "Scottish" appears to vary between categories and in different markets. It appears as if a one-size-fits-all approach is not necessarily best.
• the champions of organic products in Scotland should promote further research into identifying and/or validating claimed benefits of organic products and agreeing to develop a higher profile, more consistent marketing message for use by smaller businesses.
• the feasibility of resolving uncertainties with respect to food safety and health benefits needs to be considered further and alternative marketing messages developed if this cannot be achieved.
• further research is required to develop, justify and consistently promote the unique selling proposition of organic products to consumers in alliance with the major retail outlets. Champions of organic products should (continue) to engage with the multiples to develop acceptable but effective promotional messages in the interests both of organic producers/processors and the retailers. Further co-operation between certifiers would be advantageous in developing consistent messages for those consumers using the higher volume retail outlets.
• (Note: SEERAD have recently commissioned a study from SAC into consumer attitudes to organic food)
• research to support processors:
• work should be undertaken to identify the threats existing and proposed standards pose to processors and where these are unavoidable how they might be mitigated through appropriate public sector intervention.
• further research is required into how to safeguard the viability of organic processors in Scotland. As their viability is affected by price; volume of demand; and mode of production further work should be done to investigate the level of exposure to these factors and to ways of helping processors secure critical volumes of production.
• research to support producers
• there is a specific requirement to determine more fully why abattoirs are not interested in handling organic animals. The nature of the market failure should be explored including the business and logistical issues concerned with appropriate levels of provision of abattoirs available to organic livestock producers. Innovative ways to overcome the constraints ought to be considered such as the feasibility of cattle stop farms. If market failure exists the case for public sector support for new investment should be carefully examined.
• the feasibility of extending growing seasons without incurring a net additional environmental cost is an area meriting additional "systems" research.
• research is required to determine reasons for arable and horticulture farmers who have considered organic conversion, not proceeding with that conversion. An updated study of relative support rates and their likely impact on organic conversion may be necessary.
• research to resolve logistics issues
• innovative uses of existing infrastructure need to be explored and the business case assessed. There is also merit in engaging with multiple retailers to understand more fully their logistics practices in rural areas of Scotland.
• to overcome issues of scale, the potential to develop and share logistics should be explored.
• to address the poor record of collaboration in the sector, mechanisms should be identified to incentivise stakeholders. Public programmes ought to be redesigned to encourage collaboration and build trust amongst stakeholders. Where possible support should be delivered to consortia grounded by a specific market opportunity, rather than programmes that serve individual clients.

Scientific/technical

10.40 From the summary of current work, review of published information and consultation with Scottish organic producers and others, the main research priorities which would help overcome immediate technical constraints are given below. These have been grouped thematically under 'crops and horticulture' and 'livestock'. For each topic identified, the main driver for the research (technical - T; environment - E; standards - S) is also given.

Crops and Horticulture

10.41 Comprehensive research of relevance to Scottish conditions has been done on manure management, soil fertility and nutrient management. The need now is not for more research in these areas, but to convert the results into messages for knowledge transfer to producers.

• cultivars of crops and forage species should be evaluated in Scottish conditions (T).
• genetic traits which particularly suit crop and forage species to organic systems in Scotland should be assessed e.g.:
• the ability of legumes to fix nitrogen at low soil temperatures (T)
• the ability of crops to complete life-cycles in short seasons (T)
• the ability of cereals to give high grain quality where nitrogen availability is low (T)
• early maturity of grain pulses.(T)
• knowledge of appropriate traits should be used to direct the efforts of plant breeders to produce varieties tailored to Scottish conditions (T)
• novel crops and technologies for the production of protein for animal feed (S).
• perennial weed control - through an understanding of their biology and the factors influencing their survival and spread in organic systems (T).
• systems for organic soft fruit production (T)
• extended season of production of field vegetables, incl. the environmental impact of increased use of plastic mulches (T)
• improved cereal grain quality (T).
• determine reasons for arable and horticulture farmers in Scotland who have considered organic conversion, not proceeding with that conversion (T).
• a study to advise SEERAD on future levels of post-conversion payments necessary to encourage increased arable conversion, and maintain Scottish competitiveness (T).

Livestock

• beef and sheep
• endo and ecto parasite control (S)
• trace element supplementation (S)
• dairy production
• energy and protein crops to meet the requirements for 100% organic feed (S)
• mastitis control (T)
• suitability of genotype for organic production (S)
• pig production
• protein nutrition (particularly amino acid supply) (S)
• maternal characteristics and suitability of genotype for organic production (S)
• endo and ectoparasite control (S)
• poultry
• protein nutrition (particularly replacement of synthetic amino acids) (S)
• pasture management and composition (T)
• suitability of genotype for organic egg and broiler production (S)
• organic breeding and hatching (S)
• endoparasite control (T)
• optimising the integration of poultry into rotations (E)
• general
• parameters to assess health and welfare in organic livestock. (T)

10.42 As mentioned earlier, technical issues partly relate to the need for effective dissemination of existing technical knowledge. SEERAD should review the dissemination and knowledge transfer practices associated with its research portfolio to ensure that research findings are readily accessible.

Research that will assist in the development of strategies to improve environmental standards and biodiversity in organic production in Scotland

10.43 Against the background discussed above, the following strategy could be considered;

• collate data on actual practices on organic farms (stocking rates, species, manure use)
• research to determine which explicit environmental benefits are desired by consumers and policy makers
• research to determine whether, and how best, these benefits can be derived from organic farming practices.

10.44 Once the precise needs of SEERAD and consumers etc. have been determined, these could be achieved by targeted support to producers e.g. for habitat creation. Such targeted support would also be open to measurable verification of value for money which is difficult currently. Ultimately it could be considered whether separating support for environmental and marketing aims would be a more cost-effective way of gaining desired environmental benefits in Scotland

10.45 There is likely to be much of relevance to the organics sector in the non-organics scientific and technical literature, further literature reviews are merited, but on a more selective, subject-specific basis.

Future research suggested by the Scottish Organics Stakeholders Group

10.46 In the minutes of their second meeting (12 Dec 2002), the SOSG recommended three priority areas:

• plant breeding for varieties needing minimum nitrogen inputs.
• nitrogen-fixing legumes in remote areas.
• stockless organic arable farms.

10.47 We agree with the first and second objectives and suggest that they are included as part of broader objectives detailed under ' crops and horticulture' heading above . These are a) to better evaluate existing cultivars of crop and forage species under organic systems in Scotland, and b) to understand traits suiting crops to organic systems in Scotland with the aim of assisting plant breeders to produce better cultivars.

10.48 SOSG's objective three should be broader and relate to lowland largely-arable farms that must be converted to meet the SEERAD Organic Action Plan's aims. This objective needs to be developed into specific science issues. However, as discussed above, the lack of conversion at the moment is largely due to economics, not technical constraints. The economic issues need to be better understood and would not be responsive to 'science' research. Economic issues are:

• the loss of output during conversion is larger than in the uplands and is a much greater consideration to these farmers.
• falling product prices and uncertainty about marketing.
• three year gap until first crops sold.
• high costs and lack of knowledge and staff for introducing livestock.

10.49 To expand the point discussed above, we suggest a survey of farmers who have considered but not proceeded with conversion of arable farms to confirm these issues plus a review of current OAS payments, as the key priorities above specific scientific research for the sector.

10.50 Bearing in mind concerns expressed above about the relevance of SEERAD's organic farming research programme a) to the problems faced by producers and b) to assessing environmental benefit, SEERAD may wish to consider a greater involvement from stakeholders in both the specification of research projects and the evaluation of their outputs.

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