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Introduction

This is a summary report of a study into the organic farming system in Scotland and its research needs. A full report of the study has been provided separately. The study was commissioned by the Scottish Executive Environment and Rural Affairs Department (hereafter SEERAD) and has been undertaken by SQW Limited and ADAS Consulting Limited during the period June 2003 and March, 2004.

Objectives

The original objectives for the study were:

• to examine relevant market information and identify likely opportunities for growth of the organics sector
• to assess existing research knowledge of relevance to Scottish organic farming systems
• to identify any constraints to organic farming in Scotland that may be overcome by further research
• to assess any environmental benefits or dis-benefits arising from organic production in Scotland, quantifying these where possible

• identifying organic farming systems that are either beneficial or harmful to the environment or natural biodiversity in Scotland

• to identify the key areas where further research is needed to help organic producers in Scotland produce organic goods that the market wants, using practices which show clear environmental benefits.

• identifying research that will assist in the development of strategies to improve environmental standards and biodiversity through organic production in Scotland
• reviewing the areas for future research proposed by the Scottish Organics Stakeholder Group in the light of findings from this study.

Scope

In early discussions with SEERAD, it was agreed that the study should include scientific and technical issues concerned with primary production of organic products and their environmental significance - i.e. issues within the "farm system" - as well as market and related supply chain issues - i.e. issues within the "farm to fork system". Only by adopting this scope could sets of objectives concerned with the environment and with sector growth be addressed. Therefore, "research need" means the need for new knowledge or know-how in a broad sense, not only in science.

As the study progressed, SEERAD emphasised the need for the research to be "broad and shallow" in order to scope out issues of importance, rather than "focused and deep".

Market context

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-wide, rather than of 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.

The position organically produced food occupies in the market and consumer perceptions in particular are critical aspects. Current market trends for food and drink generally, identified by the Scottish Food & Drink initiative, 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.

Soil Association projections for retail sales for the organic sector are bullish, but TNS and an independent retail consultant who was interviewed during our study are much less optimistic. Retail sales growth is suggested now, at least in the multiples that control 80% of sales, to be slow or static.

A consistent finding of the study is the occurrence of information deficits (real or perceived) 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 supply chain in terms of what, how much and when produce and products are grown/processed/sold.

Notwithstanding this, specific market opportunities have been identified. Moreover latent opportunities might be unlocked through improved collaboration between supply chain actors.

Recommendations

The key recommendations emerging from the study are summarised below. Supporting evidence and context is provided in the full report.

SEERAD's research portfolio

To address end-user needs, SEERAD should re-focus its organic farming research programme to emphasise a) resolving producer and market constraints, and b) gaining better information on environmental impact of organic production to aid policy direction.

There should be a re-examination of research strategy and priorities concerned with the following issues:

• environment: to establish a more appropriate emphasis on environment-related studies, given that the environment is the main reason for EU support for organic conversion and given the extent of the uncertainties surrounding environmental benefit, particularly in extensive hill livestock systems prevalent in Scotland
• food and health: to determine whether the low level of original studies on food quality and human health remains appropriate given these are the main perceived benefits to consumers of organic food
• communication: to develop and resource ways in which research findings can be communicated more effectively to end-users.

According to producers, greater clarity is needed on what environmental benefits they are required to deliver. Research is also required to determine whether support for organic farming is the most cost-effective way of gaining the desired environmental benefits nationally.

SEERAD should consider new ways of gaining greater stakeholder involvement in the specification of needs-driven research projects and also in the evaluation and transfer of research outputs on behalf of end-users.

Recommendations to address perceived information deficits

We recommend further work in the following areas:

• on supply: to produce Scotland-specific information on organic produce supply
• on demand: to improve understanding of levels and nature of demand for Scottish produce and products - including help in obtaining quite specific enabling market intelligence for smaller producers and processor
• on consumer motivations: to improve understanding across the supply chain of the motivations of Scottish consumers .

We envisage roles here for SEERAD - notably on obtaining and collating national data; the Enterprise Networks in Scotland - notably on assisting smaller businesses obtain market intelligence; and the producer networks/certifiers- on both of the former issues plus disseminating knowledge on consumer motivations.

Recommendations to support take up of market opportunities

Further research is required to determine how best to help firms realise a number of market opportunities:

• retail channels: to determine why organic produce has not penetrated specific retail channels, notably Farmers' Markets in Scotland, and identify any opportunities that may still exist here
• "outgrades": to explore further ways of selling at reasonable price the inevitable "outgrades" produce into other market
• supplier development: to ensure continued awareness among Scottish producers and processors of the drivers behind and the opportunities offered by the multiples' supplier development programmes, and to help smaller firms develop/prepare their "pitch" toward managers and these programmes.

These are business development issues relevant to producers and processors. There are roles for both the Enterprise Networks and existing business networks in turning these into actions.

Opportunities through collaboration

Further research is required to help realise latent opportunities through overcoming resistance or inability, especially among smaller producers, to collaborate. We recommend further research in the following areas:

• collaborative venturing: to explore and develop more effective ways of encouraging collaborative ventures between producers and others in order to address opportunities at all scales of production and supply. Co-operation between farmers, including novel business models for co-operation, such as partner farms, should be explored
• shared logistics: to examine the issue of shared logistics in opening up market opportunities and overcoming barriers facing organic producers supplying into different retail channels and at different scales - identifying where market failure exists and can be addressed (see below).

We envisage roles for SEERAD, the Enterprise Networks and producer networks/certifiers in promoting and facilitating a more collaborative culture.

Dissemination of information and know-how

In addition to issues around dissemination of research results, information dissemination appears to be a key problem in several other respects:

• market intelligence: further work should be undertaken to identify signposting issues at all stages of the supply chain and, where this impacts adversely on market signals, consider options for intervention
• uitility of information: 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, notably producers.

The case for a 'centre', virtual or otherwise, which could fulfil a role similar to Organic Centre Wales, should be appraised. Adequately resourced, 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 and know-how, but also as a focal point for the organic sector in Scotland.

We note that the research evidence pointing to this perceived information deficit emerged together with the acknowledgement of the value of the work of the Scottish Agricultural College ( SAC) in transferring knowledge and know-how.

We consider that there is a role for SEERAD to lead on a more in-depth review of knowledge/know-how needs, provision and delivery methods.

Constraints

The results of our research highlight a number of constraints on the organic market in Scotland. To address these we propose the following:

• research to resolve retailer issues:

• branding/labelling: further research on how to optimise branding/labelling on the basis of location of origin. This is a strategic business and sector development issue, relevant in large part to the work of the Enterprise Networks but also to the business networks/certifiers. 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
• uncertainties over benefits: the feasibility of resolving uncertainties with respect to food safety and health benefits needs to be considered further and alternative marketing messages developed if these cannot be achieved. The champions of organic products in Scotland should promote further research into identifying and/or validating claimed benefits of organic products. This issue spans the policy and business development/strategic marketing domains
• the selling proposition: further work is required to develop, justify and consistently promote the unique selling proposition of organic products to consumers in alliance especially with the major retail outlets. Further co-operation between certifiers would be advantageous in developing more consistent messages for those consumers using the higher volume retail outlets

• research to support processors:

• the "burden" of certification: work should be undertaken to identify the threats (and/or disincentives) that existing and proposed certification standards present to processors in Scotland and, where these are unavoidable, how their adverse effects on business viability might be mitigated through appropriate public sector intervention
• viability of the processing sector: further research is required into how to safeguard the viability of organic processors in Scotland. Further work should be done by SEERAD with the Enterprise Networks. As the viability of organic processors is affected by price, volume of supply and demand, and their modes of production, it is important to investigate the level of adverse exposure to these factors and to explore for example ways of helping processors grow critical volumes of production

• research to support producers
• availability of abbatoirs: there is a specific requirement to determine more fully why abattoirs are not interested in handling organic animals. The nature of any market failure should be explored by SEERAD, 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 also 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
• shift towards more collaboration: to address the poor record of collaboration in the sector, mechanisms should be identified to incentivise supply chain actors. 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
• extending growing seasons: the feasibility of extending growing seasons without incurring a net additional environmental cost is an area meriting additional "systems" research
• reasons for non-conversion: research is required to determine reasons why arable and horticulture farmers who have considered organic conversion have not proceeded with that conversion. An updated study of relative support rates and their likely impact on organic conversion may be necessary
• marketing assistance: there is a need to provide additional support to smaller producers in terms of marketing, notably but not exclusively of organic lamb

• research to address logistics issues
• improved understanding: 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
• scale-up and sharing: to overcome issues of small scale production and supply, the potential to develop and share logistics among smaller producers and processors should be explored.

Scientific/technical

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.

The issue of contamination with GMO genetic material, and threshold levels for organic produce, was not raised in any of our consultations. However, this is an important issue and if set at too restrictive a threshold level, could make organic production of some products impossible in Scotland.

Crops and Horticulture

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. Other topics of relevance include :

• 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).

Environmental standards and biodiversity

We recommend the following areas of research to assist in the development of strategies to improve environmental standards and biodiversity in organic production in Scotland:

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

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

Review of SOSG's research priorities

In the minutes of its second meeting (12 Dec 2002), the Scottish Organic Stakeholder Group ( SOSG) recommended three priority areas: (1) plant breeding for varieties needing minimum nitrogen inputs; (2) nitrogen-fixing legumes in remote areas; (3) stockless organic arable farms. 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 .

We recommend that 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.