QUALITY MEAT SCOTLAND

CORPORATE & BUSINESS PLAN

2013/14 – 2015/16

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CONTENTS

Page

Chairman’s Foreword 3-4

1 Context 5-6

2 Review of the Industry Operating Environment 7-19

3 Strategic Focus 19-20

4 QMS & the Scottish Government’s National Performance Framework 21-24

5 Review of Past Performance 25

6 Statement on Information & Communications Technology 25

7 Statement on Public Bodies Climate Change Duties 25

8 Statement on Equality 25

9 Three Year Income and Expenditure Forecast 2013/14 – 2015/16 26

10 Board Membership 27

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Chairman’s Foreword
I am pleased to present Quality Meat Scotland’s three year Corporate and Business
Plan prepared in accordance with the arrangements for a public body.

Quality Meat Scotland’s strategic ambitions on behalf of the Scottish red meat
industry are set out in this Corporate Plan for the period 2013/14 to 2015/16. The
plan also reflects the Scottish Government’s aim to increase sustainable economic
growth.  A copy of the plan is posted on the QMS website www.qmscotland.co.uk
 
QMS’s board members are appointed by Scottish Ministers for their knowledge of the
different sectors of the Scottish red meat industry as well as experience in areas
including marketing, finance and corporate governance. Board members are listed on
page 27.

The board has set strategic priorities for the organisation to assist businesses
operating in the Scottish red meat industry to become more efficient and
profitable. This follows a comprehensive appraisal of the operating environment and
challenges facing the red meat industry.

QMS Chief Executive, ‘Uel Morton, is responsible for ensuring the organisation’s day-
to-day activities are delivered in line with our overall strategy to shape a sustainable
and prospering Scottish red meat industry . This strategy is aligned with the Scottish
Government’s economic strategy of increasing sustainable economic growth.

Specific strategies with clear objectives and supporting activities tailored for the
cattle, sheep and pig sectors are in place.  QMS works closely with the industry and
liaises regularly with representatives of the different sectors to ensure our activities
meet the differing needs of beef, lamb and pork businesses.

The past year has seen considerable change take place in our processing sector and
the margins of many processors remain incredibly tight. Key to the future is
achieving critical mass of raw material and it is vital we maintain the livestock
numbers needed to satisfy the demand for our world-acclaimed brands.

The global population continues to grow and with it the demand for quality red
meat.  QMS is implementing a programme of activity behind its new export strategy
launched in October 2011.

This is aimed at further developing the market for Scotch Beef and Scotch Lamb in
the wider European market and includes a focus on Germany and the Nordic regions
and, in the longer term, the new affluent consumers in China and Russia.

In 2012 Scotch Beef was named the biggest selling Scottish food and drink brand in
Great Britain (source: Kantar Worldpanel) and our industry has a huge amount to be
proud of.
We have a compelling message in terms of what sets our brands apart - from the
world-leading quality assurance behind the Scotch Beef, Scotch Lamb and Specially
Selected Pork labels to our high animal health and welfare and our natural, grass-
based cattle and sheep production systems.

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The red meat industry contributed a record £2.1 billion to Scotland’s economy* and I
have absolute confidence our industry has a great future.

To grow, the 15,000 businesses operating in our industry and supporting around
50,000 jobs in Scotland must be able to look forward with the confidence to invest
and adopt the new technology needed to improve efficiency.

I am confident the strategies in this Corporate and Business Plan lay the foundations
for a comprehensive, measurable set of activities to be carried out by QMS staff in
the year ahead.

Our board has set strategies which will ensure QMS continues to deliver an
impressive and vibrant programme of activities to support the sustainable growth of
Scotland’s red meat industry.

Jim McLaren
Chairman

February 2013

* (source Scottish Red Meat Industry Profile 2012 edition)

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1 Context

1.1 Structure
 
QMS is established, under the Quality Meat Scotland Order 2008, as a Non
Departmental Public Body (NDPB). Its constitution is set out in Schedule 2 of
the Order.
  
1.2 Remit
 
The powers and functions of QMS as set out in the Order are as follows:

The purpose of QMS is to increase efficiency or productivity in the red meat

sector, improve marketing in the red meat sector, improve or develop
services that the red meat sector provides or could provide to the community
and improve the ways in which the red meat sector contributes to sustainable
development.

QMS has responsibility for a range of statutory functions relating to the

development and promotion of the Scottish red meat industry, as set out in
Schedule 1 of the Order.
 
QMS’ activities on behalf of levy payers, as set out in the Quality Meat
Scotland Order 2008, are funded through income derived from statutory levy
and collected by QMS. The quality assurance schemes are self-funding from
fees.
  
1.3 Board and corporate governance

All Board members are non-executive and appointed by Scottish Ministers for
a term not exceeding four years. The appointments are made in line with the
Code of Practice issued by the Public Appointments Centre for Expertise.

The Board has corporate responsibility for ensuring that QMS achieves the
Scottish Ministers’ overall aim of using the statutory levy for the benefit of
Scottish levy payers. The Board oversees the efficient and effective use of
staff and other resources by QMS in accordance with the principles of best
value.

A robust system of financial monitoring and performance review is in place.

Apart from regular meetings of the Board, this includes an independent Audit
Committee consisting of three Board members and the appointment of
independent internal auditors. As a public body the external audit function
comes under the scrutiny of Audit Scotland. A risk register is regularly
reviewed by the Board and policies are in place governing the use of reserves
and the application of public procurement rules. QMS has a Management
Statement and Financial Memorandum which sets out the relationship
between QMS and the Scottish Government.

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 QMS recognises the importance of good governance standards in the public
sector and bases its approach on six principles as follows:
- focussing on the organisation’s purpose and on outcomes for levy payers
specifically and others generally;
- performing effectively in clearly defined functions and roles;
- providing effective corporate governance for the whole organisation and
ensuring principles of value for money are embedded into procedures;
- taking informed transparent decisions and managing risk;
- developing the capacity and capability of the governing body to be
effective;
- engaging with levy payers and other stakeholders to ensure good
accountability.
 
1.4 Industry engagement

A network of engagement is in place to help the organisation take account of

the views of levy payers, and so that levy payers are aware of the activities
that are being undertaken on their behalf. This includes:

- attendance at meetings of the NFU Scotland Livestock and Pig

Committees and by invitation to meetings of other industry bodies;
- attendance by invitation at meetings of the Executive of the Scottish
Association of Meat Wholesalers;
- attendance at meetings of the Scottish Federation of Meat Traders
Associations;
- levy payer involvement in standing committees that advise the Board on
QMS activity in Research and Development, and on Assurance Standards;
- regular meetings of the QMS Pig Forum and an annual conference which
allow industry participants to hear updates on progress of QMS work in
relevant areas;
- specific Marketing Strategy Group meetings for beef, lamb and pork which
receive input from producer and processor representatives;
- facilitation of an Independent Retailers Marketing Strategy Group
- periodic attendance at meetings of NFUS and other livestock industry
representative organisations;
- attendance at national industry events;
- various weekly or monthly newsletters and press columns;
- publication and distribution of an Annual Review which sets out the
breadth and depth of QMS activities to over 10,000 industry stakeholders.

1.5 Time window

This Plan considers a three year time window for the financial years 2013/14-
2015/16.

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2 Review of the Industry Operating Environment

In shaping this Corporate Plan consideration has been given to the drivers in
the industry operating environment. These drivers can be considered in the
following categories: political, environmental, economic, sociological and
technical.

2.1 Political factors

The Scottish Government recognised the strategic role of food and drink in
the Scottish economy with the publication, in 2009, of its Food and Drink
Policy. More recently it has published a Food and Drink 2014 action plan and
continues to make financial assistance available as demonstrated by the
announcement, in September 2012, of £9m of grant aid for 32 companies.
Notwithstanding the financial constraints faced by the Government it is vital
that this commitment to and funding for the Food and Drink policy remains
available and accessible to the Scottish red meat industry so it can continue
to deliver sustainable economic growth.

Livestock producers are not immune from the wider economic challenges (see
section 2.3) and QMS’ Enterprise profitability studies 1 and the Scottish results
from the European Commission’s Farm Accounts Data Network 2 show that
without support payments from the Common Agricultural Policy (CAP) most
beef and sheep enterprises would be unviable. The publication, by the
European Commission, of CAP reform proposals in Autumn 2011 began a
process which will conclude during 2013 and will have significant implications
for the Scottish farming sector. However, the discussions on the future
shape of the CAP have been delayed by the failure to agree the wider Multi
Annual Financial Framework before the end of 2012 and while the CAP
reform may be concluded in 2013, the implementation of the policy may be
delayed prolonging uncertainty for producers and inhibiting future investment
decisions.

Although agriculture is a responsibility devolved to the Scottish Government,

discussions at EU level remain controlled and managed by the UK
Government. The ability of Scotland to influence the CAP reform debate is
constrained by the nature of the relationship between Holyrood and
Westminster and the lack of a guaranteed seat at the formal European
Commission discussions. Furthermore, the importance of agriculture to the
economy is greater in Scotland than for the rest of the UK which can result in
different priorities and objectives with respect to agricultural and rural policy
within the Scottish Cabinet compared to Westminster.

1
Cattle and sheep enterprise profitability 2012 edition - QMS (2012)
2
Economic Report on Scottish Agriculture 2012 - An official statistics publication for Scotland
(2012)

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 Estimates for 20103 show agriculture contributed 0.68% to Scotland’s
national Gross Value Added compared to 0.55% in the UK and 0.53% in
England. Within agricultural production beef, sheepmeat and pigmeat
production is of greater importance to Scotland than the UK as a whole,
accounting for 37.5% of total agricultural output in 2011 compared to 25%
for the UK as a whole.

Although the European Council, Member States and the European parliament
will collectively agree the next CAP, the Scottish Government remains
responsible for interpretation and implementation in Scotland. It is important
for the livestock sector to work closely with the Scottish Government to
maximise the benefits, and minimise the administrative burden, of the
proposed policy reforms. Nevertheless, further uncertainty is created by
current constitutional debates over the UK’s position in Europe and the
potential consequences of the approaching vote, in 2014, on Scottish
independence on Scotland’s position within the UK and the European Union.

At the core of the proposed new CAP regime is the movement of Single Farm
Payment (SFP) to a more uniform area based payment with no reference to
historic individual business payments. This could lead to significant
redistribution of support from highly productive livestock producing areas to
less productive areas. This would lead to changes in business profitability
levels and increase the risk of a reducing livestock population. Any further
reduction in livestock numbers may
o threaten the viability of Scottish abattoirs,
o limit the visibility of Scotch product at point of retail,
o threaten the listing of Scotch branded product on retail
shelves, and
o reduce employment in rural communities and throughout the
supply chain.

Other elements associated with greening, such as the proposed definition of

permanent pasture and capping of payments also have potential to impact
adversely on the scale and structure of the Scottish livestock industry.
However, a recognition that CAP payments should only go to active farmers,
that support for fragile communities where the loss of livestock would
jeopardise local economic wellbeing and of the need to encourage new
entrants to farming are positive developments for livestock producers.

In considering the development of EU agricultural policy, food security has

gained importance within the context of global population growth, climate
change and international trade in agricultural products. Nevertheless, it is
not the main driver for policy change and consequently, while the potential
for limited coupled livestock headage payments is expected to remain part of
the next CAP, the scope for significant use of headage payments as a means
of securing meat supply appears to be remote at this stage.

3
Source: Agriculture in the UK 2011

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With the potential to use headage payments within the CAP constrained it is
important that the Scottish Rural Development Programme (SRDP) continues
to offer funding to encourage quality livestock production and innovation.
The prospect of some increased funding from the European Commission for
SRDP, following from CAP reform, is welcome and it is important that the red
meat industry is involved in discussions to secure the maximum level of
funding for initiatives to encourage quality livestock production and
innovation. Nevertheless, State Aid rules will continue to impact on QMS’
ability to respond to some of the challenges and opportunities created by the
SRDP.

The EU continues to revise and expand the regulatory controls that impact on
livestock farming. During the last 2-3 years, large amounts of legislation
have been introduced which we have disseminated to our industry to act
upon and provided training. This is costly and time consuming but history
and precedent suggest it is unlikely that the level of legislative change will
diminish, particularly in respect of EU initiatives.

Examples include the impending EU regulations on product labelling and the

introduction of Electronic Identification (EID) to the sheep sector, creating an
added cost for the industry. However, some legislative change can lead to
reduced costs as demonstrated by the recent reforms of the TSE regulations
which have reduced compliance costs in the beef sector. It is important that
the industry and Government work together to minimise the burden of these
compliance costs.

The current concern on ingredients and mis-labelling within the supply chain
highlights the issue of the European and UK legal framework in respect of
product labelling and the policing of such legislation which are likely to bring
about changes. QMS will continue to monitor developments in this regard
and, in cooperation with Scottish Government, disseminate guidance and
develop activities to protect and enhance the brand as required.

The Scottish Climate Change Act and the Climate Change Delivery Plan set
some challenging targets for greenhouse gas (GHG) emissions from Scottish
agriculture. The European Commission is also increasing its interest in
managing climate change at a European level and polices to encourage
emission reductions through mitigation and adaptation of production systems
are likely to become core elements of future policies.

Publication of Scottish Greenhouse Gas Emissions 2010 show emissions from

agriculture and related land use to have fallen 12% since 2006 and 27%
since 2000. This implies that agriculture has already met the targets set for
it by the Scottish Climate Change Act. Nevertheless, emissions are heavily
influenced by stock numbers, productivity and between year climate variation
and will be volatile over time within the livestock sector.

The two major contributory gases from the red meat supply chain are
methane, much of it associated with rumen fermentation, and nitrous oxide,
much of it associated with volatilisation of ammonia from organic and
inorganic fertilisers.

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Emissions associated with meat processing and distribution play a minor role
in the carbon footprint of the red meat supply chain. Despite achievements
demonstrated in the Scottish Greenhouse Gas Emissions 2010 report,
pressures remain on the livestock sector to address these emissions.
Pressures will be less on the processing sector but nevertheless issues over
gas refrigerants, energy use in plants and transport efficiencies are likely to
emerge.

However, the climate change debate is widening into a wider sustainability

debate involving other resource use and business practices including, water,
the handling of waste and employment practices.

The wider debate on the integrated management of land, water and living
resources that promote conservation and sustainable use in an equitable way
is at the heart of the definition of ecosystems services. Researching the role
of ecosystems services is a central theme of the Scottish Government’s 2011-
2016 research portfolio and will increasingly inform the shaping of policy on,
for example, Land Use Strategy.

Other policy initiatives linked with climate change objectives have potential to
impact on the livestock sector. Investment aid for renewable energies has
led to some diversion of investment capital away from livestock production
on some farms. The Scottish Government in its Climate Change Delivery Plan
(2009) set a target for 25% of Scotland’s land area to be used for forestry by
2050. The objectives set for afforestation and the prioritising of land suitable
for afforestation away from highly productive arable land and carbon rich
soils will lead to significant land use conflicts on land well suited to grassland
production and livestock rearing and present a challenge to the beef and
sheep sectors in the medium term.

Addressing these challenges focuses attention on efficient resource use,

which in most cases relates to production efficiencies, which are likely to
improve margins. In some cases further research is needed to advance the
science and understanding in these areas, for example rumen fermentation.

Consumer awareness of the climate change and sustainability debate is

increasing and calls are already being made for carbon labelling in some
quarters. However, currently there remains no single agreed methodology
for establishing a measure of carbon footprint. Issues to be resolved include:

 establishing the boundary of business, enterprise or supply chain to

be measured;
 taking account of sequestration, particularly the use of permanent
pastures but also on-farm forestry;
 how best to recognise the emissions attributable to purchased
products; and
 how best to recognise differences in management and husbandry
techniques referred to as tier 1 , tier 2 or tier 3 analysis.

Work is currently underway to improve the understanding of carbon

sequestration in permanent pastures and initial results suggest there may be
little difference between sequestration in permanent grassland and forestry.

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 It is important that the ruminant livestock sector is fully engaged in this
debate over carbon management, ecosystems management and business and
environmental sustainability and QMS influences the debate by providing
evidence and analysis of the Scottish context.

The developing constitutional debate over Scotland’s relationship with the UK

and also the UK’s relationship with the European Union and the Eurozone
may be factors which will influence the business climate in which the Scottish
red meat industry operates.

The Scottish Government has set out its views on a food and drink policy for
the nation and is actively developing and implementing its proposals. Over a
period, this will have the potential to influence the way that red meat is
perceived and the role it plays in the nation’s diet.

QMS continues to work closely with Government, its agencies, Scotland Food
and Drink and other sectoral bodies to ensure the priorities of the red meat
sector are to the fore. Pressures on public funding are, however, likely to
affect the extent to which these agencies are able to offer financial support to
industry led initiatives to sustain a prospering Scottish red meat industry.
QMS is fully aware that it will become increasingly necessary to foster
collaboration with other parties to achieve best value for resources.

In a global context, the continuing discussions over world trade and the
desire to reduce or remove artificial market access barriers have the potential
to impact on the Scottish industry’s competitiveness. The World Trade
Organisation appears to have accepted that a comprehensive agreement in
the Doha Round is not possible and is now seeking incremental gains. One
such topic area is the role of Tariff Rate Quotas (TRQs) in agricultural trade.

Elsewhere the European Commission continues to hold bilateral talks with

Mercosur over trade issues which may result in reduced trade barriers on
imports of South American beef.

Continuing efforts by the UK government to dismantle import restrictions in

3rd countries is a welcome step forward that could open up new market
outlets for Scotch Beef, Scotch Lamb and Specially Selected Pork in for
example Russia, China and Canada. Estimates by the OECD-FAO 4 concluded
that “world meat consumption continues to grow at one of the highest rates
among agricultural commodities” but that 82% of this growth will occur in
developing countries in, for example, Asia and Africa.

The recent closure of the VION/Halls operation, the restructuring of abattoir

operations in North East Scotland and some increase in cross border trade in
store cattle raises challenges for future levy income streams. The issue of
levy repatriation has significant potential to benefit the Scottish industry
overall.

The fact that levy is collected at the point of slaughter means that livestock
born, reared and finished in one part of the UK and slaughtered in another is
4
OECD-FAO Agricultural Outlook 2012-2021

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 a loss of levy to the country (England, Scotland, Wales and Northern Ireland)
where the main economic activity has taken place. The distribution of levy
funds should be examined and this will be progressed with relevant red meat
levy bodies and Governments in Westminster, Cardiff and Edinburgh.

2.2 Environmental factors

There are a number of factors that are increasingly impacting on the

industry’s operating environment. Some are likely to result in political action
either at national, EU or global level.

Those currently causing concern among the general public include: climate
change; the carbon footprint of food production; food miles; the general
environmental impact of food production and food waste; diet and human
health, a continuing debate about GM foods, water use; food prices and
achieving a basic level of food security. These are global concerns and their
priority can vary from country to country. Nevertheless, they impact on the
way in which Scottish livestock products are perceived in different parts of
the world.

Oil prices have remained over $100 per barrel since early 2011 and interest in
crop production for non-food use has once again gained momentum. The
growing of maize as a feedstock for anaerobic digesters, also fuelled by
slurry, is one example of a factor affecting feed supply and costs, as is the
use of wheat for ethanol production. The use of arable crops for energy
production remains a threat to the cost of feed across the beef and sheep
sectors.

The role that GM technologies5 can play in meeting the global demand for
food and fuel has been highlighted but political and consumer uncertainty
over risk continues to be an issue. European Commission decisions over the
use of GM crops have potential to impact significantly on costs of livestock
production in the future. The Scottish Government maintains its opposition
to the cultivation of GM crops and urges that any proposals for importing GM
materials for their use in food and feed be considered only after the most
rigorous analysis, adopting a precautionary approach.

Despite agriculture being one of the few industry sectors to meet its 2010 6
target from the Climate Change Delivery Plan, the industry will increasingly
be called on to address the challenge of reducing these emissions. Many
mitigation measures have positive impacts on enterprise profitability and as
the debate matures and knowledge increases, market opportunities are likely
to develop. For example, the proximity of Scottish production to its main
customers and concern for reducing food miles may provide a marketing
advantage.

5
See for example foresight report “The future of food and farming: challenges and choices for global
sustainability (2011) the Government Office for Social Science, London
6
See Scottish Greenhouse Gas Emissions 2010: An Official Statistics Publication for Scotland (July
2012)

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Extensive livestock production systems based on permanent pasture, organic
and low inorganic fertiliser use and minimal tillage may provide low carbon-
equivalent production systems. Extensive livestock production may also
attract interest as a land management option that provides “Ecological
Services” which may attract a public good payment through CAP.

Some 75% of Scotland’s agricultural area is recorded as grassland over five

years old or as rough grazing and the use of this resource is at the heart of
Scottish ruminant livestock production. It is important that the role of grazed
permanent pasture in greenhouse gas management through carbon
sequestration and landscape biodiversity creation and maintenance is fully
understood and presented.

Not all of Scotland’s red meat is derived from extensive farming regions. Pig
production and some cattle and sheep finishing enterprises are more
intensive in nature. Their high levels of technical efficiency mean that they
can be very carbon efficient per kilogramme of meat produced but produce a
lot of emissions per business or per unit of land area and are looked on
critically by some in the sustainable farming systems debate. It is important
that the Scottish red meat industry is engaged in the developing debate on
sustainable intensification and that the strengths of these more intensive
businesses are communicated more widely.

Insofar as these global issues have a relevance to Scottish farming systems,

livestock production is viewed by some outside the industry, as having a
detrimental impact on the environment through over stocking, water pollution
and, in a global context, de-forestation and desertification. Scottish livestock
producers and processors are already in the process of adopting new or
modified production methods that address these concerns.

The Scottish livestock industry has a high reputation for the health status of
its stock and it is important that this high health status is maintained through
high levels of bio-security and disease free accreditation. Bio-security, with
regard to both indigenous and exotic disease, and the risk of some exotic
diseases becoming endemic in the UK can impact on trade movements within
and outside of Scotland. Breakdowns in health status elsewhere in the UK
invariably impact on the Scottish meat and livestock trade. Over the past
twelve months , for example, the TB free status of Scotland has had
implications for cross border trade of breeding, feeding and slaughter
livestock that may lead to reduced supplies of cattle eligible for the Scotch
beef label.

As an organisation QMS has a corporate and social responsibility to operate in

an environmentally considerate way; we promote a culture of environmental
responsibility. Actions include efforts to minimise power use, maximise
recycling, make greater use of information and communication technology
and use of public transport, where practical, to minimise car travel.

2.3 Economic factors

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In the UK, primary producers and processors work on narrow financial
margins and continue to strive for efficient production and processing
systems.

Financial crisis in the Eurozone and a weak policy response from politicians
has led to a double-dip recession in many Member States and has placed
downwards pressure on economic activity in the UK and the EU. Though the
UK economy exited from double-dip recession in quarter 3 of 2012, activity
was flat year-on-year and remained 3% below its 2008 peak. Elsewhere,
slowing demand from developed countries has reduced the export-led growth
of emerging economies and the global economy has weakened.

The influence of economic management policies, in response to a weak global

economy, on bank interest rates, capital availability, credit availability and
exchange rates has potential to impact on producer and processors
investment decisions and trade activity, particularly international trade.
Fortunately, strong action by the Bank of England and the ECB in recent
months, for example the UK “funding for lending” programme, has eased the
flow of credit and reduced risk of Eurozone break-up has lowered uncertainty.
Nevertheless, revised rules and bank liquidity remain a constraint on capital
availability.

Scotland cannot escape from EU and global economic conditions. The failure
to fully recover from the financial turmoil of 2008 and 2009 has resulted in an
extended period of low interest rates yet depressed capital availability. While
this benefits existing borrowers it has made raising capital for development
and innovation very challenging. New financial regulations mean that banks
have to meet higher capital ratios and this has discouraged them from
lending. While large companies have found it easier to secure bank
borrowing, small and medium sized enterprises have found it much more
difficult to access credit. Although the Bank of England’s “funding for
lending” initiative should make it easier to borrow, the ability of the red meat
supply chain to invest in innovation and product development remains
constrained by interest rates which remain high in real terms.

One consequence of financial turmoil has been an increased volatility of

Sterling exchange rates particularly against the Euro but to a lesser extent
the US dollar. Although the current Euro:Sterling exchange rate is much
weaker than it was in the mid-2000s it strengthened significantly in 2012,
reducing the competitiveness of Scottish exporters, before weakening again
at the start of 2013. These significant currency fluctuations related to
developments in monetary policy and financial markets generate significant
uncertainty for traders. A second is the pressure weighing on public funding
and a requirement to curb public spending. The latter may lead to reduced
public funding for policy, research and development and investment
instruments.

Although the UK economy remains fragile, both inflation and unemployment

rates have fallen over the past twelve months easing the squeeze on living
standards. Nevertheless, despite UK unemployment falling by 150,000 during

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2012, at 7.8% the unemployment rate in the UK remains high. In Scotland
unemployment has also fallen over the year and the unemployment rate is
slightly lower than in the UK as a whole. However, Scottish employment
numbers are little different and most of the fall in unemployment is due to
people leaving the labour market rather than increasing numbers in
employment The inflation rate currently stands at 2.7% down from 5% in
late 2011 but it is expected to remain above the UK government’s target of
2% for the next two years particularly as recent movements in exchange
rates while favouring exporters are pushing up the cost of imports.

Consumers have responded to these conditions by adopting traits which see

them limiting their spending and becoming much more savvy in grocery
shopping; looking increasingly for value for money and lower cost
alternatives. The red meat sector will continue to struggle to pass increases
in their input costs through the supply chain and will therefore continue to
face squeezed cost/price ratios. This will subsequently make the search for
economic and technical efficiency in production and processing a critical
element of the industry’s economic wellbeing.

Food price inflation fell back significantly through quarter two and three of
2012 and was below the RPI in September. However, it picked up again in
Q4 of 2012 as the effects of higher meat, grain and cereal prices of mid 2012
fed through the supply chain to consumers. Pork prices grew faster than the
general rate of food inflation from September onwards and consumption data
has indicated that purchased volumes have fallen despite higher cash
spending. Beef price rises had been running at more than 10% for most of
late 2012 but slowed towards the end of year. Nevertheless, beef retail
prices in 2012 averaged some 11% higher than 2011. This has led hard
pressed consumers to trade down between meat cuts and, in some cases,
switch to cheaper proteins. There was some evidence of consumers
switching back to lamb when some roasting joints were heavily discounted by
retailers over the summer and lamb purchase volumes increased. The falling
producer price of lamb at global level has allowed retail prices to ease in the
second half of 2012 and this has supported consumption.

In the processing sector, staff availability and skills levels remain a challenge,
with migrant labour playing a key role. Skill levels within the workforce
remain a concern and in particular are recognised as a limiting factor in
capturing the full value of fifth quarter. The development of skills training
initiatives have potential to benefit the meat processing sector and QMS
continues to work with Skills Development Scotland and other agencies/
public bodies to identify ways to increase access to vocational training in and
recruitment into both the production and processing sectors.

Latest published annual reports and accounts from the processing sector
clearly show the decline in margins faced by processors in the current
economic climate with earnings before interest, tax, depreciation and
amortisation for many of these businesses in Scotland being less than 2%.
These low margins have led to some industry restructuring during 2012 and a
continuing need to secure growth in the breeding and Scotch eligible
livestock numbers in Scotland to generate sufficient volume to sustain current
processing businesses.

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The loss of the pig processing capacity in Scotland with the closure of the
Broxburn abattoir has raised questions over the future of pig production in
Scotland. However, with suitable support and financial backing the potential
exists to increase and secure pig slaughter capacity in Scotland sufficient to
handle the current scale of independent pig production in Scotland.

While considerable quantities of lamb are currently slaughtered outside of

Scotland, existing plants are not working to capacity but equally, given their
customer base and business mix, are unlikely to significantly add to their
throughputs. The potential closure of a Welsh lamb plant which handles a
significant quantity of Scottish lamb (because of low profitability on the back
of declining stock availability) offers some potential for increased slaughtering
of Scottish lambs in Scotland. However, to increase lamb slaughtering in
Scotland will need considerable inward investment to maximise existing
capacity, or secure new companies entering the Scottish marketplace and
building new facilities. This appears unlikely in the current climate.

Scottish cattle abattoirs have sufficient capacity to handle current levels of

Scottish production and indeed could handle more stock if it was available.
To secure the future of Scottish cattle slaughtering requires support and
encouragement from agricultural policy measures to secure profitable farm
enterprises and thus secure current and hopefully increase volumes of
livestock production in Scotland.

Innovation in alternative uses for arable crops and by-products from arable
and livestock product processing in energy generation is impacting on food
and bedding costs for the livestock sector.

2.4 Sociological factors

Sociological factors include those demographic and lifestyle trends that

impact on the way consumers buy, prepare and cook food.

Continuing trends towards an older population, smaller households, limited

budgets and prepared foods with reduced cooking times have created
challenges in portion size and delivery. Similarly, some segments of the
market have a growing interest in the way food is produced and prepared.
Due to persistent economic uncertainties – job security, purchasing power,
pensions – shoppers’ priorities have changed with price promotions and value
for money becoming the main drivers in their purchasing decision. Evolving
consumer trends can stimulate greater differentiation in the marketplace and
create opportunities for high quality Scottish produce to attract a sustainable
consumer base.

In times of increasing austerity consumers’ household budgets are being

squeezed from food and fuel inflation, shoppers when doing their weekly food
shop increasingly claim to have an interest in labelling, price, provenance and
mode of production and the quality and value of the food they purchase.

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Shoppers are applying greater budgetary discipline with only 15% claiming to
make most purchase decisions in store (down from 35% in 2008). However,
they are not abandoning their ethical beliefs with over 80% agreeing that
ethical attributes are an important influence when making product choices.
This includes ensuring the welfare of the animals involved; supporting
local/British producers and an interest in how the product has been tended.

The way in which consumers buy groceries is also changing. Only 10% of
grocery shopping journeys are for main shopping, 90% of grocery shopping
is now either “replenishment”, “specific journey” or “for tonight” shopping.

Mislabelling has the potential to significantly impact on shoppers’ trust in the

food processing industry and its ability to provide products of reasonable
quality and product integrity. This situation will require to be closely
monitored and actions required to restore trust implemented as required.

The growth in out-of-home eating remains low as consumers have remained

concerned over their economic prospects. An increasing amount of food has
been prepared from first principles in the home often drawn from retailer
promotions like “£10 dinner for 2” with a consequential impact on the
foodservice sector. The beneficiaries of this trend are multiple retailers and
High Street butchers. Recent research confirms that consumers tend to be
less shop loyal and move from outlet to outlet driven by promotions. While
emphasising the diversity of retail outlets for red meat the changes in
consumer buying patterns for meat have highlighted the importance of value
for money cuts and offals in maximising financial returns. Value for money,
brand loyalty and ethical values such as animal welfare, support for local
economy, fair trade and reliable consistent eating quality are key drivers in
the shoppers’ decision making process.

The provenance of meat product remains of importance to the British

consumer and is a key driver for purchase. As the prevalence of quality
assurance labels continues to grow, shoppers expect that meat products
carrying these labels come from a known source and that independent checks
have been made to make sure the meat has been produced in the right way
and nothing has been added. Nevertheless, some shoppers are less willing
to pay for what they expect to be a minimum standard of production.

Consumers have become increasingly health conscious and media coverage

of health stories is enhancing this awareness. Consumer research indicates
health concerns are playing a part in purchase decisions. Recent research
has shown that due to economic pressure, healthy food has become a less
important driver for some shoppers. It is important for the industry to be
working to educate and reassure consumers about the nutritional benefits of
red meat in a balanced diet. Nevertheless, health claims are coming under
the legislative spotlight and are increasingly likely to be subject to regulation
over the life of this plan.

Consumer awareness of greenhouse gases, climate change and world

population growth is being used to promote a campaign for limiting meat
consumption in developed western economies and to promote vegetarianism.

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The industry continues to promote the eating of red meat as part of a healthy
and balanced diet.

2.5 Technical factors

The development and adoption of new technology in animal breeding and

husbandry, automation of abattoir processes and information and
communication technology provides a means of increasing the efficiency of
the red meat supply chain.

The continued drive to renewable energy sources and developments in

second generation bio-fuels derived from food industry by-products may lead
to added value for currently low value or expensive waste products from the
meat processing sector. However, similar developments in other food and
drink sectors, for example the increased use by distillers of their by-products
for energy generation, has led to significant changes in the availability, and
cost, of by-products for animal feed in some parts of the country.

The use of anaerobic digesters as a means of renewable power generation is

an element of both the Government’s climate change and renewable energy
targets. Opportunities may arise for greater co-operation between producers
or between producers and processors to minimise waste and reduce energy
costs through the use of anaerobic digesters.

Managing and reducing food waste, both the food itself and the packaging
associated with it, remains an evolving issue. Currently significant quantities
of food waste goes to landfill and contributes to global methane emissions.
The Scottish Government launched its “zero waste plan” in 2010 followed by
The Waste (Scotland) Act 2012 which details requirements for food
businesses (restaurants, cafes and retail outlets) to separate food waste for
separate collection by either 2014 or 2016 depending upon size of the
enterprise) and a ban of food waste, collected separately, from landfill sites
by the end of 2013. This will increase the use of food waste in renewable
energy and composting with consequences for both the economy and the
environment.

Continued developments in robotics and the use of Video Imaging Analysis

(VIA) to evaluate carcase yield, offer the potential for improved efficiencies
on processing lines. Information and communication technology including
VIA provides an opportunity to capture and return a wider range of
information on carcase quality and animal health to primary producers to
better inform production decisions.

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The emergence of the Schmallenberg virus and the attraction to producers in
England and Wales of TB free cattle from Scotland (which are lost to the
Scotch Beef PGI) highlight the importance of animal health and welfare and
bio-security in contributing to the sustainability of the Scottish red meat
industry and the need for continued innovation in animal disease
identification and cure. Advances in technology are leading to improvements
in animal health in particular and animal management in general.

The emergence of exotic diseases, growth in incidence of endemic diseases

and supported measures to control for example BVD emphasise the
importance of the need for an accurate and easily accessible livestock
movement database to aid animal management. Developments in electronic
identification already in place, or proposed, offer significant scope to improve
the speed and accuracy of livestock traceability. Initiatives to develop a
single database for cattle, sheep and pigs within Scotland currently underway
offer the prospect of significant gains in the efficiency of delivering
information on animal traceability for producers, processors and government.

Advances in Bio and GM technologies are leading to innovations in animal and

plant science. Sometimes referred to as biopharming, where foreign genes
are incorporated into a plant by means of genetic modification to produce
antibodies, vaccines or industrial products. This technology may lead to
increased competition for land to produce animal feed, human food, energy
crops or “pharm” crops. Other GM technologies may lead to improved
efficiencies in production of animal feed crops, for example soya and maize,
to the benefit of the livestock sector. Advances in the science of
manipulation of rumen fermentation may lead to benefits for the livestock
industry through improved rumen efficiency and reduced greenhouse gas
emissions.

Technical advancement in the Scottish livestock sector however requires

continued commitment to Research and Development both on farm and in
Research Institutes and Universities. Scotland is fortunate to have several
world-leading Research Institutes and Universities working in the area of
animal science and it is important that these organisations continue to be
supported by public and private investment. Scottish Government annual
commitment to R&D in animal science is £8.7m and QMS will continue to
work to target and lever its research and development budget through
discussions with Scottish Government and Scottish Research Institutes and
Universities, through co-operation with other levy bodies and discussions with
the agricultural supply industries research and development activities.
Additionally, QMS will continue to contribute to the setting of the Scottish
Government’s research agenda and priorities through CAMERAS and contact
with the Scottish Funding Council.

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3 Strategic Focus

3.1 Overall strategy

To shape a sustainable and prospering Scottish red meat industry

3.2 Specific strategies

QMS will achieve the overall strategy by:

1) Working with the industry to develop and build markets   

2) Increasing the uptake of proven solutions to improve industry efficiencies
3) Assisting the industry to inform consumers and satisfy customer
expectations   
4) Creating confidence which promotes industry investment in its future
5) Promoting economic and environmental sustainability
6) Developing partnerships and where relevant leveraging additional
resources

Footnote – We define the red meat industry as those parts which are
involved in the Scottish assurance chain - animal feed suppliers; cattle, sheep
and pig producers; livestock markets; hauliers and primary processors.

3.3 Critical Success Factors

Critical success factors for the organisation are:
1) Enhanced awareness of and demand for Scotch brands
2) Deliver industry benefits from QMS initiatives
3) Retain public and Government support for red meat production and
consumption
4) Maximise multiplier effect of statutory levy
5) Retain industry and stakeholder confidence in QMS
6) Satisfy Scottish Government requirements in operating as a Non-
Departmental Public Body

These are the key areas where “things must go right” for the organisation to
flourish. If the outcomes in these areas are less than adequate, the
organisation’s efforts for the period will be less than desired.

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3.4 Measurement of Progress in Achieving Strategies

As set out in 3.1 and 3.2, the organisation has an overall strategy and six
specific strategies developed and agreed by the Board of QMS. Underpinning
these strategies are objectives for the separate departments at QMS through
which the work of the organisation is delivered.

These objectives are further supported by a list of activities and performance

measures which are specified in a detailed management plan.

The Chief Executive reviews the list of activities and measures of progress on
a regular basis with individual managers and the Board reviews a written
progress report at each Board meeting.

The Scottish Government attends Board meetings and in this way is kept fully
up to date with the progress and performance of the organisation.

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4. QMS and the Scottish Government’s National Performance
Framework

4.1 As a result of its activities on behalf of the industry QMS contributes

to the Scottish Government’s primary purpose of ‘increasing sustainable
economic growth’ and to the five strategic objectives and relevant national
targets. For reference, the purposes of QMS as set out in the Quality Meat
Scotland Order 2008 are:

- to increase efficiency or productivity in the red meat sector

- improve marketing in the red meat sector
- improve or develop services that the red meat sector provides or could
provide to the community
- improve the ways in which the red meat sector contributes to sustainable
development.

QMS has responsibility for a range of statutory functions relating to the

development and promotion of the red meat industry in Scotland, as set out
in Schedule 1 of the Order.

4.2 National Performance Framework Strategic Objectives

QMS’ work on behalf of the industry contributes to all five of the

Government’s Strategic Objectives. QMS’ main contribution is to the
wealthier, smarter and greener objectives. Some work is also undertaken
which contributes to the healthier objective and the safer and stronger
objective.

Wealthier & Fairer – the overall objective of QMS is to shape a sustainable

and prospering Scottish red meat industry. The farming and processing of
red meat in Scotland contributes around 0.8% of the Scottish GDP.

Smarter – QMS coordinates a broad range of cross-industry projects, using

research and development and knowledge transfer initiatives to innovate red
meat businesses and improve efficiency.

Greener – QMS continues to engage with scientists and the industry to

enhance the environmental sustainability of red meat production.

Healthier – QMS contributes to the Government’s strategic objective of a

healthier Scotland through promoting the benefits of eating red meat as part
of a healthy, balanced diet. For example work already undertaken and future
work will contribute to the Obesity Roadmap.

Safer & Stronger – through its work in shaping a sustainable and prospering
Scottish red meat industry, QMS is helping to ensure long- term food security
for Scotland.

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4.3 National Performance Framework National Outcomes

There are 16 National Outcomes as follows:

1 We live in a Scotland that is the most attractive place for doing business in Europe
2 We realise our full economic potential with more and better employment
opportunities for our people
3 We are better educated, more skilled and more successful, renowned for our
research and innovation
4 Our young people are successful learners, confident individuals, effective contributors
and responsible citizens
5 Our children have the best start in life and are ready to succeed
6 We live longer, healthier lives
7 We have tackled the significant inequalities in Scottish society
8 We have improved the life chances for children, young people and families at risk
9 We live our lives safe from crime, disorder and danger
10 We live in well-designed, sustainable places where we are able to access the
amenities and services we need
11 We have strong, resilient and supportive communities where people take
responsibility for their own actions and how they affect others
12 We value and enjoy our built and natural environment and protect it and enhance it
for future generations
13 We take pride in strong, fair and inclusive national identity
14 We reduce the local and global environmental impact of our consumption and
production
15 Our people are able to maintain their independence as they get older and are able to
access appropriate support when they need it
16 Our public services are high quality, continually improving, efficient and responsive to
local peoples’ needs

4.4 QMS’ Contribution to the National Outcomes

QMS, through its stakeholders, contributes to six of the 16 National

Outcomes.

We realise our full economic potential with more and better employment
opportunities for our people (National Outcome 2) - farming and primary
processing of red meat contribute £2.1bn to the Scottish economy. QMS
brands of Scotch Beef, Scotch Lamb and Specially Selected Pork add value to
the industry and enhance Scotland’s reputation as a land of food and drink.
The red meat industry is a significant contributor to Scotland’s food exports.
Direct employment in the rearing of beef cattle, sheep and pigs and the
primary processing sector amounts to approximately 27,000 jobs (both full
and part-time).

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We are better educated, more skilled and more successful, renowned for our
research and innovation (National Outcome 3) – by developing and delivering
innovative industry-led research and development programmes to achieve
increased productivity of producers and processors and engaging in
knowledge transfer activities, for example the Monitor Farms programme.

We live longer, healthier lives (National Outcome 6) – through our work with
consumers of all ages on the importance of red meat in a healthy diet and
lifestyle. QMS delivers a range of health and education activities from school
visits to a school meat vouchers scheme and a healthy living bursary. A range
of materials is also produced and we work closely with National Diet
Resources UK. We also work with partners such as the Royal Highland
Education Trust on events and farm visits.

We value and enjoy our built and natural environment and protect it and
enhance it for future generations (National Outcome 12) – our farmer
stakeholders understand the land and act as custodians of the countryside
significantly enhancing its biodiversity and encouraging visits to the outdoors.

We reduce the local and global environmental impact of our consumption and
production (National Outcome 14) – through developing our understanding of
the effects of climate change and reducing our ecological footprint. For
example, waste reduction measures such as encouraging sourcing and
purchasing of Scottish red meat products rather than imported products.
Also, providing leadership to the industry in improved carcase utilisation
through greater use of 5th quarter products. Finally, research and
development activities which result in healthier livestock increase production
efficiency and, therefore, reduce the environmental impact of production.

Our public services are high quality, continually improving, efficient and
responsive to local peoples’ needs (National Outcome 16) – for example QMS
engages in several activities designed to deliver continuous improvement in
the red meat production chain. QMS also produces annual benchmarking
data on cattle and sheep enterprise profitability in Scotland which is widely
used as a continuous improvement tool for increased efficiency.

4.5 Measuring Progress in the National Performance Framework

The organisation currently has an overall strategy and six specific strategies.
Objectives for the implementation of these strategies are set and these
objectives are further supported by a list of activities and performance
measures which are specified in a detailed management plan.

The Board considers a written progress report in advance of each Board

meeting and the Scottish Government attends Board meetings and in this
way is kept up to date with the performance of the organisation on an on-
going basis.

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5. Review of Past Performance

Each year QMS lays before Parliament its Annual Report & Accounts giving a
comprehensive review of its activities for the past year. In the interests of
efficiency this review is not included in this Corporate & Business Plan.

6. Statement on Information & Communications Technology

Quality Meat Scotland (QMS) is a knowledge-based organisation and is

focussed on interpreting information and developing knowledge for levy
payers and other stakeholders. An effective Information and
Communications Technology (ICT) strategy is integral to the success of the
workings of QMS.

QMS will operate an ICT system which provides sufficient resources to help
provide the industry with accurate and timely information. All of QMS’
systems and networks will be effectively protected from accidental or
malicious disruption.

QMS will provide employees with opportunities to acquire the skills to collate,
store and deliver information in accordance with the organisation’s needs and
national regulations. In order to carry out these tasks suitable hardware and
software will be provided to optimise communication links with target
audiences.

In order to preserve the integrity of the ICT systems, QMS will ensure that
suitable support is available to users in order to minimise the effects of a
system shutdown.

7. Statement on Public Bodies Climate Change Duties

In recognition of its responsibilities under the Climate Change (Scotland) Act

2009 QMS will take appropriate steps to mitigate, adapt and act in a
sustainable manner. QMS will participate in Scottish public sector
sustainability reporting.

In its work with stakeholders to improve business sustainability, QMS will

continue to promote awareness of mitigation and adaptation strategies and
the adoption of best practice to secure production efficiencies across the
supply chain.

8. Statement on Equality
Quality Meat Scotland aims to be an equal opportunity employer.
Appointments to Quality Meat Scotland and internal promotions will be made
solely on the individual employee’s ability, skill, competence and potential.

Our policy is not to discriminate on any grounds including race, colour,

nationality or ethnic or national origin, religion or beliefs gender, gender
reassignment, sexual orientation, pregnancy and maternity, marriage or civil
partnership, age, responsibility for dependants, HIV status or disability.

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10. Board Membership

Jim McLaren, Chairman

John Craig

Henry Graham

John Gregor

Johnny Mackey

Gordon McKen

Alan McNaughton

Robert Parker

Andrew Peddie

John Scott

David Sole

Phil Thomas

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Quality Meat Scotland

February 2013

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