Official Report 278KB pdf
The next item on our agenda involves the taking of further evidence in relation to our flagship inquiry on promoting Scotland overseas. I remind members and witnesses that the main purpose of the inquiry is to consider not the promotion of Scotland per se, but how the Scottish Executive manages and defines its strategy for supporting Scotland and works with other agencies and organisations to promote Scotland overseas.
I am the managing director of Paterson Arran, which is a management buy-out company. We purchased it in 1995. Our turnover is around £12 million, of which exports make up about 10 per cent. Most of our exports go to the dollar-linked countries, such as Japan and those in North America, rather than Europe. We have about 200 employees in our two businesses; our industrial business is based in Livingston and our other business—a small rural business—is on Arran.
I have been the chief executive of the Scotch Whisky Association since last October. The Scotch Whisky Association will not need much in the way of an introduction, but I will give you a few relevant figures. Scotch whisky accounts for more than £2 billion of exports and contributions to the balance of trade figures. Of the 90 per cent of our product that is exported, 40 per cent goes to the European Union. The 56 companies that are represented in the Scotch Whisky Association represent 98 per cent of whisky production in Scotland.
I am the international sales director for Macphie of Glenbervie, a medium-sized company that employs around 280 people on two sites in Scotland, one in north-east Scotland and one in Tannochside in the west. We produce food ingredients, mainly for the bakery, food service and catering sectors, and have a turnover of around £25 million, of which around 14 per cent is made up of exports that go mainly to Europe and the middle east.
I am the marketing controller for Quality Meat Scotland. We are a levy-funded body that represents the interests of the red-meat industry in Scotland. Our industry has limited exports at the moment because beef exports are effectively closed to us. Companies that are represented by us export lamb and pork. We would like to export more and are considering opportunities for the industry in that regard.
My question is directed specifically to the Scotch Whisky Association. Your submission says that
I do not think that we are up against an obstacle, but I certainly agree that it is remarkable how often we see the drink products of other countries on the tray as we come into a room, and sometimes whisky is not present. I will use an example from where I came from: the Foreign and Commonwealth Office. I wrote to the Foreign Office to say that I find it surprising that one of the main drinks of the United Kingdom is not served when the Foreign Office holds receptions. It is a common problem. I do not know whether it is a question of cost, but all that I can do is encourage everyone, particularly here in Scotland, to ensure that at receptions—particularly official receptions—we serve our national drink.
Do other panel members feel that their industries are being unfairly dealt with in a similar way?
From an oatcake and shortbread industry point of view, not really. Shortbread is being served here today, so you are covered. It is a lot easier to serve such products at receptions.
From the point of view of the red-meat industry, I would say that chicken has become a bit of a default protein for catering. I can understand that, as it is cheap and easy and, because it is so bland, it rarely offends anybody. It would be nice if Scotch lamb and beef, and possibly even Scotch pork, which accounts for quite a large proportion of the red meat that is produced, were represented more often. A little imagination now and again would perhaps make matters a little happier.
Macphie does not sell a consumer-finished product; we sell semi-finished products that are sold to people in the industry who then add things to our products. Therefore, we would not expect to see Macphie products on the shelves.
I remind members that although Dennis Canavan's point was worth making, our job is to scrutinise the Scottish Executive, not our colleagues in the Parliament.
I have a general question for the panel, but first I would like to assure Gavin Hewitt that I know how to spell "whisky", despite what was said in The Scotsman today.
We were members of Scotland the Brand, but left this year. We joined at an early stage on the basis that we believed that the leverage of a number of companies joining and using the mark could benefit the whole industry—the whole being greater than the sum of the parts. We ran with it for about five years, but we found that there was a disconnect between our attempts to develop our markets and where Scotland the Brand was going. There seemed to be rather too much emphasis on Scotland, although at the beginning the mark was supposed to be for external markets and was about promoting Scotland overseas. It seemed to us that a lot of the funding was turning back inwards to promote Scotland within Scotland, which was not the original purpose.
We have found that Scotland the Brand has a very North American focus in all its activity, which is not appropriate for our markets. We are focused much more on Europe in our export opportunities, rather than looking to North America. We have worked well with Scotland the Brand on a number of markets in Europe, but its overall focus seems to be more North American and therefore less appropriate for our work.
As you can imagine, Scotland the Brand was not appropriate for Macphie of Glenbervie's business, as our customers are industrial consumers.
In my first few months, I have had no contact with Scotland the Brand.
I will jump in with a question for Alan Hardie and Andrew Ovens. If Scotland the Brand, which is now a private initiative, is not going in your direction, are the Scottish Executive, the Scottish agencies that it funds, or anyone else who promotes Scotland overseas doing so? There have been a number of initiatives, such as the Scotland in Catalonia week and the Scotland in Sweden week, and the Scotland in the Netherlands week is coming up.
Scottish Development International is going in Paterson Arran's direction, in that the most likely markets for Scottish exports are European, and SDI is strongly linked to Food from Britain, which has a number of offices throughout Europe and is therefore well placed to deliver what is needed. I forget the figures on Scottish exports to Europe, but they are high. Food from Britain, which works in conjunction with SDI, has point men strategically placed in the European markets. That suits the Scottish food industry.
I support that. Quality Meat Scotland has been involved in SDI events in Catalonia and during tartan week in Italy of late. We have been able to interest Scottish processors in attending those events as well, as they are good opportunities to meet continental buyers and further push the cause of Scottish red meat to them.
Margaret Ewing was right to say that we look to Whitehall to look after our overseas interests in respect of certain issues, such as tax and international trade. However, it is nonsense to suggest that we do not talk about those issues to the Scottish Executive as well, as we need its support. The past three months are perhaps a good example. We talked regularly and in depth with the Scottish Executive about the Chancellor's proposals for strip stamps. Unfortunately, we got the wrong result last week, but we do not lack support from the Scottish Executive. The Executive ensures that our views are known and supported, so we go direct to the Scottish Executive and expect it to pick up some of the points that we make and to ensure that they are reflected back to Whitehall and, most important, to Europe. We have direct links and parallel links.
What will be the permanent solution for the whisky industry overall?
The solution that has been produced by Diageo is the right solution: to ensure that once again there is a distillery called Cardhu that produces only a single malt.
As the constituency member for Glenkinchie, which I think is the closest distillery to Parliament, I am obviously keen to follow up that question, but I also have a question about Quality Meat Scotland, which represents an area in which we are starting from nothing as far as exports are concerned; the meat industry has been an important one in Scotland, both in primary production and in processing, but because of BSE, foot-and-mouth disease, the export ban and the rest of it, exports have gone. However, I presume that we are now in a position where our quality, competitiveness and traceability are second to none, so there must be opportunities when the full export ban goes. What are you looking to the Executive and Parliament to do to exploit that opportunity, which could be valuable for rural Scotland and other areas?
Primarily, the Scottish industry seeks a level playing field. It will be quite a big step change to move back into selling beef in Europe. Scottish processors have been exporting lamb and pork in the intervening years, but you really need to go back to 1996 to find the last time we were exporting significant amounts of beef. We managed to export only 69 tonnes of beef in 1999—a relatively insignificant amount.
Given that there must be a lot of prejudice against Britain because of the industry's history, are not there opportunities to set out a pitch for Scottish red meat as being better, cleaner and so on? Is not that something that the Executive could usefully do?
That would be helpful. We have carried out our own consumer research in all the European markets, which has shown that Scottish beef is not tarnished. We get weekly requests from various importers who have in the past had dealings with the Scottish beef industry and who want us to let them know the minute we resume exporting because they would like to renew the acquaintance. We are actively following that up. During the past few months we have invited a large number of potential buyers and importers to Scotland to show them our products: we have taken them from the farm to the processor to the end meal to show them the quality of Scotch beef and let them sample it for themselves. There is no shortage of people from Europe who want to join us on that. We will seek help to show potential importers our product.
Are you getting the help that you feel you need from the Executive?
We are getting help, but more is always welcome.
I have a point to put to Mr Hewitt: I think that he will find that it is cheaper to provide a bottle of whisky than it is to provide a number of bottles of wine. That is just an aside, but I checked that out when I received his original letter.
I do not think that the tartan image is particularly appropriate for Macphie's; the smart, successful Scotland image is much more appropriate. The sort of strategy that we would like to see being set out for Scottish companies would involve professional and well thought-out plans that are funded for the long term and monitored, with benchmarks for success.
For us, the tartan and heather image is appropriate within certain markets, such as North America and Japan. We have tested packaging with and without tartan and there is no doubt that the tartan sells. However, the situation in the UK market is completely different. There is a definite trend that suggests that we can leave a signature of tartan on products, but it should be quite small: we live and die by how good the product is. That probably extends into Europe, although we have not done the same amount of research into that. The issue is how good the product is and how it fits the market. Only North America, Japan, China and possibly Australia go for tartan.
In the beef, lamb and pork markets, the quality of the product is obviously key. However, the tartan image can be useful consumer shorthand, so we use it in certain markets, most notably France, where the use of tartan can be positive.
Obviously Scottish icons are important. We should not throw away our tradition or the image that prevails. It would be sad to think that Scotch whisky was just a tradition of the past. It is important to view the whisky industry as one of Scotland's innovative manufacturing industries. It should not be put in a different category from the sunrise industries and it should not be suggested that we belong only in the past as a traditional industry, because there has been more innovation in the Scotch whisky industry in the past 30 years than there was in the previous 100 years.
Is that why 50 per cent of your products are exported worldwide, 40 per cent go to Europe and only 10 per cent go to the home base?
That is simply because whisky is an incredible product that sells. The way in which the Scotch Whisky Association sells whisky overseas, which builds on a long tradition of sales, is fascinating. Marketing and business skills go into developing the markets in the 200 countries to which we sell. We also have to consider the size of the UK population. Whisky is the largest-selling spirits drink in the UK, so we cannot complain about the size of the market.
Are you beginning to find a niche in countries such as China? What kind of assistance are you getting from the Scottish Executive and Scottish Development International in trying to move into that market?
We always welcome the support that any of the Scottish authorities can give us in moving into markets but, having said that, many companies are capable of getting into those markets themselves.
In a sense, Phil Gallie has dealt with the issue that I was going to raise. I am interested in how we are branding Scotland—I do not mean as regards Scotland the Brand, but in general. I am interested in the issue because I get the impression from talking to people that there is, within the whisky industry, for example—I do not want to name firms—a tendency towards moving away from traditional Scottishness, which has been done in a positive way, however. A big Diageo plc promotion in central America was cancelled recently because there was a huge Scottish emphasis on pipes and tartan, which Diageo said it did not want any more.
I can, to a degree, speak for the food industry. An industry strategy group works to improve the general performance of the food industry. The group is run by industry people, but the Scottish Executive sits on it as do Scottish Enterprise, Highlands and Islands Enterprise, the Convention of Scottish Local Authorities and various other organisations such as Quality Meat Scotland. The group is processor driven, but one of the issues that we tackle is the SDI side of things and how we get the funding and strategic direction right.
It is interesting to see how much the marketing of whisky has changed. In markets such as Spain or Greece it is not being sold using tartan and the heather, but as a fashion product. It is marketed using a young and dynamic image and as being among trends that people will follow—the fads of fashion. That is perhaps a little bit dangerous because fashions change, but that is the line that is currently being pursued in the big markets in which growth has been phenomenal.
Does that take away from the products' Scottishness? For example Scotch is made in Scotland, but the Scotch advert that uses Martin Scorsese shows him very much as an international American figure from New York. There is nothing particularly Scottish about the advert. I am not criticising that; people must sell their products in their own way. However, we are talking about how to promote Scotland and perhaps some of the big industries are not particularly interested in the Scottish dimension at all.
The fact that whisky that is exported from Scotland invariably has the word "Scotch" on the label is a tremendously good selling point. That in itself makes the whisky iconic. Of course, there are Canadian, American and all sorts of other whiskeys, but the one whisky that everyone knows is Scottish whisky and the one thing that people associate with Scotland is whisky. Scotland and whisky go together and there is no question about that. When whisky is mentioned in the market, people talk about Scotland; when Scotland is mentioned, they talk about whisky.
You could keep the Scotland link while not having the Scottishness link, as it were.
That is an interesting aspect. Some of the Scottishness is perhaps less prominent than it used to be, but the Scotchness is very strong.
I have a brief question for Alan Hardie. You said that there are markets that do not want the tartan image. Can you give us an example of such a market and explain why such markets do not want tartan?
That is product linked. For example, you cannot get a more Scottish product than an oatcake: we are developing one for the Spanish market, but it is highly unlikely that we will use tartan to sell it. The oatcakes will be positioned in the healthy eating market as a healthy, high-fibre, low-sugar product. The product must stand in that market. We might have a signature piece of Scotland on it, because that is a seal of approval and quality. All the research shows that Scotland has a good reputation for the quality of its exports. We can use that while not overtly marketing something to the consumer on the basis of its Scottishness—the selling point can be the product's attributes. Our new oatcake is a classic example of how such promotion works.
Gavin Hewitt commented in his written submission on what he regards as the narrow focus of the smart, successful Scotland campaign and its emphasis on sunrise companies to the exclusion of industries such as his. Perhaps Mr Hewitt could elaborate on that. The other panel members could comment, too.
First, the Irish have the advantage that is Ireland; Scotland, however, is a bit of the United Kingdom. When we had the presidency of the European Union it was as the United Kingdom; Scotland takes its place within that. However, I do not in any way feel that we are missing out, although I believe that we are sometimes taken for granted in the UK, particularly in Scotland. Scotch whisky is invariably among the top five exported products in the UK and the top three in Scotland. I do not believe that there is a manufacturing industry in the UK that exports as much of its product as we do—we export 90 per cent. Therefore, the hallmarks of success are written all over our industry. We produce a massive amount for the balance of trade and a massive amount of revenue for the Exchequer from the UK market.
Would the other witnesses like to comment?
Do you mean in relation to eastern Europe?
Yes, or in relation to the general points that I made. Do you feel that you are part of the smart, successful Scotland campaign or is the Executive's focus too narrow?
The food industry feels that it is somewhat excluded from that campaign, but that is life and we are not at the glamorous end of things. We provide a lot of jobs in a lot of different places. The seafood industry, for example, just gets on with the job. It is not affected by the common agricultural policy. People in that industry are on the road around the world doing tremendous business and they just get on with it without the smart, successful Scotland campaign.
As an industrial producer, we have to stand on our own two feet when it comes to exporting. There is no particular focus on our sector, but support is available if we seek it out. We find that some organisations are a bit fragmented and that some of the support is reactive rather than proactive. It is my experience that one needs to know where to go to get support if one is looking to develop into a particular market area.
The Scottish beef industry has not been exporting for a while and many of the skills that we had have now been lost to the industry. We need time to build them up again. As we are a traditional industry, we are not seen as being glamorous. Alan Hardie made the point earlier that we just get on with it.
I was struck by what Mr Hewitt said about whisky being a fashionable product. When I lived in Manhattan, whisky was regarded as an old-fashioned product that came in old-fashioned bottles with label designs that featured woodcuts and old-fashioned lettering. It did not compare with Australian and Chilean wines that have been regarded as fashionable and glamorous and have seized parts of the French wine market. Whisky bottles were lined up above the bar and they looked old fashioned. Is your marketing and design perhaps not innovative enough? Is there enough energy behind it? You are saying that you just get on with the job while the Executive promotes a smart, successful Scotland. Do you have enough oomph?
Responsibility is largely with the companies for how they market themselves, rather than with the Scotch Whisky Association. We must ensure that the conditions in respect of market tariffs, quotas or whatever other restrictions—technical barriers to trade—are reduced as far as possible.
My final point is about the Executive in relation to Westminster and the reserved matters to which Mr Hewitt referred in his written submission. The question also affects the other panel members because it is concerned with international trade barriers and tariffs. That matter is obviously reserved. The second issue is that of the tax regime that favours other alcohol drinks over spirits. Not much progress seems to have been made on the issue.
Yes, in the context—
Can you give us evidence?
I will give the UK and then the overseas context. This is the seventh year running that there has been no increase in the excise duty on spirits and on whisky in particular. Seven years running is quite a useful period of time because that narrows the differential between spirit drinks and other drinks.
We were caught out in the banana wars. Cookies were either to be banned from the States or to attract 100 per cent duty and the same was to happen with mustard. The product that people probably heard most about at the time was cashmere. The Scottish Executive was heavily involved in pressuring and lobbying to resolve that situation. Obviously, it did so jointly with the UK Government. That said, we certainly felt that pretty strong representation was made through the appropriate channels to resolve the dispute.
We are working closely with the Scottish Executive to look at how the restrictions on Scottish exports of beef can be lifted. We feel that we are making progress, albeit that it is being made ever so slowly.
What help are our embassies, consulates and their trade attachés to Scottish companies?
If a company is moving into a new market, such people are generally a port of call. At first, we would make contact with the commercial attaché by telephone or e-mail. A piper has just started to play—
It was laid on for you.
We cannot escape it.
There is a tremendous network. Most companies that are moving into a market will start by making contact with the embassy or consulate or they will go there at some point during their visit to a new market.
In terms of Scotch whisky, most of the association's work is trade policy work; it concerns questions of tariffs, technical barriers and all the rest of it. Invariably, the embassy or high commission is the vehicle through which we tend to work. Very often we know more about what is happening than they do, but we want to work in tandem with them.
Given your history, Mr Hewitt, can I abuse the opportunity by asking you to put aside Scotch whisky for a moment and say what help the ambassadorial service gave to Scottish companies in the past?
The question is perhaps unfair given that, as a Scot, I always felt that I had a particular responsibility in that respect—I did not count my time. Perhaps I was particularly able to help when I was bilateral ambassador in Brussels, because we had the UK permanent representation there and UK ministers tended to drift there; they would be sitting there—day in, day out, week in, week out—talking with ministers from the other member countries. I felt that I could give something special to the devolved Administrations in the United Kingdom. I found that a great deal of my time was spent looking after Scottish, Welsh and Northern Irish interests, because I was able to give them entrées—for example, into the regions of Belgium—that would not otherwise have been available. That allowed me to go through all the processes in the diplomatic service and ensured that I was pulling in others on the back of bilateral and very often devolved regional contacts that were interesting, useful and very helpful. For example, the biggest annual seafood exhibition is held in Brussels. Invariably, many Scottish seafood exporters attend the event and a Scottish minister represents the UK because of the size of the Scottish fishing industry. I was very proud to be associated with that.
I attended one of Mr Hewitt's receptions in Brussels. I think that it was for Scottish artists and the First Minister opened it. It was very good indeed.
Did they serve you whisky?
There was some very nice sparkling wine, which I must say I preferred.
I think that there was some whisky.
I am sure that there was.
The SWA submission is quite critical of some aspects of EU legislation and regulation. For example, it refers to the potentially detrimental effect on the Scotch whisky industry of the Commission's one-size-fits-all approach to water regulation. Will you highlight other specific examples of EU regulation or legislation that have had a detrimental effect on the food and drink industry?
The beef industry has suffered greatly as a result of its inability to export produce. We would have preferred restrictions to have been lifted much earlier than they have been and we are pushing for the removal of the existing restrictions.
All the health and safety regulations, freshwater fish directives and gosh knows what else have a huge impact on the industry. I am not suggesting that the Scottish Executive does not play its part in looking after us. Indeed, on the water framework directive, we received help from the Scottish Executive and Westminster to secure a dispensation that recognised that the Commission should not take a one-size-fits-all approach. However, our problem is to ensure that the derogation that we secured in the legislation is applied by the relevant authority in Scotland. Although that authority would like to have a one-size-fits-all approach, we said that we had negotiated something different and that we wanted a new policy that took account of the various economic factors. Sometimes the issue is Europe, but sometimes it is our own home-bred authorities.
Do you all agree with the SWA's suggestion that the Scottish Executive should be more proactive in flagging up at an early stage the possible effects of proposed legislation and directives on your industries? Are the Executive and the Parliament not doing enough to consult you early on?
In the food industry, the Food Standards Agency communicates very well on that front. For example, it keeps us up to date and asks for our position on various issues; we also receive all the committee materials by e-mail. If one has the time to become involved in the system, it is great. However, 30 per cent of European legislation applies to the food industry and 75 per cent of the companies in the Scottish food industry have only 50 employees. Who is dealing with this flood of stuff? Frankly, we are buried in it. It is important; we need not only to read it but to act on it. The system is there, and we have the opportunity to have an influence. We are well communicated with, but we are buried. Small companies have a real problem.
Are there any trade associations that monitor on your behalf what comes out of Brussels?
Yes. We are fortunate in that we have a strong trade association—the Scottish Association of Master Bakers—which is good at interpreting the position to help the smaller players. However, not everyone has that benefit. I do not know about other trade organisations, but the matter is tough for people to handle. At the end of the day, people have to implement the measures in their businesses, so they have to be aware of what has come out. Scottish industry is made up of a huge number of small companies—that is the issue that we face.
As there are no further comments or questions, I thank the witnesses for coming along today to give evidence. The session has been interesting. We will take on board the views that were expressed about serving whisky. We have learned a lot today, including the fact that Keith Raffan used to live in Manhattan—we did not know that before. I hope that your companies all do well, given that the tourist season is starting and a lot of people will be coming here looking for Scottish goods.