Collaboration amongst partners in an agri-food supply chain can bring benefits for its members and boost the chain competitiveness. However, often such collaboration needs an incentive to motivate change.

In this blog, Cesar Revoredo-Giha discusses how reducing GHG emissions may provide such an incentive for supply chains to become not only more collaborative but also fairer for agri-food producers.

The agri-food market environment, where the Scottish food and drink sector operates is often characterised by high price instability in product and input markets. In such an environment, effective business relationships along supply chains have the possibility to reduce uncertainty. For instance, by securing a more stable inflow of orders and increasing quality and safety assurances associated with inputs. Business relationships can also improve access to crucial resources (e.g., capital, specialised skills or innovations) as well as raise business productivity through improved decision-making or enhanced employee loyalty.

Thus, effective collaboration between businesses in a supply chain can potentially boost their competitiveness and reduce the risk that they face.

The development of collaborative supply chain relationships involves the development of inter-organisational relationships. Such relationships, if they are to be sustainable, should be stable and mutually beneficial for the partners.

A while ago, we studied a brief period when the Scottish pig producers managed to establish a vertical relationship ‘the PorkLink supply chain’ together with the retailer ASDA and the processor Vion, which operated the Broxburn abattoir. Our research highlighted the advantages for all the partners of participating in the relationship. Unfortunately though, the arrangement ended when Vion decided to pull out in 2012, which also marked the end of the Broxburn abattoir - at the time the largest in Scotland.

Since then, there has been interest in establishing similar relationships with processors and retailers, but without success. Meaning the last 10 years have forced pig producers to operate in a climate of instability with a variable relationship with companies like Tulip and its parent company Pilgrim, both of whom managed the Brechin abattoir.

The UK Net Zero strategy, which aims at ending the UK’s domestic contribution to man-made climate change by 2050, provides an additional incentive for the establishment for collaboration along the supply chain (i.e., vertical collaboration).  This can be seen in the so-called ‘Scopes’, which are the basis for mandatory Green House Gas (GHG) reporting in the UK. There are three scopes:

• Scope 1 emissions— This one covers the Green House Gas (GHG) emissions that a company makes directly — for example while running its boilers and vehicles.
• Scope 2 emissions — These are the emissions a company makes indirectly – such as when the electricity or energy it buys for heating and cooling buildings, is being produced on its behalf.
• Scope 3 emissions — These are all the emissions associated, not with the company itself, but that the organisation is indirectly responsible for, up and down its value chain. For example, from buying products from its suppliers (e.g., processors and farmers). Scope 3 nearly always involves the biggest GHG emissions.

The difficulty in establishing vertical collaborations for farmers is to convince the downstream potential partners (e.g., processors and retailers) of the advantages of the relationships whilst being willing to ensure farmers stability on prices and demand. This is due to the possibility for downstream members to procure supply from other parts (e.g., imports), which gives them greater negotiation power. Moreover, it is more difficult to establish specific arrangements when the suppliers operate in a variety of supply chains.

However, despite the aforementioned difficulties, the requirement to reduce the Scope 3 GHGs makes processors and retailers (or any other potential partners downstream the supply chain like wholesalers) see farmers in a different light, as they need farmers to reduce their GHGs too.

Lidl GB pledging to achieve carbon neutral status by 2022 serves as an illustrative example.

Back in 2021 Lidl GB pledged to achieve carbon neutrality by 2022 as part of wider commitments made by its parent company, Schwarz Group. By 2030, Schwarz Group is aiming to reduce its operational emissions by 80 per cent (compared to 2019) across all countries where it operates. Therefore, Lidl announced plans to reduce CO2 emissions from its operations (Scope 1 & 2), in alignment with limiting global warming to 1.5 degrees and cutting carbon emissions across its stores and distribution centres (e.g., installing solar panels on all new stores and continued investment in the latest refrigeration and lighting technologies).

Furthermore, to address Scope 3, Lidl plans to work with suppliers (representing 75 per cent of product-related Scope 3 emissions) to commit to, by 2026, their own climate protection targets. This will be undertaken according to the methodology of the Science Based Targets Initiative, which provides the guidance and tools companies need to set science-based net-zero targets. Importantly. Lidl GB will deliver this target through a comprehensive supplier engagement and learning programme across the group’s suppliers.

However, what is in Lidl’s plan for the pork producers? In April 2024, Lidl GB announced an investment of £500 million into the sector. This action has the possibility to offset several challenges affecting the British pork sector, such as a Chinese import ban on EU pork, and butcher shortages, which led to a significant backlog of healthy pigs and financial worries for producers.

Along with the investment, Lidl has introduced the ‘Lidl Pork Standard,’ supporting its 100 per cent everyday British pork pledge. The new standard has seen Lidl move its pork producers to an open-book producer costing model that includes the on-farm cost of production, while guaranteeing minimum producer volumes, and including a fixed margin for farmers. These measures also include launching a pork producer group to aid industry collaboration, while investing in farm initiatives to decrease emissions and fund research into welfare enhancements. The National Pig Association has welcomed the introduction of these pork contracts and Lidl’s continued commitment to a sustainable domestic supply of British pork.

Lidl is not the only supermarket addressing such issues. Although not necessarily specifically mentioning the pig supply chain, the Co-op has just set new sustainability and social targets linked to its £442 million Revolving Credit Facility. These are funds, which are replenished when paid back and the borrower (i.e., the Co-op suppliers) can keep using it.

Co-op aims to reduce carbon emissions across the supply chain, with two-thirds of suppliers enrolled in the Science Based Targets Initiative by end of 2025, from a base line of 37 per cent. Their efforts to support suppliers in achieving the GHG targets include building cross-sector partnerships and embedding sustainability goals into contracts and joint business plans.

The new Co-op targets align with its commitment to achieve Net Zero status across operations by 2035 and across the entire business by 2040. Co-op’s sustainability-linked Revolving Credit Facility is supported by several banks all of whom participate as lenders. As part of the plans, the Co-op will include environmental stewardship and the reduction of carbon emissions and food waste across their business and supply chains.

More specific to Scottish producers is the announcement of Browns Food Group targeting £100 million growth in sales within the next five years for Scottish pork, through discussions with major retailers over increasing the availability of their product following its acquisition in 2022 of the Brechin abattoir - Scotland’s only major pig abattoir. In partnership with Quality Meat Scotland (QMS), Browns is looking to increase production of Scottish QMS’ Specially Selected-accredited pork for the retail sector in Scotland. Growth would be driven by increasing throughput via Brechin – which is currently operating at around 50 per cent capacity – coupled with increased capacity at sites such as its recently expanded Kelloholm (Dumfries and Galloway) added-value plant.

Whilst Browns own brand (as well as Hall’s) is sold at retailers, the company would also like to produce own label (i.e., supermarket own brands). This would help the Brechin site to achieve 100 per cent capacity by 2026. This, of course, would require efforts to replace non-Scottish/British pork and imported pork that comes in and encourage the consumption of pork in Scotland.

While some of these initiatives are new, the Scottish pig industry has been working on plans to reduce GHGs since 2021.  The Scottish Pig Industry Leadership Group (one of which is Browns Food Group) have produced a report to provide the Scottish Government with recommendations on supporting the sector towards achieving their targets of reaching Net Zero Greenhouse Gas (GHG) Emissions by 2045.

The examples from Lidl, The Co-op and the need for all the retailers to reduce their Scope 3 emissions may also help Scottish pig producers by creating a key vertical collaboration with the downstream members of the pork supply chain. An example of what can happen when earlier preparation meets opportunity.

By Professor Cesar Revoredo-Giha, Scotland’s Rural College.

Image: supplied by Dr Michelle Wilson Chalmers.