Rural Scotland Business Panel Survey

Executive summary

This report presents findings from the second Rural Scotland Business Panel survey carried out in February and March 2022.

Overview and key findings

Key findings

• In the midst of rising costs and a challenging economic outlook, rural businesses were less confident in the economy that they had been at the end of last year. They remain largely optimistic about their future prospects, though to a lesser extent than in the previous wave.
• Costs were a big issue for businesses. Almost all were concerned about increasing costs, particularly to the cost of energy and fuel. In response, around half were increasing their own prices.
• Against this context, the main areas of focus for rural businesses were their resilience, enhancing their productivity, and compliance with regulations or legislation.
• Workforce was seen as a key factor in helping businesses achieve their plans. However, workforce-related challenges were common, including cost of labour, skills shortages, vacancies and absences.
• There was fairly high use, or intended use, of new forms of technology. Most businesses had also taken steps to move to low carbon ways of working. However, cost remained a key barrier in both these areas.

Optimism and performance

• Just over half (53%) of businesses were confident in the economic outlook for Scotland over the next 12 months, while 44% were not. Economic optimism was down on the previous wave: 42% said their confidence had decreased (vs 34% the previous wave), while 45% said it had stayed the same (vs 48%) and 13% said it had increased (vs 17%).
• Almost three fifths of businesses were operating at either the same level (38%) or over and above the level (20%) they were before COVID-19. Two fifths (40%) were operating below their pre-pandemic levels.
• Over the past six months, sales or turnover performance was mixed, while employment had remained relatively stable. Exports were more likely to have decreased than increased but had remained stable for a majority of businesses.
• Most (73%) businesses were optimistic about their prospects in the next 12 months, but about a quarter (26%) were not.
• In terms of their current aspirations, just over two-fifths were striving for growth (43%) or were content with their current level of performance (45%). Around one in ten (11%) wanted to downsize.

Costs

• Almost all businesses (93%) were concerned about rising costs, with just 7% not concerned.
• Businesses were most concerned about the costs of energy (65%) and fuel (62%). A third were concerned about the cost of goods sourced from within the UK (34%) and around a fifth by the cost of labour (22%), the cost of imported goods (20%) and the cost of transporting goods (18%).
• To help respond to cost increases, around half of businesses were increasing their prices (54%), while over a third were exploring new markets (37%), collaborating with other businesses (35%), and working with new suppliers (34%).

Planning ahead

• At least half of businesses were currently focussing on their resilience (55%), enhancing productivity (51%) and compliance with regulation or legislation (50%).
• The most important factor in helping businesses achieve their plans was their workforce (42%), followed by new technology (33%) and adapting their product or processes (30%).

Workforce

• Almost two-thirds of employers (65%) were experiencing workforce related challenges. The most common challenge was the cost of labour (38%), followed by skills gaps (28%), unfilled vacancies (23%) and staff absences (22%).
• The top three issues contributing to workforce related challenges were: a lack of candidates (51%), difficulties accessing specific skillsets (46%) and being unable to offer competitive pay (29%).
• The top actions employers were taking in relation to their workforce were: upskilling or re-skilling current workforce (50%), investing in new technology (39%), making pay and rewards more competitive (36%) and collaborating with other businesses (30%).
• Two-thirds of employers were confident they could address their workforce challenges (64%), while one third were not (35%).

New technology

• Almost three quarters (72%) of businesses were using or planning to use new technologies, the common being low carbon technology (34%) and the Internet of things and sensor technologies (34%).
• The most frequently mentioned barriers to adopting new approaches and technologies were: the cost of new technology (52%), the lack of time (44%) and more pressing priorities (39%).

Low carbon

• Two thirds (66%) of businesses were taking action to help them move to low carbon working. The most common actions were: investing in premises (33%), making a plan or updating business plans (33%), investing in low carbon technology (31%), and bringing in external advice and support (37%).
• Most (85%) businesses were taking or planning actions to improve their energy efficiency.
• The most frequently mentioned barriers to moving to low carbon ways of working were: cost of making changes (61%), lack of green transport options (45%) and difficulty making existing premises more energy efficient (44%).

Markets

• Over three quarters (79%) of businesses were importers (sourcing from outside Scotland) and around half (52%) were exporters.
• Almost all (98%) businesses were taking, or planning, action in relation to their markets. Most businesses (95%) were either maintaining their existing markets (87%) or expanding into new market (31%), while 11% were concentrating on fewer markets.
• Around three quarters (77%) of businesses were taking actions relating to their supply chains and around half (51%) were taking actions specifically in response to supply chain challenges. The most common actions were using more locally sourced supplies (48%) and using more supplies from inside the UK (47%).

Taking action

• Looking across three of the topics covered in the survey, around half of businesses (51%) were taking action relating to their workforce, were embracing new technology, and taking action to help them move to low carbon ways of working – this subset of businesses can be considered "proactive".
• These proactive businesses tended to be larger (68% of those with 11-24 staff, 74% of those with 25+ staff), in the Highlands and Islands (57%), operating over and above the level they were before COVID-19 (61%) and in the food and drink sector (59%).

Variation by location and rurality

• Business in the Highlands and Islands were more confident in the economy than those in the South of Scotland and the rest of rural Scotland. They were also more optimistic about their future prospects and more likely to be currently focussing on their resilience, productivity, reducing carbon emissions, supporting growth, succession planning and addressing labour challenges.
• Remote rural businesses were more likely than average to be operating at the same levels as they were pre-COVID-19, and to want to downsize. Businesses in small towns and peripheral urban areas, on the other hand, were more likely to be striving for growth.
• Both remote rural, and islands businesses, were more likely to experience a range of issues related to their workforce, including poor transport connections, unattractive working hours or conditions, and a lack of accommodation, childcare or opportunities for partners. They were least likely to be confident in their ability to address workforce challenges.
• While remote rural businesses were more likely to be taking a number of actions to help them move to low carbon ways of working, they were also more likely to mention a range of barriers to doing so.

Sector summaries

Findings for two of the largest sectors covered in the survey (tourism and food and drink) are summarised below (based on areas where findings were different from the average).

Sector summary: Tourism

Tourism business were more likely than other sectors to still be operating below their pre-pandemic levels and to have seen decreases in sales or turnover, employment and exports in the last six months. However, they were more likely than average to be striving for future growth.

Rising costs were of particular concern for tourism businesses, especially the costs of energy, good sourced within the UK and labour. In response to cost increases they tended to be increasing prices, using cash reserves, changing their product or service, or scaling back production or services.

Cost of labour, unfilled vacancies and staff leaving the business were all more common among tourism businesses, and addressing labour challenges was one of their current areas of focus. They put their labour challenges down to poor transport connections, being unable to recruit from the EU, unattractive hours or conditions, and a lack of accommodation and childcare. In response, they were more likely to be recruiting staff from different markets and providing accommodation.

On new technologies, they were more likely than average to be using the Internet of Things and data analytics, but they were more likely to say that keeping pace with new developments was a barrier.

To help them move to low carbon working, tourism businesses were more likely to be investing in their premises, bringing in external advice and support, or recruiting staff with green skills. However, they were more likely to cite a number of barriers to making these changes: cost, difficult making premises more efficient, access to greener technology, access to skills and lack of knowledge.

Tourism businesses were more likely to be trading outside of Scotland. To help support their market activity, they were adapting their product of service, re-skilling or up-skilling their staff, or recruiting staff with new or different skills.

Sector summary: Food and drink

Food and drink businesses had seen relatively stable financial performance over the last six months and were more likely than average to be operating at the same level as before COVID-19. They wanted stability in the future, but were less optimistic than average about their own prospects.

Like tourism businesses, they were more concerned than average about rising costs. Costs of fuel, imported goods and transporting goods were of particular concern. In response to cost increases, food and drink businesses were more likely to be postponing their investment plans and seeking external finance.

Food and drink businesses felt that their workforce challenges were driven by poor transport connections, unattractive working hours or conditions, a lack of accommodation and being unable to recruit from the EU.

Low carbon was a particular area of focus for food and drink businesses, and they were more likely than average to be making a plan/updating business plans, bringing in external advice and support and investing in technology to help them move to low carbon ways of working. However, they were also more likely to cite cost and speed or reliability of digital connectivity as barriers to low carbon working.

Specific technologies they were using included low carbon technology, automation and mobile app development. They were more likely to cite costs and concerns over data security as barriers to using new technology.

Food and drink businesses were more likely to be responding to supply chain challenges and changes to import arrangements. To help them achieve their market plans, they were more likely to be bringing in external advice and support and investing in research and development.