This report responds to the request from the Secretary of State for Environment, Food and Rural Affairs that the Office for the Internal Market (OIM) examine the potential effect on the UK internal market of the Department for Environment, Food and Rural Affairs (DEFRA) proposed ban in England on the sale of horticultural peat to retail consumers by 2024 and to professional growers by 2028 respectively. That request, made under s.34 of the UK Internal Market Act 2020, was accepted by the OIM on 4 August 2022.
The analysis has been conducted in accordance with functions under the UK Internal Market Act 2020. It examines the effects on the internal market of the proposed regulation and is principally concerned with its economic effects. Attention is focused on the 2024 retail ban.
They gathered information from a variety of sources, including responses to DEFRA’s consultation on the proposed regulation, interviews with industry participants and other interested parties, information requests, and published research. They also commissioned a survey of consumer attitudes and behavior. They spoke to industry players, including growing media manufacturers and retailers, professional growers, retail consumers, and other interested parties such as the Devolved Administrations, local authority planning officers, and environmental charities.
The supply chain for peat-containing growing media sold to retail customers comprises peat extractors, manufacturers (most of whom also undertake some peat extraction activities), and retailers. Most (over two-thirds) of growing media sold in the UK are sold through retailers. The remainder is sold to professional growers, a group that includes farmers and businesses that grow ornamental plants.
The use of peat in horticulture has fallen over the last decade, driven by greater use of peat-free growing media and reductions in the proportion of peat used in peat-containing growing media. This trend has accelerated in the last three years, reflecting changing environmental awareness amongst consumers, retailers’ desire to meet their Environmental, Social, and Governance commitments, and manufacturers’ anticipation of government action to ban peat use. Despite these developments, they anticipate that peat will continue to be used in England for the next few years without the proposed ban.
To understand the likely effects on the internal market of the proposed ban, they first looked at how the market for peat-based growing media products and their peat-free alternatives might develop following the ban. Central to this analysis is a consideration of the role played by the Market Access Principles. These principles would, under certain circumstances, permit peat-containing growing media produced in Scotland, Wales, or Northern Ireland to be sold in England even after the ban has taken effect. The Market Access Principles would not allow peat-containing growing media produced in England to be sold in England since the proposed ban on sale would apply.
They conclude that consumer demand for peat-containing growing media specifically is small but not immaterial. The consumer survey revealed that no more than one in 10 consumers have a strong motivation to purchase peat-containing growing media. A much larger proportion (at least 4 in 10) are motivated to buy peat-free growing media. At least 3 in 10 are unconcerned about what their growing media contains and are more likely to be influenced by the price of growing media. These findings are consistent with research and discussions they had with industry participants.
In line with these consumer preferences, many retailers have made commitments to phase out peat-containing growing media. They estimate that approximately 60% of all growing media sold through the retail channel is sold by retailers who have made a public commitment to only stock peat-free growing media by the end of 2024 or earlier. These commitments reduce the appetite of retailers to continue offering peat-containing growing media. In addition, larger retailers with UK-wide operations tend to stock a single growing media offering for the whole UK. This would mean that peat-free growing media that complies with the proposed ban in England would also become the standard offer from these retailers in the rest of the UK even if the sale of peat-containing growing media were not banned there.
Retailer stocking decisions will also be affected by the availability of peat-free growing media more generally. Shortages of peat-free inputs may result in a shortage of peat-free growing media or cause increases in price and/or reductions in quality. This may disproportionately affect smaller retailers. In such circumstances, retailers may rely on the Market Access Principles to obtain peat-containing growing media, particularly if they have not made public commitments to stop selling peat. The incentive to do so will be particularly strong for retailers such as garden centers, where customers may not buy other products if they are not also able to buy growing media.
On the production side, many manufacturers have been steadily reducing their use of peat in their growing media. All the manufacturers they spoke to who currently produce peat-containing growing media had invested in new equipment, storage, or processing to enable them to produce peat-free growing media. They indicated that the proposed ban on retail sales of peat was likely to accelerate this trend.
Many of the peat-free alternatives used by manufacturers are by-products of other industries and so are affected by the levels of activity in the underlying industry. In addition, the horticultural industry in the UK competes with other industries globally, such as biomass energy production, for access to these inputs. Some peat-free inputs for growing media, such as coir, are sourced internationally and can be affected by global factors such as shipping rates. Notwithstanding these challenges, UK manufacturers have been successful in expanding the use of peat-free inputs across their businesses, with the use of peat-free inputs almost doubling between 2011 and 2021. A further rapid expansion would be needed to replace current peat use in retail growing media by the end of 2024.
Although manufacturers have been successful in removing a considerable proportion of peat from their production of growing media, many of the manufacturers they spoke to raised concerns about a potential shortage of the inputs required to make peat-free growing media if peat is completely removed from the sector. If there were supply shortages of peat-free growing media in general, or a lack of appropriate peat-free inputs for specific product ranges, retailers in England might have an incentive to seek to rely on the Market Access Principles to obtain and sell peat-containing growing media.
Even if sufficient volumes of peat-free growing media are available, the increased demand for the inputs required is likely to increase their cost, also providing an incentive for retailers in England to rely on the Market Access Principles to obtain and sell peat-containing growing media. Differences in production costs between peat-containing and peat-free growing media have previously slowed the transition away from peat, as peat has historically been cheaper than the inputs required for peat-free alternatives. More recently, the price of peat has risen, narrowing this price differential. If manufacturers struggle to obtain inputs for peat-free growing media and their costs of production rise, this differential could increase again, providing incentives to return to the production of peat-containing growing media where this is permitted.
They consider that the professional sector is unlikely to be a source of peat-free inputs for the retail sector. Although professional growers consume a substantial quantity of peat-free inputs in their growing media, even if the price of peat-free inputs increased, they would be unlikely to substitute for growing media with a higher peat content. Professional growers have powerful commercial reasons to make changes to the growing media they use incrementally and cautiously and will, in any event, need to begin to prepare for the ban on peat-containing growing media in the professional sector in 2028.
The ability of manufacturers to supply peat-containing growing media will depend on where they manufacture it – production must take place in one of Scotland, Wales, or Northern Ireland to be sold lawfully in England after the ban takes effect. There is no production of peat-containing growing media in Wales. Scotland is unlikely to be a significant source of peat-containing increasing media for the retail sector following the retail ban in England, as most Scottish production is for the professional market.
Production in Northern Ireland covers several manufacturers, including some smaller businesses, and is more likely to be a source of peat-containing growing media into the rest of the UK. However, Northern Ireland may not be a cost-effective location from which to supply all parts of England due to transport costs.
In the longer term, manufacturers could invest in new plants in Scotland, Wales, and Northern Ireland that would enable them to rely on the Market Access Principles to supply peat-containing growing media to England. However, there are questions about the incentives that manufacturers would have to invest long-term in the production of peat-containing growing media given that the Scottish Government has committed to phasing out the use of peat in horticulture and the Welsh Government has also announced that it will end the retail sale of peat in horticulture. The draft Northern Ireland peatland strategy contains a proposal to conduct a review and publish a key issues paper on peat extraction and the use of peat and peat products by 2023 and take forward any recommendations made.
Overall, they conclude that there will be limited incentives for manufacturers and retailers to sell peat-containing growing media in England once the ban takes effect. However, that finding depends on the availability of the inputs needed to make peat-free growing media. While they think large-scale shortages are unlikely, some shortages may arise, and the more severe and more enduring the shortage, the more likely it is that manufacturers and retailers will turn to peat-containing growing media to bridge the gap, should peat-free growing media become too costly or be of lower quality.
On balance, they, therefore, conclude that while there will be some change to the patterns of trade in peat-containing growing media across the UK that may be significant to individual businesses, these are likely to be modest in the context of the overall market for growing media. This is because most, if not all, manufacturers currently producing peat-containing growing media are also able to manufacture peat-free growing media, and they expect to trade in peat-containing growing media to be replaced by trade in peat-free growing media. For the same reason, they also do not expect there to be a significant impact on wider competition within the growing media market.