Food And Drink Sector Shrugs Off Brexit Concerns

Food and drink firms in England and Wales have raised their growth forecasts and plan to create more than 75,000 new jobs over the next five years, despite uncertainty since the EU Referendum vote, according to a new study by Lloyds Bank Commercial Banking.

Lloyds Bank’s third annual study of the food and drink sector found that firms across the industry are eager to shrug off uncertainty in the run up to the referendum and move ahead with their plans to enter new UK markets and develop new products. As an industry they forecast 19% growth in the next five years, up 3 percentage points from 2015.

The research is the first study of the sector following the UK’s decision to leave the European Union. It surveyed English and Welsh producers of alcohol, fresh produce and food and drink products, and analyses the opportunities and challenges faced by the sector.

The research found that 52% of firms said that the build up to the EU Referendum had had a negative impact on their business. However, although the majority of firms said that the EU Referendum had affected their long-term planning (89%) and their investment plans (82%) before the vote, it now seems that the sector is looking to put the referendum behind it.

44% said that planned investment in their business had increased since the vote result, twice as many as the 22% who said it had fallen. However, businesses do see leaving the European Union as the biggest potential threat to the industry (44%), a view which remains unchanged year-on-year.

Meanwhile, a small majority of businesses said that their expectation of growth was higher now that the vote had been held, with 37% expecting increased growth in the wake of the referendum against 32% who had downgraded their growth predictions.

Andrew Connors, head of client propositions at Lloyds Bank Commercial Banking, said: “The food and drink industry has faced some unprecedented challenges in 2016 notwithstanding the uncertainty surrounding the EU Referendum vote.

“However our research shows a relatively confident and upbeat sector which recognises the challenges ahead and is finding ways to address them. In particular food manufacturers are working together more to improve productivity through joint ventures.”

The study also found that food and drink producers still plan to achieve growth by entering new export markets, with 30% focusing their growth ambitions overseas – the same figure as in the 2015 report.

The number of exporting firms targeting Western Europe has declined from 60% last year to 47% this year, though it remains the top target for the sector. In fact, intentions to target all the major markets have declined slightly, with the exception of Eastern Europe and Russia, which 33% of firms now plan to target – an increase of 22% on 2015. This is despite the Russian embargo on EU food imports.
Jobs, growth and productivity

Meanwhile, 37% said their job creation plans had increased since the referendum result, while 25% said they had decreased. By the same token, 33% have increased plans for R&D activity in response to the referendum result, with just 17% revising down their R&D plans.

When asked how they plan to fund growth over the next five years, joint ventures emerged as a popular route, with 32% of firms looking to team up with fellow food and drink companies to share knowledge and access to different customer groups and markets.

The report also revealed a continued focus on productivity, as firms aim to make efficiency savings (42%), streamline processes (37%), invest in staff training (34%) and restructure operations (30%).

A growing number of firms are reporting that the depressed oil price is having a positive impact on their business, up from 19% to 32%, and concerns about agricultural price volatility seem to be easing too.

Ian Wright CBE, director general at the Food and Drink Federation, commented:: “The Lloyds Bank food and drink report this year is as useful as ever for revealing the challenges and opportunities faced by the sector.

“Bringing the right people with the right skills into the industry is central to our future success and we must also address the biggest business challenge of our times. The decision to leave the European Union poses a major test to most food and drink businesses. Yet we are a resilient and resourceful industry. We are now focused on transforming those very real risks into real opportunities.”

Elena Paitra, Managing Director, Head of Food, Beverages and Tobacco, Global Corporates said: “Although export intentions have declined slightly for UK food and drink producers, it’s encouraging to see that almost a third of producers plan to achieve growth by focusing their ambitions overseas. It’s important that the sector continues to focus on export growth as this is clearly a key to maximising future opportunities.

“We’re confident that the sector can continue to grow in the UK and overseas.”

NAM Implications:
  • A pragmatic reaction, with  business – as usual – finding ways of optimising opportunities that arise from change.
  • The balance of direct EU trade is changing, with increasing emphasis of re-opening rest-of-world trade connections.
  • Key will be suppliers and retailers ability to adapt flexibly to these changes, using the basics of numbers-based risk-reward assessment.
  • The rest is detail…