Nearly 50% of food and drink manufacturers have cut or paused investment projects as they face the toughest trading conditions in living memory due to surging inflation.
This is according to new research by the Food and Drink Federation (FDF), which is calling on the government to use this week’s Autumn Statement to prioritise measures which will drive growth and cut the cost of doing business.
The FDF’s latest State of the Industry survey suggests that companies have seen input costs increase by an average of 21% over the past 12 months, with a similar rise expected next year. Businesses are doing what they can to contain soaring prices for consumers by achieving energy efficiencies and reducing their product ranges, but the study notes that confidence is fragile.
The effect of these mounting costs can be seen in figures from the Insolvency Service showing that in the first eight months of 2022, there were more insolvencies in the food and drink industry than during the whole of 2019.
One of the main pressures on companies is rising energy prices, which accounts for 22% of business costs – up from 12% a year ago. The FDF applauded recent temporary government support but noted that companies bake, chill and freeze food and drink all year round, with concerns over the longevity of the energy support scheme and the need to help companies manage energy price volatility.
Labour shortages also remain a significant brake on growth, with the vacancy rate rising to 9.1% in the third quarter. The FDF stated that this increases the need for the government to review the shortage occupation list and make the apprenticeships levy more flexible to build a more secure pipeline of skills for the industry.
The study suggests that all these pressures are impacting the levels of investment companies are able to make to grow their businesses. However, the FDF states that there are ways for the government to help businesses through these challenging times, including tax incentives for capital investment, a reduction in the costs of moving goods between the UK and the EU, and smarter regulation.
“Confidence levels in our industry are at an all-time low, with soaring energy and ingredient prices putting incredible pressures on businesses, which are at the same time making every effort to keep the price of everyday food and drink affordable,” said Karen Betts, the FDF’s Chief Executive.
“Our companies need reassurance that government understands the issues they are facing and will act to help our sector shore up its resilience. From incentivising investment in the transition to green energy and growth, to reducing the costs of burdensome regulation and helping companies manage energy price volatility.
“I hope the Chancellor will act decisively to support our sector next week. This will pay dividends in helping to manage inflation for hard-pressed households.”
NAM Implications:
- Hopefully, not too many are surprised?
- It was obvious on 23rd March 2020 on the first Lockdown…
- …that we were going to arrive at this point.
- We now have to work to the new reality baseline.
- And optimise what we have, cutting back to essentials.
- Meanwhile, the government are prepared to allow unprofitable businesses to go to the wall…
- …whilst determined to balance tax and expenditure…
