FDF releases Q1 2024 State of Industry Report

UK’s economic recovery could be stifled by a lack of support for food and drink producers

Food and drink manufacturers are calling for greater collaboration with government to unlock higher levels of private sector investment, which is vital for stimulating growth and safeguarding the UK’s long-term food security.

Analysis published today by the FDF has found that half of food and drink businesses plan to maintain low levels of investment this coming year. This is against a backdrop of significantly lower levels of investment in food and drink manufacturing, the UK’s largest manufacturing sector. In recent years due to the series of shocks which have faced the sector, Brexit, a global pandemic, geo-political unrest, extreme weather conditions, and inflationary pressures not seen before in a generation which has resulted in investment in food and drink manufacturing falling by 30% since 2019.

This is in sharp contrast with the rest of manufacturing which saw investment grow by 5% in the same period. Regulatory burdens and higher than the national average labour shortages continue to hamper the industry, with restructuring operations emerging as a top three priority for a third of manufacturers this quarter which the week after the Prime Minister hosted the Farm to Fork Summit, is a huge concern.

While food price inflation has fallen from its peak of close to 20% last year, to 4.0% in March, cost pressures are still present with manufacturers reporting costs have risen by 9.2% over the year to March.

Balwinder Dhoot, FDF’s Director for Sustainability and Growth said:

“Business confidence and investment are essential for stimulating growth of the UK’s largest manufacturing sector and safeguarding the nation’s food security. Investment in our sector is down by a third compared with 2019, and our State of Industry Report has revealed that around half of food manufacturers have no intention of increasing their investment levels this year.

“If we are to build a sustainable and resilient food supply chain which supports the economy and feeds the nation, we need Government to work with us to help foster a climate which encourages greater capital expenditure and investment in innovation.

“Our members, particularly the mid-sized businesses, continue to face some market uncertainty caused by labour shortages, and the impact of poorly designed and implemented regulations. This is having dire unintended consequences for businesses by adding costly and unnecessary burdens to supply chains.”

Manufacturers are still unsure about the costs of the Extended Producer Responsibility, a scheme to reduce the environmental impact of packaging on the planet. With government having yet to set fees for the scheme, businesses are left with a black hole in their budgets for 2025, with cost estimated to be £1.7 billion.

Other regulation like the GB-wide ‘Not for EU’ labelling for products, which is meant to ensure that consumers in Northern Ireland continue to be able to access the full range of products sold across the United Kingdom, is unnecessarily adding cost and bureaucracy to the food chain at a time when businesses are trying to keep food prices down a low as possible. This policy would require manufacturers to run separate production lines for EU and UK markets, severely hampering investment, competitiveness, and our industry’s exports. FDF estimates this could cost the industry £150 million to implement and a further £250 million per year ongoing costs.

Almost 9 out of 10 food and drink manufacturers innovate internally, but securing more support from government will cultivate more open innovation. Strengthening industry collaboration with government, universities and research institutions using science and innovation will build greater resilience in the food supply chain in the face of extreme weather events. The State of Industry Report also found that with market conditions stabilising, the top priorities for the sector are growth and innovation, with 84% of businesses looking to grow UK sales and 53% focusing on new product development.

Notes to Editors

• View the State of Industry report Q1 2024
• The aims and objectives of Extended Producer Responsibility (EPR) is that producers pay the full net costs of managing and recycling the packaging waste they produce through a system of modulated fees. Find out more
• View the governments labelling requirements for certain products moving from GB to Northern Ireland
• The FDF’s industry manifesto, published in February, sets out the long-term vision for our sector. It highlights the key areas where we want government to partner with industry to drive-up investment opportunities over the next decade. Read the full manifesto