Paul Davies, Head of Food and Drink at BDO, analyses the sentiment, challenges and changing macro landscape for UK companies operating in the food and drink industry and calls for policymakers to do more to ensure the industry has open and simple access to world markets and global talent.
BDO’s Food and Drink Report 2017 found that 73% of manufacturers surveyed are positive about the future of the industry, with 81% of firms expecting revenue growth of up to 20% in the next year.
However, many challenges remain as operating margins continue to be squeezed. Almost a third of firms (28%) have reported a decrease in operating margins this year, with raw materials price inflation having an impact on the bottom line.
For the second year in a row, our survey found that the volatility of raw material prices is the key challenge for food and drink manufacturers – which is being exasperated further by Brexit. This is followed by foreign exchange rates, which was not a major concern for manufacturers questioned last year and seen as a direct result of Brexit uncertainty.
Access to labour and skills also continues to be a major issue in the food and drink industry, with 57% saying they were experiencing difficulties in recruiting the people they require. Interestingly, this is down from 70% in last year’s report.
Investment in innovation
Despite the challenges, firms are proving resilient in their growth ambitions. Just over half of those surveyed said that new product development and investment in production/capex would be a major source of growth, with 49% and 46% saying access to new UK markets and export markets respectively will be an increasingly important part of their growth strategies.
The food and drink industry is a prime candidate for greater process automation due to the benefits it brings through increased production output and flexibility, improvements in product quality and reduction in waste. Two thirds of food and drink firms say they are increasing investment in this area, 15% higher than 2016 – a clear sign the industry continues to become increasingly efficient and smart in dealing with market pressures.
Export opportunities were identified by 31% as the key positive impact of Brexit and access to labour and skills as the key negative impact by 57% of respondents. When questioned on what would help the food and drink industry grow in the current uncertain landscape, the two most important factors for food and drink manufacturers were improved support for exporting and delivering the future employees/skills for the industry.
Open and simple access to world markets and global talent
Food and drink businesses are a driving force of growth, contributing jobs and revenue to the UK economy. Yet they are at risk of being overlooked as the UK prepares to leave the European Union. The Government needs to draw on the natural energy, ambition and entrepreneurial-spirit of food and drink businesses and help them succeed post-Brexit.
We believe the Government can do more to support the industry by ensuring they have open and simple access to world markets to successfully continue trading and deliver growth through new export opportunities. With a workforce where about one in four employees are non-UK EU nationals, the Government needs to deliver simple access to global talent to help secure the industry’s future.
Paul Davies is Audit Partner and national lead for the Food & Drink sector team at BDO.