Food and drink manufacturing sector faces uncertain future amid rising costs

In the latest analysis from the Food and Drink Federation (FDF), the state of the UK’s largest manufacturing sector remains precarious as businesses grapple with uncertainty regarding regulations and rising costs. The findings are documented in the FDF State of Industry report for the third quarter of 2024, which encompasses the period from July to September.

According to the report, business confidence within the food and drink manufacturing sector has stagnated at a -6% level, the same as recorded in the previous quarter. However, there is optimism as 40% of manufacturers express intentions to increase their investments in research and development, while 44% aim to enhance spending on plant and machinery, as well as on skills and training in the upcoming year. This illustrates a proactive approach among manufacturers despite the surrounding challenges.

The FDF highlights the current business environment as a significant hindrance to growth. A staggering 53% of manufacturers reported that they are likely to curtail their investments in the coming year due to uncertainties over incoming regulatory changes. Notably, the anticipated Extended Producer Responsibility (EPR) legislation, coupled with recent adjustments to National Insurance employer contributions and minimum wage increases, is projected to add billions of pounds to the operational costs for UK food and drink manufacturers in 2025.

The report stresses the necessity for clear and timely guidance from the Government to help businesses navigate these regulatory waters. Balwinder Dhoot, director of industry growth and sustainability for the FDF, conveyed the urgency of this situation, stating, “Investment is vital to the long-term health and resilience of our industry, as well as to countering inflation. While it’s positive to see businesses planning to boost their investment in UK production, this will have been impacted by raised costs in the budget.”

Compounding these regulatory pressures, manufacturers identified additional barriers to growth, including taxation and diminished financial returns, both cited by 31% of respondents. The report uncovered an untapped growth potential of £14 billion within the sector, suggesting that a more supportive and stable business environment could encourage investment.

The Government’s forthcoming Budget also plays a critical role in shaping the landscape for business growth. A flash survey conducted in November found that 71% of food and drink manufacturers anticipated negative repercussions from the Budget on employee pay. As vacancies within the industry have escalated to 5.1% in Q3 2024, with 25% of businesses indicating that labour and skills shortages will restrict their investment capabilities, the call for clear dialogue between the Government and industry leaders has never been more pressing.

Dhoot urged the Government to reconvene its focus on enhancing trade relationships, and revisiting regulations and planning rules to foster a collaborative relationship with businesses. The report underscores the prevailing sentiment that government efforts could significantly bolster business and consumer confidence, ultimately driving investment in the food and drink manufacturing sector.

Source: Noah Wire Services