Food manufacturers are optimistic but economic conditions will test resilience

04-Jul-2022 - Last updated on 04-Jul-2022 at 10:09 GMT

Food and drink manufacturers are optimistic but face challenges

Almost eight out of 10 leaders in the UK food and drink manufacturing sector feel positive about the prospects for their business over the coming year but rapidly deteriorating economic conditions will test their resilience, a new survey from accountancy and business advisory firm BDO LLP has warned.

Its research of 101 companies showed that there is a high degree of optimism among food and drink manufacturers, despite the challenges of rising input prices, geopolitical instability and the lingering impacts of Brexit and COVID-19. More than half (53%) expect to see an increase in orders over the coming year with one third are planning capital expenditure in production this year, the survey found.

Almost a third (31%) anticipated growth in non-European markets such as the Middle East and North and South America, while 29% expect growth to come from the UK and 28% from new markets in the EU.

Threats

However, its latest report also highlighted that the ongoing impact of Covid-19 continued to be the biggest worry, cited by 28%. Meanwhile increased competition, the effects of cheap imports, cyber security and wage inflation were all seen as threats for between 16% and 18% of those surveyed.

Rising inflation was also seen as a challenge. In response to rising prices, around a third (32%) said they were seeking additional finance, 23% were reducing profit expectations and almost one in five (19%) said they would be prepared to take on higher levels of debt.

Staffing and the labour shortage also continues to be an obstacle as 61% reported that they were having difficulty recruiting the people they need, with IT and software roles the hardest to fill.

Resilient

“Over the last few years, food and drink manufacturers have proved themselves to be very resilient in responding to Brexit and COVID-19 lockdowns. Many have acted swiftly by choosing to in-shore or near-shore supplies and strengthen operations,” said Cindy Hrkalovic, Head of Food and Drink at BDO.

“However, with inflation continuing to rise at its fastest rate in 40 years, margins are suffering and this could derail the industry’s investment and growth plans. The industry will need to be more innovative and resilient than ever to work through these headwinds and this will only be possible with the right Government support.”

BDO’s survey of 101 food and drink manufacturing companies was conducted in April 2022.