Prices rising, margins falling
Brexit blasts British food industry boldness
More than 1-in-5 (21%) of companies are ‘much less confident’ about the UK’s general business environment since the nation voted on June 23 to exit the European Union. Nearly one in two (49%) are ‘slightly less confident’.
Small and medium-sized businesses (SMEs), which make up 96% of the industry, have been most affected, with 30% much less confident about a future outside the bloc. This mirrors the findings of a survey carried out by FoodNavigator soon after the referendum.
Of the firms surveyed by the Food and Drink Federation (FDF), 76% said the price of ingredients has increased, with 81% expecting further rises in the coming year. Almost two thirds (63%) said product margins have fallen since June. The expectation is that this won’t change in the next 12 months, with 69% forecasting further tightening.
“We have already seen our cost of raw materials increase by 20%,” one firm noted. Another said margins had dropped 12% on products made in the UK, whilst the cost of raw materials has jumped 15%. This double-blow is also affecting investment.
More than one in five (21%) said capital expenditure had decreased since the June 23 vote, whilst just 11% expect it to increase in the next 12 months. Investment in NPD (new product development) and new product launches has remained largely unchanged, the survey showed, though almost one in four companies (24%) do expect new product launches to rise in the coming 12 months.
“Slower revenue growth, coupled with prolonged business uncertainty, is affecting the industry’s ability to invest,” said FDF director general Ian Wright. He also noted the disparity between the “fragile” state of business confidence and that of consumers – the latest quarterly figures from UK retailers show food sales at their highest levels since 2013.
Noting the importance of the food and drink industry (it’s the largest manufacturing sector in the UK, contributing £21.5bn (€24bn) of gross value added to the economy each year), Wright called for an ‘industrial strategy partnership’ with the Government to “counterbalance the uncertainty” created by the country’s vote to leave the European Union.
Last week, UK Prime Minister Theresa May confirmed that she would trigger the formal Brexit negotiation process (Article 50 of the Lisbon Treaty) by the end of March 2017.
Hard Brexit fears
However concerns are mounting that the Government is keen on a so-called ‘hard Brexit’, which would place regaining control over immigration above staying inside the EU’s single market free trade area. Yesterday, the pound fell below €1.10. Since June it has fallen around 18% against the dollar, to levels not seen for more than 30 years.
Volume of exports outside the EU is expected to accelerate in the next 12 months – 28% said exports would increase going forward, compared to just 2.5% since the referendum. One in five (20%) expect exports to the EU to increase, too.
Nevertheless, exchange rate volatility is seen as the biggest risk amongst UK food manufacturers (86%), closely followed by increased costs (82%). Access to labour (41%) and skills (33%) come third and fourth.
As one company told the FDF: “We see significant risks for our overseas staff, our ability to attract EU staff in the future, and our access to EU Free Trade Agreements (FTAs) which supply 25% of our raw materials. Impacts on currency threaten our ability to survive.”
EU employees have also been spooked, it seems. “Our EU employees feel very unwanted and uncomfortable. Some have said that they will return to their home country as soon as they can,” said one respondent. Indeed, 71% of firms that employ EU staffsaid their EU employees had ‘expressed concerns’ in relation to Brexit.
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