The food industry has been voicing its concerns over the potential pitfalls of a no-deal Brexit for some time. Now a new Food and Drink Federation (FDF) survey has revealed that more than one-third of food and drink manufacturers surveyed report an increase in costs because of stockpiling ahead of this scenario which is still on the table as UK-EU negotiations continue. Indeed, the industry is taking the prospect on a no-deal seriously with many preparing for extra financial burdens, including the budget announcement of introducing a tax on non-recycled plastic packaging by 2022.

However, the FDF recognizes the UK Government’s measures to support productivity, exports, enterprise, and investment – which were also announced earlier this week in the Chancellor’s Budget 2018 – does offer some respite for SME food and drink manufacturers. But there is “significantly increased worry across the sector,” it /confirm/is.

FDF conducted this quarterly business confidence survey between September 19 October 8, 2018, to gauge confidence levels in the food and drink manufacturing sector in the third-quarter of 2018.

The Federation received responses from businesses with a combined UK turnover of approximately £11.4 billion (US$14.5 billion), equivalent to 12 percent of the food and drink manufacturing sector total turnover. Almost two-thirds of the responses came from small and medium-sized enterprises (SMEs).

Survey findings
As the clocks counts downs to March next year when the UK officially leaves the European unio, the latest FDF survey has shown a number of crucial points.

Economic uncertainty has seen net confidence amongst food and drink manufacturers decrease by 21 percentage points when comparing results reported in Q1 with those reported in Q3.

When looking ahead to 2019, two-thirds of businesses FDF spoke to identified future tariff implications as a risk to their business. Just under 60 percent of companies surveyed thought business investment across the overall UK economy would fall in 2019, while more than 96 percent expect to see rising input prices.

For SMEs, who make up 97 percent of the UKs food and drink manufacturing sector, retail market consolidation was one of the top three barriers expected to impact the success of their business in 2019.

This follows the recent takeovers of Booker by Tesco – the £4 billion (US$5.5 billion) takeover was completed in March creating a new powerhouse in Britain’s  £200 billion (US$276.6 billion) a-year food market – and the Nisa acquisition by the Co-op as well as the proposed merger of Sainsburys and Asda which present significant concerns for UK manufacturers.

In April 2018, J Sainsbury and Wal-Mart, the world’s biggest supermarket retailer, first announced they were in advanced talks about a tie-up that would create ‎a more powerful rival to Tesco, the UK market leader. In August, the UK Competition and Markets Authority (CMA) launched its formal investigation started to scrutinize the proposed £12 billion (US$15.4 billion) deal and the potential impact it will have on UK shoppers as well as suppliers.

The FDF says that business conditions for food and drink manufacturers have been especially difficult this year, in part due to the fall in the value of sterling which has contributed to increased costs of ingredients and raw materials.

More than three quarters (79 percent) of businesses FDF spoke to reported increased ingredient costs as the most significant impact on their businesses in Q3, while 71 percent of those polled cited increased packaging costs.

“These results tell us just how seriously the food and drink industry, the UKs largest manufacturing sector, takes a no-deal Brexit. It is a grisly prospect to which we edge closer every passing day,” says Ian Wright, FDF Chief Executive.

“The announcement from the Chancellor – with measures to support productivity, exports, enterprise, and investment – offers some respite for our SME food and drink manufacturers. But there is significantly increased worry across the sector following the announcement of the Chancellors new tax on plastic packaging. This will undoubtedly place many more financial burdens on UK food and drink manufacturers – that loads on cost at a time when just under three-quarters of our members report that their packaging costs are increasing. The storm clouds are gathering.”

Food and beverage companies will be taxed on plastic packaging that contains less than 30 percent recycled content, the UK Chancellor Richard Hammond announced yesterday (Oct 30) in the 2018 Budget speech. The tax aims to “transform the economics of sustainable packaging” and posit the UK as “as a world leader” in tackling the scourge of plastic littering across the world and its oceans.