British food and beverage manufacturers are “cautiously optimistic” about the future after a turbulent few fiscal years that brought significant disruption to the sector. An analysis published by the UK Food and Drink Federation (FDF) finds that after years of economic uncertainty — following the shocks of Brexit, COVID-19, the war in Ukraine and extreme global weather conditions — companies are starting to refocus on investment, as they foresee greater market stability.

“Food and drink manufacturers are cautiously optimistic about 2024. The global supply chain challenges the food sector has had to face, along with the cost-of-living crisis, has had a negative impact on businesses’ ability to plan and invest in the long-term future,” says Balwinder Dhoot, FDF director for growth.

“Innovation is key to maintaining competitiveness, so it is encouraging to see that UK manufacturers are looking to develop new products for consumers and to take advantage of full expensing to increase and modernize plant and machinery expenditure. It is also necessary if we are to build a sustainable and resilient food supply chain which supports the economy and feeds the nation.”

Overall, FDF states optimism remains “fragile” and a challenging business environment, with “burdensome regulation” in the pipeline, could “kill off the green shoots.”

“Deteriorating” conditions for SMEs
Companies are firmly focused on growth during 2024, with three-quarters (73%) of manufacturers determined to grow UK sales, as supply chain pressures such as global agricultural commodities and energy prices have continued to fall in recent months. Two-thirds of food and drink manufacturers were looking to new product development and innovation to drive sales.

Challenges still remain for the sector, particularly for small and medium-sized enterprises (SMEs), who have been disproportionately impacted by the fallout from events the industry has faced since 2020. In the last quarter of 2023, half of SMEs reported that business conditions have deteriorated.

SMEs have been impacted the most by labor shortages, with vacancies running at 6%, compared with less than 3% for manufacturing as a whole. Significant labor shortages have cost businesses about £1 billion (US$1.26 billion) in lost output in 2023, with companies being forced to leave vacancies unfilled and reduce production.

Surging food production costs
FDF research has also found that as productions costs continued to rise throughout the year — by as much as 12.8%, a significant proportion (25%) of smaller businesses were unable to recoup this cost or redress this imbalance by increasing their selling price in retail outlets, which some of the larger brands were able to negotiate.

Instead, companies have suffered a sustained decline, wher they have had to postpone or cancel vital investment projects and divert funds toward day-to-day operations to keep their businesses viable.

Business insolvencies
While there are signs of recovery after food inflation slowed for the tenth consecutive month in January, manufacturers are still cautious about the outlook for 2024. Geopolitics, nclick="updateothersitehits('Articlepage','External','OtherSitelink','UK F&B industry predicts “positive year” for investment following “turbulent times”','UK F&B industry predicts “positive year” for investment following “turbulent times”','339578','https://www.foodingredientsfirst.com/news/el-nino-batters-cocoa-crops-and-drives-chocolate-prices-to-historic-high.html', 'article','UK F&B industry predicts “positive year” for investment following “turbulent times”');return no_reload();">the impacts of global weather events and record wage growth with the biggest increase in the National Living wage are all having an impact on costs.

The sector has historically suffered from severe labor shortages and higher rates of business insolvencies than the rest of the UK manufacturing industry, FDF flags.

Compared to four years ago, the number of business insolvencies in the industry rose by 136%. That compares to a rise of 35% for the business sector in Great Britain. Last year alone, there were 288 insolvencies.