Food and drink manufacturers defied Coronavirus to keep Britons fed during the first half of 2020, new research from Santander and the Food and Drink Federation (FDF) reveals, but the sector continues to face significant headwinds as it battles the pandemic.
The FDF’s Food and Drink Industry Report 2020 warns that business confidence in the sector plunged to a record low in the second quarter of the year.
While higher domestic retail sales – up 51% in the second quarter – provided a boost, the industry was hit by a 90% fall in sales in the hospitality and food service sales sector.
Some 45% of manufacturers reported decreased cash flows, with output falling sharply in both April and May.
The FDF points to significant ongoing pressures for food and drink manufacturers, particularly as costs continue to rise.
Imported food prices rose by 3.1% in May, while more than 40% of manufacturers suffered increased ingredient costs. More than two- thirds expect this to continue during the second half of the year.
Food manufacturers, in contrast to the rest of the manufacturing sector, are also having to cope with higher wage costs.
The UK Food and Drink sector at a glance:
CLICK ON THE IMAGE TO VIEW A LARGER VERSION (Page 4)
Continuing uncertainty over Brexit also represents a significant challenge.
The last-minute agreement secured in October on the UK’s withdrawal from the European Union (EU) triggered a transitional standstill period, providing food and drink manufacturers with some short-term visibility on the outlook for the sector.
However, negotiations over a trade deal beyond this period, which expires on 31 December 2020, remain in deadlock, leaving manufacturers uncertain about tariffs and regulatory compliance on both imports and exports thereafter.
Such anxieties continue to make planning ahead very difficult for food and drink producers.
The FDF reports that the second quarter saw a 55% drop in new product launches with manufacturers focusing on existing lines – and some retailers pulling back from broader ranges. They add that food and drink exports have fallen by 15% so far this year.
Nevertheless, there are reasons to be optimistic about the sector’s future – both in the short and longer term. While manufacturers’ expectations for economic growth remain downbeat, the sector’s resilience in the face of the pandemic during the first half of the year was impressive and provides solid foundations on which to build.
Plus, UK food and drink manufacturers now have huge potential to improve export sales, not only in the EU, but also in valuable markets worldwide post-Brexit.
Significant opportunities are now emerging in markets such as the United Arab Emirates (UAE), China and North America, with real potential to capitalise on the strength of the Made-in-Britain brand worldwide.
In the UAE, for example, demand for healthier products is growing rapidly, with UK manufacturers of organic, functional and nutritionally rich products well-placed to benefit. In China, sales of beef and pork have continued to grow even during the pandemic.
In the United States and Canada, UK manufacturers are regarded as being at the forefront of product innovation.
By exploiting these opportunities, UK food and drink producers will be able to rise above the gloom of Coronavirus and economic uncertainty.
As the FDF concludes, even in this currently challenging environment, global demand for high-quality products sourced from UK manufacturers provides significant headroom for growth.
Andrew Williams is Head of the Food & Drink Sector at Santander Corporate & Commercial Banking
*Images courtesy of Depositphotos