Lifting the lid on UK food and drink exports

Posted on 26 Feb 2010 by The Manufacturer

Exports of food and drink from the UK continue to buck the dire recessionary trend suffered by most other manufacturing sectors. Mark Young explores.

The UK food and drink industry is the biggest manufacturing sub-sector in the UK, accounting for 15% of total manufacturing output.

The sector directly employs 440,000 people, and conservative estimates put indirect employment at 1.2 million. Between them, the UK’s 7,000 food and drink producers generate over £70bn in annual turnover.

Despite the recession, people still have to eat.

That is one important reason why the sector is performing so well. But another important factor in that success is that the industry is succeeding where almost all other sectors of UK manufacturing are struggling — British exports of food and drink are flourishing.

According to UK Trade and Investment (UKTI), food and drink exports from the UK increased by 33% between 2006 and 2009. And the recession has failed to rain on this parade in the way it has elsewhere. The Food and Drink Federation (FDF) reports that in the first nine months of 2009 UK food and drink exports grew by 5.4% compared with the same period a year earlier. By contrast, exports of all UK goods were down 14.3% over the same period. If this performance was maintained through the second half of 2009, food and non-alcoholic drinks exports will reach just shy of £10bn, and will almost certainly register a fourth consecutive year of record growth.

High demand for non-alcoholic drinks from Europe made this the best performing category, recording growth of 22.5% between January and September last year. British meat is in high demand — with beef up 36.8% to £206.1m and lamb up 19.5% to £224.2m. Our sausages have met the seal of approval from a market that arguably knows them best; export growth of 17.4% has largely been driven by demand from Germany. Ice cream (+29.8% to £53.7m), sauces and condiments (+15.5% to £134.7m), and breakfast cereals (+14.2% to £310.3m) are a few more gems among many in food and drink export growth.

The influence of the low value of the pound against the euro cannot be ignored since eight out of Britain’s top 10 export markets use the single currency. However, Julian Hunt, director of communications at the Food and Drink Federation, asserts that Britain competes on many factors beyond price. For him, Britain’s talent is in its versatility.

“The UK’s reputation in terms of quality and tapping into key trends is second to none,” says Hunt. “UK companies are looking to differentiate on all manner of things including quality and cost, but also for niche markets and trends — convenience products, health and organic, for example, as well as many of the ethical areas of food production like Fair Trade. Own label products are a particular niche that the UK carved many years ago, and while still a relatively new concept on the continent, it is one in which British companies have consolidated a strong lead.

Our success is strongly linked to our vision and adaptability.” Another factor in that success is the demand for quintessentially English heritage brands. The world is full of rolling stones, and while only four of them are likely to achieve a lifetime contribution to music award, many others make a small yet significant contribution to UK food exports. Firstly, sales of British brands in Eastern and Central Europe have risen in recent years, in line with the increase in people from those countries going backward and forward to work in the UK. It appears workers leave UK shores with a taste for British tea and can’t quench the thirst without it back on home soil.

In the first six months of 2009, exports of food and non-alcoholic drinks were up 13.4% to £65m in Poland, 21.8% to £36m in the Czech Republic, and 10.3% to £5.3m in Lithuania. Secondly, there is a veritable army of British nationals dotted around the world who also just can’t get on without their favourite home-grown brands.

“The ex-pat market should not be underestimated,” says FDF’s Hunt. “There are large ex-pat communities in places like Spain, the south of France and the US, and there has been a whole new market open up to supply quintessential British foods to these areas; everything from Marmite to Walkers Crisps and even to a good Cheddar cheese which can be hard to find. It’s a relatively new market because distribution and logistics developments have only made the market cost feasible in the last five years or so.”

A little help from my friends…
Another theory behind the year-on-year growth in food exports is that it is a natural by-product of companies looking for growth when the domestic market is so consolidated. However, because this consolidation is well recognised, trade organisations have had the foresight to set up good support measures. This includes UK Trade and Investment, the Food and Drink Exporters Association, the Regional Development Agencies and the Food and Drink Federation. Until a year ago, that portfolio of support included another organisation called Food from Britain, which was widely recognised as that rarest of things — an invaluable government quango that really made a difference through its vocation.

It was disbanded because of EU state aid rules that were put in place to ensure no member state fashions itself an unfair advantage over another.

The system is effective though. Hunt says the other major European countries do not have superior support infrastructure to ours, nor are they doing anything specifically different. Germany, for example, had an organisation called Central Marketing Organisation of the German Agricultural Industries.

“It was good to have Food from Britain as a dedicated one stop shop for food and drink companies, as it provided a much clearer support channel. But it’s become harder and harder for a primary vehicle to support exporters, so what we’ll all be doing is helping with food shows, exhibitions, local training events and research on markets.” Nine international arms of Food from Britain have remained in operation under the name Green Seed, but they tend to serve the bigger companies that already have a large foothold in foreign markets.

Alhough one good initiative has been retired, however, there are many more that continue to aid the growth of UK food and drink exporting.

Over 700 food and drink companies have completed UKTI’s regionally-led Passport to Export programme. This offers new exporters free capability assessments, training workshops, support in visiting potential markets, mentoring from an export professional, action plans, help with international exhibitions and matched funding of up to £1,500.

UKTI will then continue to support the company with advice and guidance once the export programme is up and running. It is open to companies with less than 250 employees, less than 25% export sales, and less that £35m turnover.

One company that has benefited from the programme is Wrapid — a Hertfordshire producer of naan and tortilla wraps that now distributes across a wide range of retailers and, with the help of UKTI, has licensed its brand out to takeaway outlets in universities and airports across the world.

It used the Passport to Export programme — specifically, an initiative within it called the Export Market Research Scheme (EMRS) — to establish itself in a cluster of airports in the Middle East. The EMRS allows companies to identify which markets to enter and their route for doing so by providing help with market statistics, regulations and legislation, customer attitudes, distribution channels, and competitor activity, strategy and performance.

Stephen Minall, a founding partner of Wrapid, says: “We spent four years developing our range of quality food products with airports, railway stations and universities as our niche markets. We are now in a range of outlets within the UK, but the product is just as relevant anywhere in the world.

“With that in mind we decided to widen our horizons and that’s we turned to East of England International (EEI) and UKTI. That proved to be an excellent move as we tapped into their knowledge and assistance and, importantly, it enabled us to make a market research visit to Dubai. Things moved very rapidly as we identified an experienced operator, the Al Khaja Group, who could take on the franchise. Within 48 hours of returning to the UK, they had visited us and a deal was struck.

“One of the very useful aspects has been tapping into the knowledge of EEI people. UKTI advisor Noel Harvey has been a great source of advice and has made sure we don’t forget the basics. He acts as a sounding board and knows just what is available. It’s also been invaluable to talk to other exporters and exchange ideas.”

Domestic front
The food and non-alcoholic drinks trade deficit has grown from £14.80bn in the first nine months of 2008 to £15.22bn in January-September 2009.

That means we are shipping in a massive £22.31bn worth of food — roughly three times the amount leaving UK shores.

One of the problems is the much maligned British weather.

Much of our imported goods tend to be fresh produce because farmers abroad can grow it consistently.

Supermarkets can therefore guarantee supply and fix prices, and we all get to eat strawberries in December and parsnips in June. It is one of the key issues of government’s recent Food 2030 report, which looked at key challenges for the food industry over the next 20 years: food security and self sufficiency. Government says we need to grow more of our food – the balance of trade, health of our agricultural industry and guarantee of supply are among the reasons why. To achieve this it looks like UK consumer demands will have to soften or, conversely, perhaps this makes the case for genetically modified crops? A measure recently announced to help food producers in the domestic market is the creation of a new supermarket ombudsman to preside over the Groceries Supply Code of Practice. “Every little helps” is a phrase now largely saturated into public consciousness, thanks of course to Tesco and the clichés recessions breed. But “every little helps” doesn’t help everyone. The big supermarkets have a notorious reputation for putting the squeeze on suppliers in an attempt to recoup the savings they pass on to shoppers. Popular tactics that have caused contention include retrospective amendments to terms and conditions of supply and imposing rules that theft or breakage losses be covered by the supplier.

To appease these concerns, the Competition Commission published the GSCoP in August this year, and set a date of February 4 by when all companies had to comply. On February 5, the Department for Business Innovation and Skills announced that it had buckled under pressure from trade organisations and was launching a 12 week consultation to ascertain what the role of an ombudsman to oversee the Code will be.

There are fears, however, that a regulatory hand which is too heavy might cause food manufacturers to lose some of the benefits afforded by working closely with major retail multiples. Foreign connections for exports is one such benefit, but is not the only threat to UK’s food producers or balance of trade; if supermarkets can’t squeeze domestic suppliers they may look elsewhere. By preventing a squeeze, we could provide a death grip.

In an ironic coincidence, the BIS consultation was announced on the same day as the news of Birds Eye’s supply chain cut — which saw contracts with 180 British pea farmers cancelled and the loss of an estimated £5.5m net income for those affected. The move followed the loss of a Birds Eye contract the company lost themselves to supply peas for Findus ready meals, produced in Italy.

This is the difficulty government faces. Roughly two thirds of what UK farmers produce goes into some kind of food processing; whether that’s abattoirs at the most basic level or ready meal manufacturing at the more sophisticated end.

Says Hunt: “There is a symbiotic relationship between the two industries: they are separate but very closely aligned. Most food products are based on agricultural inputs, so to protect the food industry government has to look at how to protect the entire supply chain.” But owing to the globalisation of the food industry, as shown by the Birds Eye example, this is difficult to do. The challenge is to address issues — including the tax regime, social welfare and employment regulation — which can affect whether multinational companies see the UK as a good place to set up camp.

“We need to create the right climate for manufacturers to want to base their businesses here,” adds Hunt. “Certainly from a food perspective, now that the UK has an open market and free movement of goods afforded by the EU, big investment decisions — 20 year decisions — are made on a European or even global basis. We have to make it profitable for companies to choose the UK.”

At The Manufacturer we have often heard that from the food industry that it has not necessarily been given the attention it deserves in recent years, given the size of the sector and its contribution to GDP. However, initiatives like the Food Matters and 2030 reports, along with the aforementioned support organisations, show that government now understands what it needs to do to help UK manufacturers. What’s needed now is consistent policy making across Whitehall to ensure that those issues are properly addressed, and that UK food is put at the heart of strategic and economic concerns.