FDF studies reveal major dip in business confidence despite sector hopes for export growth

Latest studies from the UK’s Food and Drink Federation (FDF) have revealed confidence levels of businesses in the sector were down to a record low of -65.2% on its market tracker for the second quarter of 2020, yet noted potential valuable new global export opportunities, reports Neill Barston

According to the organisation’s key report, conducted with Santander UK, rising costs have proved a significant challenge within the second quarter of the year, most visibly within ingredients, as well as exports falling by around 15% in the first half of the year amid coronavirus pandemic, from a total of £9.5 billion, to £8.1 billion.

However, the sector bucked wider wage reduction trends within manufacturing in the months leading up to June, in spite of the enforced closure of traditionally strong hospitality and out-of-home markets. This was underlined by a 41% drop in stock keeping units (SKU’s), demonstrating market uncertainty.

The FDF, which represents a wide range of major manufacturers in the confectionery, snacks, as well as bakery segments, stressed that despite the considerable dip in optimism, companies had observed potential for greater opportunities for export trade in markets including the UAE (Gulfood Manufacturing in Dubai pictured), China, US and Canada as holding major opportunities.

The organisation’s research also noted that many manufacturers were keenly aware of the potential represented by new trade deals being formed in the wake of Brexit, which in turn has seen many firms consider planing for investment in new equipment lines.

As the FDF explained, its report examines the impacts of coronavirus, which have seen a reduction in domestic turnover by 8.6% in Q1 compared with Q4 2019, and a further 4.0% decline in Q2.

For its part in the study, Santander has carried out separate research into the impact of Covid-19 on SMEs, with its results showing that 24% of food and drink businesses expect to return to normal operating levels by the end of 2020.

As the FDF noted, UK food and drink exports are recognised globally for their quality, provenance, and heritage, and are now worth more than £23bn annually. The report highlights export opportunities in three key market regions; the UAE and the wider Gulf region, China, and the USA and Canada with insights from Santander’s experienced sector and international specialists who support businesses looking to explore overseas opportunities.

Within the UAE, the coronavirus crisis has reportedly seen an increase in expected sales from retail – up to 90% from 70% in 2019. The increasing focus on healthier lifestyles in the region has seen increased demand for organic, functional foods, and nutritionally rich products. Confectionery sales are said to have risen 20% along with with soft drinks and sauces.

In addition, Santander has in recent times also played a notable role in leading trade delegations to the US that have included representing businesses in the confectionery market segment.

Furthermore, the FDF has identified seven steps for recovery designed to successfully restart all areas of industry, as part of its work through the Food and Drink Sector Council. These include protecting the UK’s supply chain integrity and competitive position and accelerating plans to increase UK exports.

Ian Wright CBE, Chief Executive, Food and Drink Federation, said: “Manufacturers and hidden heroes working across the supply chain have ensured continued access to essential food and drink for UK consumers, diminishing the impacts of Covid-19 on industry. As the dust begins to settle, we can now see how the pandemic has had a seriously damaging impact on 2020 ‘s overseas sales of UK food and drink. These were worth over £23 billion in 2019. While that figure is certain to fall for this year, there are still plenty of opportunities in foreign markets for UK food and drink manufacturers to seize in what remains of this year and as we look to 2021.

“As businesses turn toward economic recovery, ensuring a quick return to growth will be essential to support resilience in our industry. We will continue to work closely with Government and industry partners, like Santander, to safeguard a sector recovery that will deliver a return to sustainable export growth right across the UK.”

Andrew Williams, Head of Food & Drink Sector, Santander Corporate & Commercial Banking, said that a number of challenges remained for the sector, but believed there were signs of recovery for the industry.

He said: “The impacts of coronavirus swiftly reverberated across the food and drink manufacturing industry. We quickly saw that over-reliance on any single market, sales channel, or customer leaves businesses vulnerable to increased risk. Understandably, confidence was knocked – but the resilience of our industry is evident in these findings.

“The short-term impacts begin to settle, UK food and drink businesses have already recognised that increasing export sales is a potential route to recovery and offers growth and diversification benefits too. There is much to be optimistic about and a real sense that as a sector we are striving towards a positive future.”

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