UK’s FDF says small businesses raise ‘cautious optimism’ for 2024, despite major challenges

The UK’s Food and Drink Federation has revealed that sector businesses, including within confectionery and snacks, have expressed cautious optimism about the year, ahead, though operating conditions remain notably fragile, reports Neill Barston.

With the British economy entering into recession in the second half of 2023 with gross domestic product (GDP) falling 0.3% in the three months to December, and contracted 0.1% from July to September according to official statistics, many manufacturers have felt the strain of higher ingredients, as well as energy prices impacting negatively on the industry.

As Confectionery Production has previously reported, businesses in the confectionery sector have been affected, with the cost of cocoa doubling in the past year, as well as significant sugar price rises, as well as energy costs hugely impacting conditions. This translated into reported uprating of retail prices, with 50% increase in prices before Christmas – which is also believed to have dented sales of premium ranges.

Notably, as a result of Brexit, the government finally introduced new Border Target Operating Models, governing EU imports of food, requiring additional declarations and goods classification red tape, as the FDF observed that ‘burdensome regulations’ on the horizon could dampen any potential recovery.

In its latest study, the organisation found that after years of economic uncertainty – following the shocks of Brexit, Covid-19, the war in Ukraine and extreme global weather conditions, companies had placed themselves on a footing for investments. This comes after a notable period of many companies across sectors holding off on capital expenditure in light of uncertain trading conditions.

According to the FDF, businesses are |firmly focused on growth during 2024,” with three-quarters (73 per cent) of manufacturers targeting increasing UK sales, as supply chain pressures such as global agricultural commodities and energy prices have continued to fall in recent months. It also reported that two-thirds of food and drink manufacturers were looking to new product development and innovation to drive sales.

However, as the organisation acknowledged, key challenges still remained for SMe’s, that have been disproportionately impacted by the fallout from events the industry has faced since 2020. In the last quarter of 2023, half of SME’s reported that business conditions have deteriorated.

Research has found that as productions costs continued to rise throughout the year – by as much as 12.8 per cent, a significant proportion (25 per cent) of smaller business 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 sustained decline, where they have had to postpone or cancel vital investment projects and divert funds towards day-to-day operations to keep their businesses viable.

FDF Director for Growth Balwinder Dhoot commented: “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.

“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 modernise 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.”

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, the impacts of global weather events, record wage growth with the biggest increase in the National Living wage are all having an impact on costs.

Another factor highlighted by the FDF is that the sector has historically suffered from severe labour shortages and higher rates of business insolvencies than the rest of UK manufacturing.

SME’s have been impacted the most by labour shortages, with vacancies running at six per cent, compared with less than three per cent for manufacturing as a whole.

Significant labour shortages have cost businesses about £1bn in lost output in 2023, with companies being forced to leave vacancies unfilled and reduce production. Compared to four years ago, the number of business insolvencies in the industry rose by 136 per cent. That compares to a rise of 35 per cent for the business sector in Great Britian. Last year alone there were almost 300 insolvencies (288)

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