FDF study reveals stark drop in business confidence over trading conditions

Amid a backdrop of mounting pressure on small and medium sized businesses across the UK, confidence among the UK’s Food and Drink levels has dropped to -64% in the first quarter of the year, reports Neill Barston.

The latest figures, which have led the majority of companies in the sector stating they will have to raise retail prices, were released in a Food and Drink Federation study (FDF), which highlighted a number of tests facing the market, which comes amid latest headlines this past week of more than 1 million young people being without training or employment in the UK.

The report comes as latest inflation figures were posted at over 3% – which remains above government targets of around 2%, and as reported by our title, many confectionery ranges are experiencing shelf price-hikes of up to 20% over the same period last year.

From speaking to companies across the confectionery and snacks sectors in recent months, it appears that key government policies of higher national insurance contributions from employers and a comparatively stagnant economy impacted by US tariffs, ongoing impact from Brexit trading complications and the ongoing Iran war have combined to form a period of considerable caution for businesses. 

As the FDF noted, its latest results reveal a sector at its lowest level seen since the invasion of Ukraine in 2022, and is on a par with the low confidence levels seen at the beginning of the Covid pandemic – signalling the severe impact that the war in Iran is having on the UK’s food and drink businesses.

The Food and Drink Federation’s (FDF) latest State of Industry report shows that this is not a short-term impact. The outlook confidence score for the next quarter stands at -51%, with most businesses anticipating conditions will continue to deteriorate into Q2.

According to the FDF’s findings, for a fifth of food manufacturers, energy amounts to more than 10% of their total operating costs. For nearly a tenth (8%) of manufacturers, energy makes up as much as 20-24% of their operating costs.

Food and drink manufacturers also highlighted that the cost of plastic packaging has risen by up to 15%, while some reported facing increased transport costs of over 20%.

Further up the supply chain, the increased cost of fertiliser is a concern. The Gulf region is responsible for 30% of the world’s urea production. This, along with increased transport and energy costs, will contribute to the rising price of ingredients. According to the UN FAO, global agricultural prices were 4.1% higher in April, than in February.

Notably, according to the FDF, manufacturers are also expecting to make changes to cut costs where possible. A third are planning to restructure or reduce their headcount (33%), or reduce marketing spend (33%). Over a quarter (26%) are planning to cancel or pause investment projects and a fifth (21%) will need to reduce staff training, hampering the long-term growth and resilience of the sector.

With rising costs across the board having long-term consequences, FDF is calling for government to take steps to address the pressure building on food and drink manufacturers; protect the sector’s resilience and ultimately avoid further food inflation.

Over two thirds (69%) of food manufacturers say support with energy costs should be a top priority for government to help ease the current strain on the sector. Minimising regulatory pressure is also a priority. In particular:

38% are calling for government to simplify packaging recycling reforms
A third (33%) for a phased introduction of the Employment Right’s Act
28% for a delay to changes to the proposals on Nutrient Profiling Model (NPM)
Nearly a quarter (23%) have said realistic transitional arrangements for the upcoming EU trade deal would help them with current pressure

Karen Betts, Chief Executive, The Food and Drink Federation (FDF), said:“It’s unsurprising that confidence is low among food and drink manufacturers. Companies in our sector have been hit by a series of shocks over the past five years and now face significantly rising energy and other costs because of the war in Iran. In the last inflation spike, companies made savings to absorb some of their rising costs, but now there’s little flexibility left to do this again. What’s more, government is proving inflexible in its own asks of the sector – they are reluctant to offer energy support to intensive users across food and drink production while they continue to layer on regulatory change.

“Companies are having to change their operations to realign with EU law, cover the huge costs of recycling reforms, work out if they can continue to make food healthier to rapidly shifting government targets, and adapt to new employment law – and piling so many asks on industry at once comes at a cost,” noting that energy prices were impacting companies ability to succeed and grow within their respective sectors. 

She added that the government needed a much clearer sense of partnership with the food industry to ensure that prices do not continue to spiral further upwards across the region.