Food and drink processors are starting to suffer as the UK recession deepens, according to the latest government figures.
Food, drink and tobacco suffered one of the biggest falls in manufacturing output of any sector (-2.3%) in November and December, according to the Office for National Statistics. Overall output for the fourth quarter of the 2008 fell by 5.1%.
“The intensity of the shock administered to manufacturing industry means even strong, globally competitive businesses could go under,” said Tom Lawton, head of manufacturing at accounting firm BDO Stoy Hayward.
He urged the government to extend financial support beyond the banks. “It has become apparent that helping just the banking sector is not enough. It is now essential that policy makers develop packages to aid manufacturing industry and thereby help restore consumer and business confidence.”
Meanwhile, The Insolvency Service has reported that the number of food, beverage and tobacco processors in England and Wales entering creditors' voluntary liquidation soared from by 21 in the last two quarters of 2007 to 34 in the last two quarters of 2008 - a 62% increase. Comparing the same time periods, the number of administrations in England and Wales also rose by almost a third in the sector, from 19 to 25.
Geoff Carton-Kelly, partner at Baker Tilly Restructuring and Recovery, said companies going into administration were often subsequently being liquidated. This situation indicated a total lack of confidence in being able to offset debts through asset sales, he said.
“Investment, both personally and corporately isn’t there," said Carton-Kelly. “We all bought into the credit bubble and the businesses that are highly leveraged are finding things very difficult. That’s partly because they can't get any more credit on their assets and partly because their position doesn’t look good to anyone offering credit.”
Comparing 2007 and 2008, the last two quarters of each year showed two firms plunging into receivership in 2008, against one in 2007. However, the number of compulsory liquidations in the sector in the first three quarters of 2008 fell to nine, versus 11 in the last two quarters of 2007.
Figures for Scotland did not indicate that food and drink processors there were struggling, having remained at virtually the same low level from year to year.
Across all manufacturing industries, there were 4,607 compulsory liquidations and creditors’ voluntary liquidations in England and Wales in the fourth quarter. That was an increase of 11.9% on the previous quarter and 51.6% on the same period a year ago.