Food manufacturers ride out economic storm

The increase as against June 2010 contrasts with a 0.4% decline across UK manufacturing as a whole, according the Office for National Statistics (ONS).

The newly released Food and Drink Federation (FDF) Business Confidence Survey for the April-June 2011 also revealed that 76% of food firms expect growth and 37% anticipate rising exports over the next quarter.

The survey represents FDF members with a combined £8bn turnover and 32,000 staff. Where percentage figures below do not add up to 100%, the remainder of those questioned replied 'not applicable'.

“Despite a difficult business environment, a significant number of respondents shifted their level of optimism from ‘down’ in the first quarter (Q1) to ‘same’ in the second quarter (Q2),”​ the FDF said.

Optimism linked to costs​

Q2 figures recording ‘optimism about the general business environment’ show that 13% of respondents were more optimistic, 24% less optimistic and 55% unchanged in terms of outlook. Respective January-March figures were 11%, 28% and 61%.

Volume sales increased for 61% of respondents in Q2, and despite weaker export sales, output in April and May reached record national highs.

The FDF noted that optimism was closely linked to the direction of average costs and ingredients prices. “Any alleviation in cost inflation later on this year will provide a significant boosts to the food and drink industry and business optimism,”​ it said.

However, the Q2 survey came against the backdrop of rising commodity prices, with 74% of food firms recording commodity price increases on inputs such as wheat, corn and cocoa.

And the FDF’s figures revealed that 45% of respondents were absorbing the pain of increased costs, by either lowering product prices or leaving them unchanged, as retailers insisted on promotional activity to generate consumer demand.

But FDF director of communications Terry Jones warned that rising commodity prices could threaten future sector growth. “This means that our continuing work with Government to remove other barriers has taken on even greater importance,” ​he said.

Jones told FoodManufacture.co.uk: "We have already completed good work with DEFRA and the Department for Business to identify the barriers to growth and to look for interventions that could remove or reduce them," ​he said.​

"For instance we’re working together to address the skills and talent gap in the industry, increase the penetration of food and drink exports and reduce the regulatory burden on food businesses."​

Stiff competition​

However, Jones added that FDF president Jim Moseley had questioned whether government and industry were being sufficiently ambitious.

"With millions of new consumers for high value-added food and drink products around the world, and stiff competition from emerging economies, we have to be at the forefront of new technologies, new products and processes, and remove distractions that have no added-value for consumers,"​ Jones said.

"That’s why we’re working to develop a much better understanding of the growth potential of the UK food and drink industry, how we’ll maximise that growth and identify what’s holding us back. We’ll unveil those findings later this year."​

Further Short-term investment in Q2 suffered as a result of high commodity prices, the FDF found, with only 18% of respondents increasing research and development expenditure during the period, despite almost half stating they would in Q1.

Likewise, the survey found that the number of companies launching new products fell below expectation, with only 26% rolling-out new lines, despite 44% indicating this intention in Q1.

The FDF is also working with UK Trade & Investment (UKTI) and the Food and Drink Exporters Association (FDEA) to plan a trade exhibition in Shanghai on November 16-17.