The food and drinks industry faces a host of regulatory and economic challenges in 2025. From rising costs to new legislative frameworks, the sector must navigate a complex landscape to stay competitive.
Budget pressures
The UK’s Autumn Budget was a challenging one for the food and drinks industry. The increase in National Insurance Contributions (NIC) and the larger than expected rise to the National Living Wage will increase costs of labour and supply chains. For example, Sainsburys has predicted that the costs of NIC alone will be £140m. This is going to mean companies are looking at where they can make savings and reconsider how they can use their cap ex wisely.
Employers will be looking for innovation opportunities concerning how they use their staff in order to reduce dependence on a larger workforce. There has been labour shortage in the UK (worsened by Brexit and Covid) which has already pushed the cost of labour up and the recent changes announced in the Budget is going to amplify the cost pressure. We expect businesses to seek to increase the capability of their back-office functions; in particular, by focusing their capital expenditure on technological developments to automate and drive efficiencies in processes that have until now relied on a sizeable manual workforce.
While this is expected to create wider economic benefit through increasing the productivity of output per employee, it will mean a period of heightened cost pressure for businesses as they put such strategies into effect whilst managing the upcoming impact of the NIC and living wage increases.
In the context of R&C supply chains, including in the F&B world, the pressures of an inflationary market are – and have been for some time, given Brexit, Covid, the Ukraine war and related economic instabilities – leading businesses to seek to renegotiate, terminate or adjust their performance under supply contracts which have since become less economically advantageous.
In 2025 we expect to see parties ‘shaking the tree’ on existing contracts to see if they can squeeze better value out of them, achieve efficiencies by adjusting their mechanism or parameters for contract fulfilment or potentially threatening termination to create leverage. Generally, during the term of a contract, there is limited scope to renegotiate or terminate based on economic changes. Therefore, we anticipate that these courses of action have the potential to generate disputes between those parties, which may have a knock-on effect on the rest of the supply chain as the pressure is passed along.
Wise parties will look to tighten up the language in their new arrangements to leave less scope for innovative arguments by their counterparty and may be more likely to seek external advice on the negotiation of their key contracts.
Extended Producer Responsibility
Earlier this year, the UK Government published the draft Producer Responsibility Obligations (Packaging and Packaging Waste) Regulations 2024, introducing an ‘Extended Producer Responsibility’ (EPR) regime in the UK. This regime shifts the full cost of managing household packaging waste onto producers, requiring clear recyclability labelling and adherence to updated recycling targets.
Obligated packaging producers must collect and report data on their packaging under the Packaging Waste (Data Reporting) (England) Regulations 2023, with amendments in 2023 and 2024. Reporting obligations differ for ‘small’ and ‘large’ producers, with data submitted every six months and retained for seven years. These records will determine the fees payable under EPR, with fee assessments starting in October 2025 for household packaging waste and street-bin packaging managed by local authorities.
Fees are based on minimum recycling targets for six packaging materials (plastic, paper/board, steel, aluminium, glass, and wood) and extend through 2030. Modulated fees will reflect environmental sustainability, with lower fees for more recyclable materials, creating financial incentives to adopt sustainable packaging. Food and drink producers, heavily reliant on packaging, are likely to face significant costs under these new regulations.
Final fee levels for the first year of EPR packaging will be announced after 1 April 2025. The legislation encourages producers to minimise waste and use materials that attract lower fees, aligning with broader sustainability goals.
European Union Deforestation Regulation
On 29 June 2023, the EU introduced the European Union Deforestation Regulation (EUDR). The aim of this regulation is to combat the problem of deforestation and forest degradation, largely driven by the expansion of agricultural land for producing commodities such as cattle, wood, cocoa, soy, palm oil, coffee, rubber, and their derived products (e.g., leather, chocolate, tyres, furniture). Recognising its role as a major consumer of these commodities, the EU aims to lead efforts in mitigating the harmful impact associated with these commodities.
The EUDR mandates that operators or traders placing these commodities on the EU market, or exporting them, must verify and be able to prove that their products do not originate from land that has been recently deforested or have contributed to forest degradation. This must be evidenced by submitting a due diligence statement (including risk assessment and mitigations measures, as well as geolocation data) before certain commodities or products can be placed on the EU market or exported.
The EUDR only applies to products listed in Annex I of the regulation, and products not included in Annex I are not subject to the requirements of the regulation, even if they contain relevant commodities in the scope of the regulation. For example: chocolate and coffee are included Annex 1, so are covered in the regulation; however, tofu is not referenced in Annex 1, so will not be covered by the regulation, even if it contains soya beans (which is contained in Annex 1).
Companies which place commodities or products on the EU market which are derived from cattle, wood, cocoa, soy, palm oil, coffee, rubber should assess whether this may obligate them under the EUDR. Even if following this assessment, a company is not deemed to be placing those commodities or products on the EU market or exporting them, consideration should still be given to how any issues further up the supply chain may affect its products.
On 4 December 2024, it was agreed that there will be an additional 12-month phasing-in period. If, as we anticipate, this timeframe is adopted, the obligations under the EUDR will come into force on 30 December 2025 for large and medium companies and 30 June 2026 for micro and small enterprises.
Product Safety and Metrology Bill
The Product Safety and Metrology Bill continues its progress through parliament, with the Government responding to consultations on smarter product regulation. While the changes don’t directly impact food, they will influence online marketplaces, machinery, and emerging technologies.
The Bill, mentioned in the King’s speech and expected to become law by mid-2025, has notable implications:
- Online marketplaces: Enhanced product safety regulation.
- Regulatory approach: A flexible, risk-based model that may diverge from EU legislation, potentially affecting food in the future.
- Labelling: Shift towards digital consumer information reflecting modern markets.
Key proposals include a more adaptive, risk-based product safety framework, specific requirements for online marketplaces, and the possibility of digital labelling over physical labels. Technologies like 3D printing, automation, and augmented reality are also under review, offering potential benefits for businesses but risking trade barriers, especially with the EU.
The regime aims to address cross-sector hazards (e.g., button battery risks), though achieving this could lead to complex legislation, overlapping regimes and greater regulatory risks. Businesses must stay alert to EU developments, as continued alignment – or deviation – could introduce trade challenges for exporters.
These proposed changes represent several challenges for businesses. Regulatory frameworks often lag behind technological advances, making it crucial to create rules that foster innovation while remaining adaptable to unanticipated changes. Defining cross-sector hazards remains difficult, given the current patchwork of general safety obligations and specific regulations that add complexity without necessarily enhancing safety. Additionally, attempts to diverge from EU standards, such as the troubled UKCA marking initiative, highlight the risks of implementing changes without clear political will and robust infrastructure, potentially creating confusion and trade barriers.
This evolving landscape will significantly impact regulation and technology oversight. Success depends on fostering innovation and practical regulation. Businesses should engage with trade bodies and consultations to ensure the framework supports global trade, simplifies compliance and aligns with innovation goals.
Food crime
It is almost 12 years since ‘Horsegate’ (the discovery in the UK that meat being sold as ‘beef’ had been, in an alarming number of cases) adulterated or even replaced by horsemeat). At first, the authorities and the media reacted as they would to a major food safety issue and some of the headlines were pretty extreme. Retailers blamed suppliers, suppliers blamed abattoirs, abattoirs blamed farmers. The issue rapidly became international, and then confused as experts pointed out that the issue was not about safety. It was about food fraud or, if preferred, food crime.
Fast forward to 2024, and where the Food Standards Agency could not respond effectively to that challenge in 2014 (a conclusion of the Elliott Report), prompting the industry to take the matter into its own hands (the Food Industry Information Network was established in the second half of 2015 and other bodies, such as the Food Authenticity Network, have since followed), we now have a functioning National Food Crime Unit, yet the rate of prosecutions and enforcement remains stubbornly low.
Several types of food fraud (as opposed to wider food crime) are recognised as a constant threat – adulteration, substitution, counterfeiting, dilution and misrepresentation are perhaps the most recognised but to these could be added others; the list is not finite.
The global and ubiquitous nature of the food supply chain makes it a permanently attractive target for criminals, and with margins squeezed by rising overheads since 2022, manufacturers and producers need to understand what they can do to prevent food crime, and what they can expect others to do. The cost of not doing so is tangible and goes beyond lost margin – product recalls, claims, cancelled contracts and damage to reputation are just some.
A food business, wherever in the food chain it operates, has its own legal duties (a combination of well-established and soon to arrive) which exist in a framework typically requiring businesses not to do something, as opposed to doing something positive. Obvious examples are not offering for sale food which is unsafe and not misdescribing food products (including ingredients). The sanctions in the UK are criminal, so serious, and defences are limited. Operating a robust due diligence system (a recognised defence under the Food Safety Act 1990) is critical to knowing whether the business is likely to be doing enough.
The new duty to prevent fraud (effective 1 September 2025) adds another layer for businesses within its scope, and the recent publication of statutory guidance suggests the compliance bar will be set high.
