UK Food and Drink Sector Strong Against Poor Economic Backdrop
Food and drink manufacturing has remained one of the UK’s few growth industries during the recent economic downturn, with domestic and export sales remaining healthy and new product development and total investment increasing in 2011. Final figures from the Business Confidence Survey 2011 summary show that UK food and drink manufacturing (FDM) has remained resilient during a year of weak domestic demand, economic uncertainty and price volatility. The survey looks at Food and Drink Federation member company confidence in key areas including investment; sales; skills and business optimism.
Volume output for 2011 started strongly, with 70% of respondents reporting sales increases. Actual sales remained more in line with expectations during Q3 and Q4 but still continued to grow. Despite a weaker domestic picture, export sales for FDM grew strongly and are expected to reach around £12 billion for the year when official figures are published later this month. Exports are still seen as a key driver of industry growth and there are opportunities for competing in less established markets against key producers such as France, Germany and Italy.
As with all industries, increased costs hit the sector hard. Although food commodity prices fell slightly towards the end of 2011, these were overshadowed by increases in fuel and materials, particularly due to oil price spikes after political unrest in the Middle East. Whilst many manufacturers were forced to pass on price rises to cover costs, many SMEs are believed to have deferred increases to avoid jeopardising their position with retailers.
Investment was centred on product development but uncertainty over the economic outlook and consumer confidence led some companies to scale back their original plans. Capital expenditure remained fairly low, apart from a surge in Q3, but reduced bank lending meant that capital projects remained unfulfilled for many SMEs. Research and development investment grew, with research from Grant Thornton revealing that 8500 new product variants were registered in 2011, up from 8000 in 2010 and ranking second in the world for NPD behind the United States.
Despite generally promising results, confidence in the economic outlook remained subdued amongst companies, dampened by economic uncertainty, a fall in consumer confidence and reductions in bank lending. However respondents are registering more optimism for Q1 of 2012, sparked by falling commodity inflation and higher than expected demand from overseas markets.
