Food and drink processors are more vulnerable than they have been for 15 years, experts claimed as industry insolvencies rose 18% in September 2009 compared with the same period last year.
Supermarket price wars, historically high input costs and inadequate risk management strategies to protect supply chains against late or non payments are among the reasons cited for the increase.
As Office for National Statistics figures revealed gross domestic product fell in the third quarter of 2009, indicating the recession was not over, Duncan Swift, head of Grant Thornton's food and agribusiness unit, said: "I predicted last year that now would be the time when such problems would have the greatest impact on industry. We don't expect this [insolvency] rate will go down in the next 12 months."
Until now, food businesses had done everything to make up for margins squeezed by supermarkets and rising input costs, he said. "But now businesses are finally running out of options," he said as they continued to be hit by credit restrictions and late payments.
The Forum of Private Business (FPB) agreed that cash flow was being damaged by credit restrictions and declining trade. The organisation has previously named and shamed supermarkets and firms such as Carlsberg and InBev for extending payment terms. "Our research also suggests that poor payment, which has always been a problem, is now threatening the very survival of many businesses," said Phil Orford, the chief executive of the FPB.
According to data provided by global information services company Experian, in September 2009 alone 13 UK food manufacturing companies became insolvent out of a total of 5,000. That represented 0.26% up from 0.22% on last year.
"Food manufacturing firms experienced a much higher rate of business insolvency compared with average UK business insolvencies, which decreased 5% during September 2009 compared with September 2008," said a spokeswoman for Experian.
For example, she said the number of insolvencies among insurance companies had fallen by 50% compared with last year. Property business insolvencies had fallen by 9% and banking and financial service insolvencies had remained unchanged. Food manufacturing insolvencies, however, had risen by 18%.
"A major reason for this is that British businesses were quick off the mark to implement sophisticated risk management strategies to help them avoid insolvency," she said. "Such measures have been implemented in food manufacturing, but not to the same degree."
The Food and Drink Federation (FDF) said the government should do more to help firms struggling with a lack of insurance and longer credit terms, which were creating "real headaches". "One way the government could help is by extending its trade credit insurance scheme beyond the end of this year," said Melanie Leech, director general of the FDF.