Business all at sea
They're all at it: United Biscuits; Kellogg; Jordans; AB World Foods; Typhoo; Nestlé ... They're all making the most of the weak pound and increasing their presence in export markets. And as a result, new research shows that the value of food and non-alcoholic drink saw a growth of around 5% in 2009 compared with 2008, despite the global financial crisis, says the Food and Drink Federation (FDF). In stark contrast, total UK exports during the same period were down by around 15%.
"This is an extremely strong performance particularly when compared with the sluggish performance of UK exports as a whole. We still believe the food and non-alcoholic drinks sector is on track to hit a new record of just under £10bn in export sales for 2009," says Julian Hunt, director of communications at the FDF. "This would represent four consecutive years of record growth a sign of the resilience of our sector and its long-term success in overseas markets."
The UK's food and drink industry is tapping into strong demand for UK products "thanks to our expertise in areas such as own-label; our innovations in areas such as convenience and ethnic products; and our heritage and reputation for quality products such as red meat or Scottish salmon", he adds.
Despite this, the FDF believes that the government's decision not to provide short-term credit insurance for exporters is a sorely missed opportunity. Government help for exporters in the form of credit insurance would particularly help some of its members in relation to credit terms, as some countries are looking for as much as 120 days credit.
"We think that the government must play its part in ensuring that the UK food chain can continue to thrive as an innovative, competitive and resilient sector. It must now turn its vision into a meaningful cross-Whitehall strategy to deliver," says Hunt.
Where to get help?
Since the government closed Food From Britain (FFB) in March last year, there has been a feeling that there is limited or no sector-specific support for food and drink exporters. "There is now no single national strategy to help exporters in our industry," says Stephen Jones of Somerdale Cheeses, a UK exporter of British cheese and dairy products. "I certainly do not know where to get help now, do you?"
The government, however, says that the industry can get support through Regional Development Agencies and UK Trade and Investment (UKTI), which is a government department that works with businesses to help them achieve success in international markets, says the UKTI. The FDF also has a section on its website to signpost help available for food and drink companies at www.fdf.org.uk/exports.aspx.
Despite this, Jones still feels that: "Support is fragmented or regional and there's not one single place where you can make a quick phone call and ask a question about logistics, or market share or legislation in different countries, which is something that was quick and easy to do when FFB was on the scene. There's no help like that now, so the industry is missing out."
At the beginning of last year and towards the end of 2008 there was a surge of exports but, although there is still growth, it started to slow down towards the end of 2009 and at the beginning of 2010. "This poses the question: is this a result of the closure of FFB?" says John Whitehead, director of the Food and Drink Exporters Association (FDEA), which was set up just after the closure of FFB. "It seems that the withdrawal of support suggests that food and drink is not a priority for the UK government."
The FDEA, therefore, is actively calling on the government to develop a national strategy to help companies take advantage of current strong trading conditions. As part of this, it is calling on the government to help boost the UK's presence in international trade shows. "The UK is massively under-represented in foreign, international trade shows," he says. "When I go to international exhibitions there is always a strong presence from other countries, for example, Spain, Italy and France."
IFFA's organisers agree that there is not a strong UK presence at its show in Germany. IFFA is an international machinery exhibition for the meat industry. "I think that in the UK we have an island mentality and we seem hesitant about exhibiting abroad," says one of the organisers. "This is a waste as the export market, in some ways, can be more attractive and hassle-free than the domestic one. Some UK manufacturers are not making the most of the weak pound."
There is also the feeling that, in this country, the government and exporters are not making the most of in-depth research that is key to their markets. Robin Johnson, partner at international law firm Eversheds, says that the UK needs a clear government strategy on research and development in fiscal measures. "The government needs to bridge the gap between business and the research that our world-class universities produce. I'm often talking to universities and the kind of research that they do is amazing but manufacturers never hear about it. Again, it comes back to the fact that the export industry could be doing so much more to make the most of the favourable trading conditions and, in particular, the weak pound."
The strength of the pound
Confectionery company Tangerine claims that the pound's weakness has helped to develop significant growth within the business, says Steven Joseph, executive chairman. The Blackpool-based firm recently secured a major contract to supply three million Sherbet Fountains and 70,000 cases of Taveners Proper Sweets to Australia. British ex-pats are helping to drive sales, "especially in what you might call former colonial markets" such as Australia, South Africa, Canada and Hong Kong. "The pound's weakness against other currencies presents an export opportunity and we plan to double our exports in the next three to five years," adds Joseph.
So, that begs the question: what is the future of the pound? If the UK continues to claw its way out of the recession over the next couple of years, it is thought that it could recover to as high as euro 1.30, according to Glenn Uniacke, a senior dealer at Moneycorp, a foreign exchange specialist. But Uniacke predicts that its value will not make any dramatic upward movements until towards the end of this year, when interest rates are predicted to rise.
However, there are a number of key factors that threaten the pound's recovery, such as fears that we could enter a double-dip recession or face another housing crash. Also, if we end up with a hung parliament after the next election, the value of the pound is likely to dip, as it is the general perception that a hung parliament would not provide the strength of leadership needed to take charge of the tattered economy, adds Uniacke.
"These are exceptional times for sterling. Between 2003 and 2007 its value more or less stayed between euro 1.40 and euro 1.50. But over the last year or so it has fallen by around 25% and, as a result, we've seen a number of manufacturers investigate their options and optimise any opportunities that this presents," adds Uniacke.
For example, he says, manufacturers that import ingredients can buy risk management deals that protect them against a weakening pound. The same manufacturer can then export the finished product but, with a second hedging strategy in place, are able to protect them against the pound's recovery.
"Although economic volatility brings uncertainty, it also brings opportunities, which is why the food and drink industry is making the most of export markets."
'A nice thing to do'
But the size and potential of the UK market means that firms can sometimes focus solely on domestic sales and see exports as 'nice to do', rather than a strategic priority. Investment and dedicated teams are essential if manufacturers want to successfully export their product, according to Praveen Vijh, co-founder of Eat Natural, who did just that. The company is growing its international business at 35% year on year and it accounts for around a quarter if its turnover.
"If manufacturers want to export, then they need to treat it as a key part of the business ... and not just a thing that they think about on a Friday afternoon when everything else has been done."
Top export categories
Research conducted by Leatherhead Food Research on behalf of the Food and Drink Federation, showing the top performing products in 2009.
l Coffee +32.1% to £54.5M
l Ice cream +29.8% to £53.7M
l Soft drinks +22.7% to £224.1M
l Soups +21.4% to £22.8M
l Breakfast cereals+14.2% to £310.3M
l Crisps +14.0% to £40.4M
l Sauces andcondiments+15.5% to £134.7M
l Savoury biscuits +10.7% to £25.2M
