Food manufacturers hit by government energy plan

By Freddie Dawson

- Last updated on GMT

Rising energy costs could leave some firms facing insolvency
Rising energy costs could leave some firms facing insolvency

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The financial health of the food manufacturing sector is being hit by the government’s commitment to renewable energy, leaving some firms facing the threat of insolvency, according to industry experts.

A recent report from financial specialist Company Watch revealed that many firms face increasing financial woes this year once the effects of rising energy costs become apparent.

The report listed Premier Foods, Dairy Crest and Britvic among the struggling firms based on 2010 and 2011 figures.

But Nick Hood, head of external affairs at Company Watch warned that the cost of rising energy prices had yet to be factored in, which could lead to problems for many more firms.

Deteriorate further

He said: “Once these feed through, we can expect the financial health of the sector to deteriorate further, with more manufacturing companies … becoming vulnerable to insolvency or restructuring.”

The Food and Drink Federation (FDF) expressed concern that a change in energy policy, expected in the Queen’s Speech (May 9), is unlikely to be good news for firms.

Andrew Kuyk, director of sustainability at the FDF, said: “Reading between the lines, when the government says it wants a more balanced playing field between renewable and conventional energy, it does not mean that energy is going to be made cheaper.”

Food firms will suffer as a result of the government promoting the use of renewable energy sources by reducing the price difference between them and cheaper, conventional energy sources, according to Kuyk.

Further subsidies for renewable energy were unlikely given the current economic situation, leaving a rise in conventional fuel prices as the only option, he added.

The FDF also worried that the government’s reluctance to reduce energy costs meant UK firm’s would struggle to compete with their European counterparts.

Global supply chains

We are not just competing in the UK. We are competing in global supply chains. If our energy prices are higher than those of our competitors, it distorts the competition," ​he claimed.

UK energy prices are already 10% higher than those in Germany and will be 15% higher by 2013, according to a study by engineering manufacturers’  organisation, EEF.

Despite this, the government will not require energy companies to inform businesses of the cheapest possible tariff, as they now must for domestic consumers, said Kuyk.

He added: “There are signs that the government recognises the difficulty in finding the best tariff when it comes to domestic consumers, but they are not doing a great deal to make things simpler for businesses.

The presumption seems to be that business customers should be regularly looking at these sorts of things as part of general good housekeeping.”

Deputy Prime Minister Nick Clegg recently (April 11) announced that energy companies must update customers each year about what tariffs offer them the best deals. A spokeswoman for the Department of Energy and Climate Change confirmed that the new requirement would only apply to domestic customers.

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