‘Timid’ bankers threaten food export-led recovery

By Freddie Dawson and Mike Stones

- Last updated on GMT

Related tags Economics Finance Sustainability

Lack of funding threatens to choke food and drink manufacturers' ability to the economy out of recession
Lack of funding threatens to choke food and drink manufacturers' ability to the economy out of recession
Lack of investment from risk-adverse bankers is threatening food and drink manufacturers’ ability to spearhead the export-led economic recovery long predicted by government ministers.

Philip White, chief executive of independent finance provider Syscap, said:“The government has called for a ‘march of the makers’, with economic growth spurred by manufacturing led exports. However, without financing, that is not going to happen.

“Banks are under a lot of pressure to increase their capital reserves, which means they are reluctant to lend.”

His organisation confirmed this week that lending to UK manufacturers fell 33% from £33bn in 2008 to £22bn by January 2012.

The Food and Drink Federation (FDF) told FoodManufacture.co.uk that small- and medium-sized enterprises (SMEs) were particularly vulnerable to lack of investment.

Risk averse

Angela Coleshill, FDF director of competitiveness, said: “Access to finance is currently a problem in particular for SMEs, as banks have tightened lending criteria and are more risk-averse, affecting ability to invest in order to drive future growth​.”

The success rate of small-scale UK manufacturers’ loan applications to banks fell from 91% in 2007 to 65% in 2010, according to the FDF’s Sustainable Growth report, said Coleshill.

Only manufacturers in Spain and Ireland were less successful than their UK counterparts in applying for loans.

But in France, 84% of smaller manufacturers’ applications for loans were successful, while in Germany the rate was 75% in 2010.

Earlier this month, food and agriculture minister Jim Paice confirmed that UK food and drink exports wouldl play a vital part in the UK’s economic recovery, after exports topped the £12bn barrier last year.

Speaking at the Foodex exhibition in Birmingham, Paice told FoodManufacture.co.uk that the industry was an “essential”​ part of the UK economy and praised the sector for its continued export growth in 2011.

In February, speaking at Gulfood, one of the Middle East's biggest food and hospitality shows, Paice said: “I firmly believe food manufacturing can play a key role in Britain’s economic recovery. That’s why I’m backing British products abroad while ensuring business gets the right support at home.”

In December 2011, Caroline Spelman, secretary of state at the Department for Environment, Food and Rural Affairs, told an FDF meeting that SME food and drink manufacturers were the “engine room of growth that will lead the UK economic recovery”.

Export-lead recovery

 “The food and drink sector is an important player in the​ [economic] growth and recovery this country needs,” she added. The sector’s contribution would play “an important part in an export-lead recovery”.

Meanwhile, a Syscap spokesman told FoodManufacture.co.uk, that alternative financing deals, particularly leasing capital equipment instead of buying, could prove useful.

But many firms were unaware or unable to access alternative sources of funding, said Coleshill.

Also government help - especially in areas such as research and development (R&D) tax credits - could help food firms with the funding they need to generate sustainable growth.

At present, food and drink firms do not qualify for tax breaks for R&D because authorities do not recognise the types of innovation specific to the food sector, said Coleshill.

"The government needs to widen the definition of R&D activities to include improvements in products, technology, packaging, not just blue sky research which is rare in food and drink manufacturing,”​ she said.

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1 comment

Lack of access to finance

Posted by MB,

We have exactly this problem. Export is growing rapidly for us, but without access to finance for new machinery we are having to put the brakes on.

The company is just over one year old with a projected turn over of £600,000 in our second year. But the banks aren't interested in growth. Without finance we can't export on such a large scale and will struggle to meet our turnover.

What the government is preaching is not, in reality, what is actually happening for small- to medium-sized enterprises.

There is zero financial support to grow export.

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