Shadow of Brexit hits industry confidence

By Rod Addy contact

- Last updated on GMT

Brexit fears are creating an impetus for UK food and drink manufacturers to invest for growth
Brexit fears are creating an impetus for UK food and drink manufacturers to invest for growth
Confidence has fallen by 20% among UK food and drink manufacturers over the past three years, according to research just published by accountancy and business advisory firm BDO.

In addition, only a quarter of businesses surveyed by the company believed the Government could negotiate a favourable post-Brexit environment for the industry. Just 2% thought Brexit would have a positive impact on their business in the coming year.

The fears of many of those surveyed related to lack of availability of workers and skills. “Food and drink businesses are heavily reliant on overseas labour, with one in three workers being from the EU​,” said Paul Davies, BDO head of food and drink.

The majority of firms we’ve spoken to believe that Brexit is likely to have a negative impact on attracting labour and skills in the future, and naturally that’s becoming a growing concern for them. It is crucial the Government provides some clarity over our EU exit quickly and further supports an industry that is a huge driving force for our economy​.”

A total of 55% of those surveyed predicted Brexit would have a negative impact on access to labour and skills. Other key concerns included the negative effect Brexit would have on medium- to long-term trade (36% thought it would), the damage it would do to trade over 12 months (expected by 31%) and access to imported raw materials (a third believed it would).

Skills

That said, despite concerns about access to human talent, there was little evidence that skills shortages were significantly affecting the industry yet. Three years ago, 70% of survey respondents reported having problems finding the right people, but in 2017 that figure dropped to 57% and this year it went down again, to 54%. That is in keeping with Office for National Statistics data posted in February suggesting the initial sharp drop-off of EU migrant workers entering the UK in June 2015 directly after the Brexit vote was levelling off.

Those surveyed were also positive about revenues and orders, with just over three quarters expecting an increase in revenue and more than two thirds believing they would see more orders in the coming year.

BDO’s Food and Drink Report 2018​, published today (21 May) found that 60% of manufacturers surveyed were generally positive about the future of the industry, with three-quarters (76%) expecting revenue growth and 67% believing order levels would increase in the next year.

Investing

However, despite the challenges, firms surveyed said they were investing in future growth. Almost 90% said productivity was a major focus area. Two-thirds (63%) were looking to make better use of staffing resources and half (54%) were aiming to improve materials utilisation and reduce waste, driving automation.

According to BDO’s report, the objective for almost 50% of all automation projects currently under way by manufacturers was to boost productivity. A further 30% of automation programmes were aimed at improving process capability and 23% of respondents said they were automating to boost competitiveness and enhance product quality.

However, the indications were that appetite for automation had tailed off slightly since the last survey, with 54% of respondents planning to increase investment in automation, versus 66% in 2017.

BDO highlighted 3V Natural Foods, which owns the Rocks Drinks and Meridian Foods brands, as a good example of this trend.

The group of companies had grown from £7m to £29m in the five years to 2017, it said. Neil Butler, finance and operations director at 3V Natural Foods, credited the company’s wide product ranges and ability to be flexible in production to that financial success. However, that meant operations were relatively labour-intensive.

Automation

Butler said: “If Brexit results in a restricted labour supply, this could result in upward cost pressure and so we are proactively seeking to increase automation in our processes over the next two to three years​.”

Looking at where future growth opportunities would come from, more than half the survey respondents were turning to new product development to boost sales, BDO said.

The two second-biggest drivers of growth were refreshing existing product ranges and expansion into new domestic markets. Only 19% saw expansion into new export markets outside the EU as a priority.

Davies added: “The focus on new product development highlights the value of innovation within the industry​. The Government has committed to boost spending on R&D incentives, however there is still a relatively low awareness around the range of activities that might qualify. I would urge that research and development tax reliefs should be high on the agenda for innovative food and drink businesses​.”

Related topics: Brexit Debate, Manufacturing

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