Confidence among food manufacturers remains downcast at -31%, with many businesses reporting deteriorating conditions.
Whilst this figure represents an improvement from the stark drop in Q3 2025, which was likely driven by uncertainty ahead of November’s Budget, its publication hasn’t been enough to restore confidence to positive levels – only rising by 29 percentage points between the two quarters.
SMEs and mid-sized businesses continued to face challenging conditions, recording net confidence scores of -38% and -33%, respectively.
Among SMEs, 50% reported worsening conditions, with 45% of mid-sized businesses saying the same. In contrast, all large businesses reported that conditions remained unchanged, reflecting relative resilience that scale can provide during periods of uncertainty.
Production costs rise by 4.4%
Manufacturers report production costs have risen by 4.4% in 2025, with smaller businesses again taking a bigger hit with an average increase of 5.3%.
Much of this pressure has been policy-driven. Extended Producer Responsibility has added £1.1 billion in costs to manufacturers, with some SMEs reporting that this alone wipes out their annual profits.
Higher employer National Insurance contributions added more than £400 million, alongside further financial pressures as a result of the extended Soft Drinks Industry Levy, EU trade measures, and advertising restrictions.
The FDF reports that manufacturers have been unable to pass through costs fully due to intense retail competition and weak consumer demand, with retail food volumes remaining below pre-pandemic levels.
Consolidation in the market highlights the competitive state of the sector, with the number of UK food manufacturers having fallen for two consecutive years — the first sustained decline since 2010, and insolvencies in the last four years standing at more than double 2019 levels.
Despite struggles, small businesses have growth ambitions
Overall, while conditions remain difficult for small and mid-sized manufacturers, there are signs of stabilisation among larger firms with 60% reporting a strong positive outlook for 2026.
Still, the data shows an appetite for growth among smaller players.
Growing sales in the UK market remains the overwhelming priority for all food and drink manufacturers (69%), with production innovation claiming second spot.
New product development is central to large businesses’ plans, with 75% concentrating on this, compared to 65% of mid-sized firms and 53% of SMEs.
SMEs keen to export
International expansion is also high on the agenda, with 26% of manufacturers prioritising growth in foreign markets. This is a particular focus for SMEs, with 40% looking to grow sales in foreign markets, suggesting that smaller firms are seeking to offset weak domestic demand with sales elsewhere.
Improved certainty following the Budget has also increased investment plans in plants and machinery, with 53% of respondents intending to increase spending in this area. Among SMEs, 41% said they are planning to invest in machinery this year, indicating a move towards more automated, modern operations across the board.
Little opportunity to recover
However, the FDF has warned its data shows there will be little opportunity for manufacturers to claw their way out of the red, with 39% of consumers saying they’ll be cutting back on essential spending as a result of ‘rising food prices’.
As such the Federation is calling on government to support the industry in its growth ambitions by ensuring it receives a fair share of government R&D funding and is not overlooked for support for energy intensive industries.
It also urges the UK government to offer better support to SMEs and their exporting aspirations by replicating the Welsh and Scottish Government’s schemes and through promotion at targeted trade shows – an investment that would cost the UK government approximately £2.6 million.
“UK food and drink manufacturers are 97% small and medium sized businesses – ambitious, agile and innovative businesses. Government shouldn’t underestimate their potential to drive jobs and growth. We’ve set out a blueprint of practical measures to unlock £50bn worth of growth, but are yet to see any of these actioned by government,” said Karen Betts, chief executive at the FDF.
“UK food and drink is popular globally, known for its quality, creativity and innovation. Setting the conditions for success here at home while growing those exports is a win-win for government, industry and communities up and down the country. The right government measures will pay dividends in business confidence, investment, productivity and growth.”
The association has also emphasised the importance of the Government maintaining its commitment to assess the economic impact upcoming policies, such as a new Nutrient Profile Model (NPM), will have on food businesses and, subsequently, food prices via an Inflation Gateway process.
