Food & drink sector stepping ‘out of the shadows’ says report

Paul Falvey

Paul Falvey

After decades of living in the shadows of more visible manufacturing sectors, the food and drink sector is stepping into the limelight.

This is thanks to rising business confidence, product innovation and investment in automation, according to a new report published today by accountancy and business advisory firm BDO LLP.

BDO’s Food & Drink Report 2016, in association with the Institution of Mechanical Engineers, found that 79% of those surveyed are positive about the future of the industry, with 86% of firms expecting revenue growth of up to 20% in the next year.

Pricing pressures, the volatility of raw materials costs and skills shortages are major challenges for manufacturers.

However through product innovation and investment, and with 70% of surveyed firms having arranged fixed price agreements with energy suppliers, the sector has become increasingly efficient and smart in dealing with market pressures.

Nearly two thirds of firms surveyed said that new product development would be a major source of growth, with 60% and 43% saying access to new UK markets and export markets respectively will be increasingly important part of their growth strategies.

Organic growth is the priority as, for a sector that is usually a vibrant source of mergers and acquisitions, only 15% expect growth to come from transactional activity.

Automation has become an important issue on the boardroom agenda, with more than half of the food and drink firms questioned by BDO and the Institution saying they are increasing investment in this area.

According to the report, some companies have been slow to adopt automation on production lines, due to the downtime and disruption it could cause in a busy factory.

However, the realities of a modern business needing to compete on quality and cost, combined with the impact of the introduction of the National Living Wage on many manufacturers, is prompting more automation investment for the year ahead.

Paul Falvey, Tax partner at BDO LLP Bristol, comments: “Pressures on pricing and margins remain hugely challenging, but the overall sentiment of the sector is a positive one.

“It’s been a tough few years for food and drink companies, but it seems they are finally stepping out of the shadows and focusing on future growth.

“We all know that the manufacturing sector plays a critical role in rebalancing our economy and driving long-term sustainable growth for the UK, yet little action is being taken to support the food and drink industry, the single largest manufacturing sector in the UK.

“The proposed tax on sugar will have a huge impact on food and drink manufacturers and could set many firms back. We would urge the Chancellor support the sector in his Budget next month.

“Increasing the annual investment allowance to £5m for five years in support of automation investment and introducing a temporary reduction in Employers’ National insurance for manufacturers to recruit the talent they need, would be a great step in the right direction.”