Food and drink producers are more optimistic about their growth prospects than they were a year ago as they plough more investment into expanding their businesses overseas in the aftermath of the UK’s decision to leave the EU, according to an annual industry report.
The number of businesses in England and Wales investing to secure new international customers has leapt to 69% this year, up from 55% in 2016, the Food and Drink Report by Lloyds Bank Commercial Banking found.
However, Europe remained the most common target, with two-fifths (43%) planning to enter new markets inside the EU, while 39% of firms are targeting new markets outside of the European bloc.
Producers said their primary export targets were Western Europe, the Far East and Asia (both 43%), Australia and New Zealand (41%), followed by North America and the Middle East (both 36%).
More than a quarter (28%) of food and drink companies added they planned to export for the first time in the next five years.
But business highlighted challenges to exporting including regulatory issues, political uncertainty at market destination, international regulation and domestic regulation acting as barriers (all cited by 54% of companies).
It led to more ambitious growth plans than a year ago for the sector, with businesses forecasting growth of 21% of turnover over the next five years, up from 19% in 2016 and 16% in 2015.
Investment plans remained fixed, however, with almost half (49%) of firms planning to invest the same or more than last year over the next 12-24 months and 29% to invest less.
Popular routes to growth include developing new products (57%), growing sales in the UK (51%), creating jobs (48%) and entering new EU markets (43%).
Leaving the EU remained the biggest threat to supply security in the next five years, cited by 41% of firms. Concerns about ingredient security have also increased, as 36% said it is one of the biggest challenges for the industry, up from 26% last year.
“Uncertainty surrounding last year’s EU Referendum vote had slowed down the UK food and drink industry’s aspirations in the short term,” said Elena Paitra, managing director for food, beverages and tobacco at Lloyds Bank Commercial Banking.
“But this year’s survey shows that while uncertainty remains companies are moving on from Brexit and refocusing efforts on achieving growth and increasing confidence. Buoyed by the depressed pound, many more firms are targeting growth overseas, with almost as many firms looking beyond the EU as within it.
“The cost of labour is by far the biggest challenge that the industry faces and firms are trying to mitigate these challenges by improving efficiency and productivity through cost cutting, upskilling of labour force and investing in R&D, innovation and automation.”
She added: “Last year was a record-breaking year for food and drink exports and firms seem optimistic that momentum will be maintained in 2017. The sector is gaining confidence and businesses are positive about job creation.”
Firms plan to fund growth by creating efficiencies through cost cutting (cited by 53% of respondents). And the number using cashflow/working capital finance has grown from 31% in 2016 to 48% in 2017.
Businesses said that rising labour costs were the industry’s biggest challenge over the next five years, mentioned by 48%, up from 25%. Despite that, 44% of all companies still planned to create jobs over the next five years, up from 24% last year. If the job creation plans come to pass the sector will create more than 95,000 new jobs over the next five years.
Ian Wright, director general of the Food and Drink Federation, said: “This excellent report underlines both the importance of the UK food and drink manufacturing industry and the challenges it faces as the ever-increasing uncertainty of Brexit looms.
“This research adds to the growing formal evidence that demonstrates that we must extract assurances from the government about the key aspects of workforce, supply chain, and regulation for our industry to be able to plan with confidence for the future.”