Greggs manufacturing

Investment across food and drink manufacturing was down 33.2% in the year to Q3 2023

British food manufacturing is “stalling” as profitability struggles against a backdrop of declining investment in the sector, new figures revealed this week.

Critical investment in the sector has been shrinking over the last few years, a new report by the Food & Drink Federation showed, despite food and drink manufacturers contributing over £35bn in gross value added (GVA) to the UK’s economy.

Investment across food and drink manufacturing was down 33.2% in the year to Q3 2023, compared to the same period in 2019, according to official government data.

This is in contrast with the UK as a whole, where investment rose by 5.4% in that period.

Meanwhile, midsized food and drink manufacturers’ profitability is also underperforming in comparison to industry peers, according to new analysis that has found UK food manufacturers have struggled through the crucial ‘golden’ Christmas trading period.

Food was the only manufacturing category to see profitability on inventory stall in the latest Manufacturers’ Health Index, a quarterly report by inventory management software company Unleashed, as producers continue to struggle with sky-high costs including energy, raw materials and labour costs.

“Food manufacturers were treading water towards the end of 2023, with no uplift in inventory profitability over the Christmas and new year period,” said Unleashed’s head of product Jarrod Adam.

“This stands in contrast to most other areas of manufacturing which have seen growth,” he added.

Food manufacturers generated £1.44 for every pound invested in inventory in Q4 2023 – the same as the previous quarter and lower than Q4 2022, when it stood at £1.48.

The food sector lagged behind drinks manufacturers, who made £1.51 for every pound invested in inventory in Q4 2023, up from £1.40 the previous quarter.

But it was still significantly below the industry average of £2.33, across 16 manufacturing categories, the Unleashed report showed.

The FDF is calling on the government to “act now to create the circumstances for further investment” as a stalled manufacturing sector “threatens growth and food security in the medium and longer term”.

“The government should not take our industry for granted,” said the group’s chief Karen Betts. “Our sector urgently needs investment – in science, innovation, automation and new technologies – if it’s to remain the powerhouse that our country needs it to be into the future.”

The FDF wants a formal food and drink innovation partnership and financial incentives through a ‘food and drink manufacturing transformation fund’ to expedite automation and digital technology adoption in the sector.

“We need a strategic approach from government looking at attracting new investment and building productivity – to set the conditions for success into the next decade,” Betts said.

“Government must also look at how we are regulated. Muddled regulation – such as ‘not for EU’ labelling, a poorly functioning Apprenticeship Levy or badly executed packaging recycling reforms – is deterring investment and will damage local prosperity.”