finance economy

Food and drink suppliers have begun to see tentative green shoots of recovery as spring begins, despite confidence falling for the first time in more than a year in the final quarter of the financial year.

A survey published by the FDF today found the “net confidence score” for its members fell for the first time in five quarters in Q4, but had shown signs of “greater optimism” in Q1 of 2024.

The federation said major challenges remained for the sector, especially for SMEs, who had been disproportionately impacted by the fallout from a raft of damaging economic events including Brexit, the pandemic and war in Ukraine

In the last quarter of 2023, half of SMEs reported business conditions had deteriorated.

The research found that as productions costs continued to rise throughout the year – by as much as 12.8% – a quarter of smaller business were unable to recoup costs by increasing selling prices in retail outlets, which some of the larger brands were able to negotiate.

Smaller companies had to postpone or cancel vital investment projects and divert funds towards day-to-day operations to keep their businesses viable, it said.

The survey also revealed significant labour shortages have cost businesses around £1bn in lost output in 2023, with companies being forced to leave vacancies unfilled and reduce production.

Compared to four years ago, the number of business insolvencies in the industry rose by 136% in 2023, with almost 300 insolvencies last year alone.

While there were signs of recovery, after food inflation slowed for the 10th consecutive month in January, manufacturers were still cautious about the outlook for 2024. Geopolitics, the impacts of global weather events, and record wage growth are all having an impact on costs.

”Food and drink manufacturers are cautiously optimistic about 2024,” said FDF director for growth Balwinder Dhoot.

“The global supply chain challenges the food sector has had to face, along with the cost of living crisis, have had a negative impact on businesses’ ability to plan and invest in the long-term future.

“Innovation is key to maintaining competitiveness, so it is encouraging to see UK manufacturers are looking to develop new products for consumers, and take advantage of full expensing to increase and modernise plant and machinery expenditure. It is also necessary if we are to build a sustainable and resilient food supply chain which supports the economy and feeds the nation.”