The number of food and drink companies making trade credit insurance claims has rocketed after a tough year for the industry.
Food and drink accounted for 20% of claims made to the insurer Atradius last year, compared with just 8.5% in 2011 and 9.5% in 2010. The sharp increase reflects the high number of insolvencies during the year.
Trade credit insurance is taken out to protect companies from losses incurred from trading with businesses that fall into financial difficulties.
Last July, Grant Thornton reported that there were more food industry failures in the first half of the year than in the whole of 2011.
It tracked 17 reports of business failures during the period, against 15 across the whole of 2011.
High-profile insolvencies included DBC Foodservice, Eskimo frozen Foods and Sangs.
Atradius said the high number of failures and the resulting increase in insurance claims was ultimately down to the dual pressure of rising commodity costs and weak grocery sales.
“Unusually, food sales have been comparatively soft as a result of dips in consumer confidence and disposable income,” said Darran Tilke, senior risk underwriter at Atradius. “Also, while consumers have experienced moderate year-on-year price increases of around 2.5% according to CPI data, the supply chain has had to face double-digit rises, placing tremendous pressure on profitability.”
There was likely to be little respite this year, he added: “In a bid to protect market share, supermarkets continue to resist necessary price increases, which would bring much needed relief to the supply chain.”