A new study of the food and drink sector in England and Wales has found that although firms are bouncing back from Brexit worries, they don’t necessarily know how to reap the benefits of provenance. Produce Business UK takes a closer look
The build up to the EU Referendum may have had a negative impact on food and drink manufacturers, and leaving the EU was cited as the biggest potential challenge to the sector, but a study by Lloyds Bank Commercial Banking which quizzed 100 English and Welsh firms over a broad cross-section of sizes of producers, manufacturers and retailers found a positive outlook in the weeks since the vote.
This third annual study of the food and drink sector – which you can read in full here – by the bank found that firms across the industry are eager to put behind them any uncertainty in the run up to the referendum and move ahead with their plans to enter new UK markets and develop new products. As an industry they forecast 19% growth in the next five years, up three percentage points from 2015.
Almost half of firms (44%) said that planned investment in their business had increased since the vote result, twice as many as the 22% who said it had fallen.
Andrew Connors, head of client propositions at Lloyds Bank Commercial Banking, said: “The food and drink industry has faced some unprecedented challenges in 2016 notwithstanding the uncertainty surrounding the EU Referendum vote.
“However our research shows a relatively confident and upbeat sector which recognises the challenges ahead and is finding ways to address them. In particular food manufacturers are working together more to improve productivity through joint ventures.”
You can watch Andrew Connors’ video on the report here:
Interestingly, when asked how they plan to fund growth over the next five years, it was these joint ventures that emerged as a popular route, with a third of firms (32%) looking to team up with fellow food and drink companies to share knowledge and access to different customer groups and markets.
The study found that producers still plan to achieve growth by entering new export markets, with 30% focusing their growth ambitions overseas – the same figure as in the 2015 report.
However, the number of exporting firms targeting Western Europe has declined from 60% last year to 47% this year, though it remains the top target for the sector. In fact, intentions to target all the major markets have declined slightly, with the exception of eastern Europe and Russia, which 33% of firms now plan to target – an increase of 22% on 2015. This is despite the Russian embargo on EU food imports.
Other highlights from the report include a continued focus on productivity, as firms aim to make efficiency savings (42%), streamline processes (37%), invest in staff training (34%) and restructure operations (30%). While an increasing number of businesses are reporting that the depressed oil price is having a positive impact on their affairs, up from 19% to 32%, and concerns about agricultural price volatility seem to be easing too.
There are concerns though, and one potential one is that risk-averse firms look to be losing their appetite to innovate. In 2014, 77% were pursuing new product development. This figure dropped to 55% last year and in the 2016 study, Lloyds reports a figure of just 40%.
The study also finds an interesting shift towards joint ventures as a means to growth suggesting that firms are looking for lower risk options to grow.
The challenge of provenance
But what stands out from the data in the 2016 report is the shift in attitude towards provenance compared to 2015. The study revealed that last year 73% of respondents felt the increased focus on provenance was an opportunity for their business and 88% of companies were getting a benefit from the UK provenance of their produce.
However, by 2016, these figures have changed dramatically and only 44% see UK provenance as an opportunity and those that said they draw advantages from their UK provenance fell to 69%, while the number of those seeing it as a challenge doubled to more than half.
“It seems likely that during a period of increased global uncertainty, cost-conscious consumers have prioritised the price over the provenance of their food,” the report authors state. “Clearly this is still an area of opportunity for the sector, but there is a rising challenge as to how to capitalise in any substantial way.”
So while provenance is still seen as a valuable asset – and some 86% of respondents think that English and Welsh produce has a good reputation internationally – businesses are finding it tough to realise its tangible value. Sure, the sector continues to publicise UK provenance in marketing and on packaging but there is a feeling that a challenge exists when it comes to helping the business in a substantial way.
Recruitment and reformulation
Looking ahead, Food & Drink Federation director general Ian Wright CBE, welcomes the report saying: “Bringing the right people with the right skills into the business is central to our future success…Of course issues about the nation’s health and wellbeing and the role of diet and nutrition remain centre stage. Our industry accepts its responsibility to play the fullest part in tackling obesity. That involves constantly reformulating products to remove fat, salt and sugar, marketing responsibly and promoting healthy, active lifestyles.”