Amid concern from the industry, the Food and Drink Federation (FDF) has called on the UK Government, stating it “must prioritise policies that support food and drink manufacturers to boost investment”.

This request comes as the FDF publishes its Q3 State of Industry Report, a document that outlines a “mixed picture on investment expectations”, highlighting that not all businesses are a position to increase their capital spending, with 18 percent responding that they expect their investment to fall over the next year.

Meanwhile 41 percent of manufactures responded that they are planning to increase their investment over the next year, suggesting that they are in a better position and have their sights set on growth.

However, ONS data has revealed that the food and drink sector’s business investment “in real terms” during the first six months of 2023 was 36 percent below its level during the first half of 2019. The FDF has said that this stands in “sharp contrast” to investment in the UK overall, which has increased by seven percent.

The latest State of the Industry report also notes that confidence has increased by 18 percentage points compared to the last quarter and is now creeping into positive territory for the first time since Q2 2021.

“This is a sign that market conditions have stabilised, however the industry still faces significant challenges,” says the FDF.

In fact, labour vacancies across a wide range of roles in the sector were found to have risen in the last quarter to 6.5 percent from 4.8 percent in Q2 due to increased production ahead of Christmas resulting in more job openings that were difficult to fill. In addition, manufacturers reported that average pay increased by 5.2 percent over the course of the last 12 months and the National Living Wage will rise further next April. 

“With grocery volumes declining, manufacturers prioritising new product innovation is a way to maintain competitiveness and drive growth. The rise in confidence for the food and drink industry is a sign that market conditions have stabilised, however there are still huge challenges that face the sector,” said Balwinder Dhoot, Director of Sustainability and Growth, FDF.

In terms of navigating rising input costs, the report finds that manufacturers are continuing to do “all they can” to absorb these costs to shield shoppers from the full impact of inflation. Data revealed that manufacturers’ total production costs have increased by 14.2 percent in the year to September, though selling price rises are sitting at 10 percent. The FDF has said that costs are expected to rise over the next year.

 In addition, the State of the Industry report also found that 81 percent of manufacturers are prioritising innovation and the increase in the cost of living is changing shopping habits, with 73 percent of businesses saying they have noticed a shift in demand towards cheaper products.

“We need the government to prioritise policies that support investment if we are to build a sustainable and resilient food supply chain which supports growth and is vital for a strong economy. We saw some positive signals in the Autumn Statement and welcomed the announcement on full expensing, but any benefits will be more than undone by planned regulation that will hit our sector in the coming year,” urged Dhoot.