With the chancellors Budget due to be delivered tomorrow, the Food and Drink Federation (FDF) is warning that business confidence among food and drink manufacturers has declined, driven by increased input costs, squeezed profit margins and uncertainty over Brexit terms. However, the sector continues to see opportunities for growth.

FDF is therefore calling on the chancellor to help offset these challenges with concrete measures to support food and drink exports and to support R&D investment.

Nearly half of respondents (41%) to FDFs survey of members – large and small – are less confident about the UKs business environment than when last polled in October 2016.

An overwhelming majority (90%) have seen the price of ingredients and raw materials increase in recent months. They expect these costs to continue to rise over the next two years. Nearly two thirds (65%) have seen a negative impact on their already tight product margins during this period.

However, food and drink manufacturing continues to be resilient and resourceful. FDFs survey found that producers intend to offset the immediate and long term challenges by growing volume sales primarily in the domestic and non EU markets. Nearly two thirds (64%) of respondents expect to see their UK sales volumes increasing in the next two years. In 2016, food and drink exports smashed the £20bn barrier for the first time. Nearly two thirds of companies (63%) surveyed expect their exports to non EU countries to increase, with many (40%) also expecting to target export growth in the EU market.

FDF is calling for help from government to grow exports even faster and to foster innovation:

1. Additional support should be provided to prepare and up-skill existing and would be food and drink exporters. FDF is asking for funding for a pilot ‘Food and Drink Export Academy’ to address the lack of export training in England
2. Incentives to encourage companies to base their R&D hubs in the UK, either through financial measures or ease of operation, will help make the UK a world leader in innovation
3. Changes to the R&D tax credit mechanism which foster innovation will make it easier for SMEs to access available support
4. Measures which create a consistent Brexit, provide as stable a business environment for manufacturers as possible, and aid business planning.

Ian Wright, FDF director general, says, "Almost half of our members are less confident in the prospects for business than they were four months ago. That is driven by ingredient price rises and from already tight margins being squeezed still further as competition continues to rage between the supermarkets.

"But its a mixed picture. Nearly two thirds of members expect to see sales in the UK grow over the coming months. The same number see sales outside the EU growing too. We also know around half of our members expect sales within the EU to grow, so theyre optimistic about their future while worrying about the trading environment."