A new report shows that business confidence across the food and drink industry fell to record lows in the second quarter of this year. However, it highlights untapped overseas export markets remain a golden opportunity for recovery and growth for businesses across the sector.
The report compiled by Santander UK and the Food and Drink Federation (FDF) delves into the impacts Covid-19 has had on food and drink manufacturers and overall business confidence. It highlights that the industry has faced a variety of challenges from the closure of the hospitality and out-of-home sectors, to rising costs and a fall in exports. The sector has also seen a reduction in domestic turnover by 8.6% in Q1 compared with Q4 2019, and a further 4.0% decline in Q2.
FDF’s latest data shows that net business confidence among food and drink manufacturers reached a record low of -65.2% in Q2 due to the pandemic, uncertainty over Brexit, and the closure of foodservice. Separately, Santander carried out research into the impact of Covid-19 on SMEs. The results found that just 24% of food and drink businesses expect to return to normal operating levels by the end of 2020.
Despite the challenging environment, food and drink businesses highlighted increased export growth and access to new UK preferential trade agreements as a key opportunity for the rest of the year.
UK food and drink exports are now worth more than £23bn annually. The report highlights export opportunities in four key markets:
Canada: Exports to the UK’s third-largest non-EU preferential trade partner have grown by 5.7% so far in 2020, led by exports of gin, beef and salmon.
USA: Closures to the hospitality sector due to Covid-19 have led to an increase in demand for ready to consume alcoholic drinks. UK exports of beer to the USA have increased by 5.8% (y-o-y) from January to May this year. There has also been significant investment in-home delivery as US supermarket chains have sought to increase their e-commerce offerings in recent months.
China: China has seen rapid growth in demand as consumers continue to perceive UK products to be safe and of high quality, with a sense of heritage. Beef and pork exports have risen by over £60m so far this year compared with the same period the year before.
UAE and the Gulf: The Covid-19 crisis has seen an increase in expected sales from retail – up to 90% from 70% in 2019. The increasing focus on healthier lifestyles in the region has seen increased demand for organic, functional foods, and nutritionally rich products.
Looking forward, it is suggested that there remains significant headroom for growth for UK food and drink exporters, both within the EU27 and other international markets. FDF and Santander are working with and encouraging more businesses to identify and overcome trade barriers.
The FDF has identified seven steps for recovery designed to restart all areas of industry, as part of its work through the Food and Drink Sector Council. These include protecting the UK’s supply chain integrity and competitive position and accelerating plans to increase UK exports.
FDF Chief Executive Ian Wright said: “Manufacturers and hidden heroes working across the supply chain have ensured continued access to essential food and drink for UK consumers, diminishing the impacts of Covid-19 on the industry. As the dust begins to settle, we can now see how the pandemic has had a seriously damaging impact on 2020 ‘s overseas sales of UK food and drink. These were worth over £23m in 2019. While that figure is certain to fall for this year, there are still plenty of opportunities in foreign markets for UK food and drink manufacturers to seize in what remains of this year and as we look to 2021.
“As businesses turn toward economic recovery, ensuring a quick return to growth will be essential to support resilience in our industry. We will continue to work closely with Government and industry partners, like Santander, to safeguard a sector recovery that will deliver a return to sustainable export growth right across the UK.”
Andrew Williams, Head of Food & Drink Sector at Santander, added: “The impacts of Covid-19 swiftly reverberated across the food and drink manufacturing industry. We quickly saw that over-reliance on any single market, sales channel, or customer leaves businesses vulnerable to increased risk. Understandably, confidence was knocked – but the resilience of our industry is evident in these findings.
“As the short-term impacts begin to settle, UK food and drink businesses have already recognised that increasing export sales is a potential route to recovery and offers growth and diversification benefits too. There is much to be optimistic about and a real sense that as a sector we are striving towards a positive future.”