In spite of a difficult few years, food and beverage manufacturing remains the UK’s largest manufacturing sector. Food manufacturing is bigger than the automotive and industrial goods industries and contributes just shy of £30 billion per year to the UK economy. Although the sector is incredibly large, food and beverage manufacturers are contending with increased competition, sustainability and food safety concerns and the slow lead up to the withdrawal of the UK from the European Union. Let’s look at three key areas of concern for UK food manufacturers over the next year.
A relatively high British pound put pressure on food manufacturers in late 2015 and early 2016. That pressure has now eased following the fall of the pound in 2016. Despite that, competition remains strong, with UK food manufacturers decreasingly able to leverage a home country advantage among domestic consumers. UK food manufacturers are accepting the need to become more efficient and innovative if they are to compete against imported food from the EU and beyond. It’s not clear what innovation will look like, but it is likely to involve reduced waste and higher production driven by the use of food manufacturing software.
Health, sustainability and ethical production
Consumers’ decision making frameworks have become increasingly complex over the past decade. In particular, many consumers are now prioritising ethical considerations over buying familiar brands or the lowest priced products. The sheer range of ethical concerns is proving a significant challenge for food manufacturers; balancing quality and cost against factors as varied as food waste, water use, deforestation, animal welfare and a preference for ‘fair trade’.
Consumers are also increasingly concerned about what they are eating both from a health standpoint and a food safety point of view. In 2017 and beyond, food manufacturers will need to focus on bringing healthier ingredients into the bill of materials, and on implementing food manufacturing software with traceability features in order to quickly respond to food safety scares.
Food producers are increasingly treating consumer norms as an effective compliance requirement. Just as companies keep records to comply with regulatory obligations, they are now also doing the same to respond to customer concerns and meet voluntary accreditation standards. This has significant implications for supply chain management. In addition to selecting supplier partners on pricing and reliability, food producers are also vetting suppliers’ track records in regards to sustainability, human rights and animal rights.
Withdrawal of the UK from the EU
Manufacturers and farmers are concerned about the likely impact of ‘Brexit’ on the food and beverage manufacturing sector. The potential loss of EU farming subsidies has many in the sector concerned; over half of the average UK farm’s income is derived from EU subsidies. Taking farming subsidies away is likely to increase ordering costs for British food manufacturers, placing them at a strong disadvantage relative to other European producers. Manufacturers under pressure to control ordering costs may turn to food manufacturing software to optimise inventory use and reduce waste.
The EU is also the largest destination for UK exports of manufactured food products. As a result of the UK leaving the EU, UK exporters are likely to be liable to pay tariffs and face other market access barriers. Although the UK will retain many of the EU’s regulations, regulatory requirements in both markets are expected to diverge. Food products are highly regulated, so any divergence in regulatory requirements is likely to increase compliance costs and reduce the competitiveness of UK food manufacturing.