Low sector confidence hitting investment
Food and drink producers have been forced to reduce or eliminate long-term growth investments as a result of growing economic pressures and a slew of new laws and regulations, according to recent data from the Food and Drink Federation.
The Food and Drink Federation’s latest State of Industry report reveals that confidence amongst food and drink businesses remains persistently low, at -43% in the first quarter of 2025.
A third of businesses (33%), including nearly half (47%) of small and medium sized enterprises (SMEs), said they expect conditions to further deteriorate, as they grapple with volatile global economic conditions and increased costs as a result of new government policies. These include rises to national minimum wage and employer national insurance contributions, as well as a £1.4bn extended producer responsibility (EPR) packaging tax.
Production costs increased by an average of 4.5% over a year to March 2025, with over a fifth (22%) of food and drink manufacturers having seen costs increase by 10% or more.
With energy, ingredients and labour prices continuing to climb, manufacturers expect their costs to rise by a further 4.8% in the next 12 months. Meanwhile, with consumer confidence in decline, falling to -23 in April 20251, retail sales decreased 6% in the last five years (source: ONS, Retail sales in predominantly food stores, January 2019).
In this high-pressure environment, the business case and desire for investment has never been higher. Food and drink manufacturers are already looking to take advantage of the productivity opportunity presented by digital technology, with over half (54%) saying that investment in automation will be a top priority in the coming year. This will play a key role in helping the industry overcome the high cost of labour and its persistently high unfilled vacancy rate, which is double that of UK manufacturing as a whole. Meanwhile 13% say they will focus on R&D projects, such as developing healthier products.
While the data show that while companies are wanting to invest, recent government decisions and geopolitical uncertainty are having an impact. 41% of businesses are planning to cancel or scale back their planned investment for the year ahead in areas that would drive growth.
To enable businesses to act on their intentions to invest in long-term productivity drivers, FDF is calling for the Government to send a strong signal that that it will support the future health of the industry. It can achieve this by creating a joined-up and cross-government approach that prioritises sector growth and skills in the upcoming Food and Industrial Strategies.
The Government’s recent announcements of trade agreements with the US and India are steps in the right direction to strengthen competitiveness in our sector, and there remain additional actions government can take to support national food security, protect consumers from rising prices and enable manufacturers to invest in new healthy products. This includes continuing to push for a reduction in the current 10% tariffs imposed by the US whilst also strengthening our relationship with our strongest trading partner, the EU.
Balwinder Dhoot, director of industry growth and sustainability, FDF said the food and drink manufacturing sector’s contribution of £37bn and half a million jobs to communities across the UK, is fundamental to the nation’s food security.
“It’s concerning that businesses are having to scale back investments that would help drive long-term growth and productivity as they ride out a wave of cost rises,” Dhoot noted.
“The Government must reflect the value that food and drink manufacturing has to our country by ensuring growth for our industry is a top priority in its upcoming Industrial and Food Strategies. We urge government to give businesses the support they need to make investments that will support the resilience of the food industry.”
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