Inflation is soaring and the UK’s food and drink manufacturers are under incredible pressure. No one can remember such sustained, relentless price rises across all our inputs – everything, from energy and ingredients to transport and wages, is more expensive. With food price inflation now at 9.8 per cent, everyone is asking: how much further will it go?
Food price inflation will likely go well into double figures. Inflation in the cost of the goods our industry is buying domestically is running at over 10 per cent, and it’s running at over 20 per cent in the goods we buy from overseas.
Currently, UK food and drink manufacturers are not passing all these costs on. Instead, they are squeezing their margins, cutting costs wherever they can – from marketing budgets to withdrawing some products altogether. Companies are doing this to stay competitive and keep food affordable.
So of course, I agree with Rishi Sunak who said “we need to stamp out inflation quickly.” But he went on to say: “We want to make sure that the supermarkets and all the other people in the supply chain are being fair in how they price these things and no one is taking advantage of the situation to pass on price rises that aren’t necessary.”
Let me reassure Mr Sunak that no one in our industry is taking advantage of the cost-of-living crisis. Quite the opposite. Many companies are down to wafer-thin margins, and the viability of some businesses is under threat. Not every company will make it through. The UK grocery environment is already one of the most competitive in the world and no one is passing on price increases until they’re forced to.
Business confidence is also at the lowest level we’ve ever recorded.
We could, therefore, do without the digs. We’d prefer the Conservative leadership candidates to ask us what government can do – because there are things ministers can and should be doing to help contain inflation.
Government can support food and drink businesses in investing out of this crisis and into growth. Our industry has a productivity problem, not least since food suppliers operate on low margins and short-term contracts. With the right thinking and agile government support, there’s a huge opportunity to modernise our industry, tackle acute labour shortages, hasten our transition to net zero, and reap a productivity dividend.
Whoever takes over from Boris Johnson needs to regulate with care and attention. Our experience post-Brexit has been more red tape, not less, and regulation has tended to be poorly consulted on, poorly designed and poorly executed. For a business, complexity means cost. Post-Brexit regulation is costing us more and delivering less.
We also have a labour and skills challenge. Our industry struggles in particular to recruit engineers – mechanical, software and digital. We urgently need both a short-term answer, through smart immigration policies, and a long term one where the UK better fosters its own talent.
To that end, it was great to see Liz Truss commit to supporting our sector by cutting onerous bureaucracy and offering ways to ease our labour struggles. This is a fantastic start, but the new government must work with industry to ensure that solutions are genuinely fit for purpose.
The UK’s brilliant food and drink sector is the largest manufacturing industry. We employ almost 500,000 people who make the fantastic range of food and drink that everyone, everywhere across the UK, can buy in shops, train stations, cafes, leisure centres and along our high streets every day.
So over to you Rishi and Liz. Let’s hear it for how we nurture our industry and its future, rather than jumping to conclusions about one of the crown jewels of the British economy.