Insolvencies expected to increase in UK food and beverage sector, warns new report

The UK food and beverages output is forecast to grow by more than 3% in 2022, but the outlook for food producers and processors is less positive according to a recent report from trade credit insurer Atradius.

In its latest Food and Beverages industry report, Atradius outlines how the UK food and beverages market rebounded after a 5.3% contraction in 2020. Last year saw the market grow by 4.1% as retailers benefited from increased demand. But the report shows how the pandemic and Brexit are still having an impact, with the implications presenting a particular challenge for food producers and processors.

Cost increases for commodities, energy, fertiliser, transportation and packaging have increased input prices along the value chain and the cost implications of customs declarations and local content audits as a result of Brexit are also having an impact, despite the EU-UK non-tariff agreement. The exit of skilled, EU workers from the UK labour market is contributing to mismatches in the labour market, with additional cost pressure coming from the need to increase salaries to retain or attract staff.

Darran Tilke, Senior Underwriter Food & Agriculture at Atradius, said: “Despite the overall outlook for the food and beverage market in the UK being fair, challenges are certainly mounting for food producers and processors. Although the EU-UK non-tariff agreement is positive, we’re still seeing a significant impact from Brexit which is expected to continue into 2022 – not just on input prices, but on the availability of skilled labour to help businesses meet the increased demand from retail.”

The report also details how, almost two years on from the first UK lockdown, the COVID-19 pandemic continues to have an impact. Additional sanitation protocols and absences due to illness or self-isolation have also added to cost pressures for the UK food and beverage market. Atradius expects the margins of many businesses to deteriorate, as food producers and processors struggle to pass on input price increases to retailers, leading to a decrease in credit risk quality for many businesses in the coming months.

Darran continued: “The pandemic is certainly still impacting businesses of all kinds across all sectors. Although the projected end of UK Government’s legal requirement to self-isolate in March will be welcome news to many businesses in England who have suffered from staff shortages throughout the pandemic, we don’t yet have a confirmed end to self-isolation for the other UK nations or Ireland. Increased sanitation procedures also look set to stay and will continue to add to costs for food producers and processors in particular. With the end of government support, and input cost inflation hurting profits, we’re expecting an insolvency increase of about 20% in 2022 compared to 2019, which would take us back to normal levels.

“With insolvencies forecast to increase, it is essential that businesses are protected against non-payment. Having a comprehensive and proactive credit management strategy is one of the best ways businesses can be prepared to weather the storm in 2022.”