fdf_sustainable growth exec summary

Grant Thornton report commissioned by the Food and Drink Federation

Sustainable Growth in the Food and Drink Manufacturing Industry

December 2011

Executive Summary

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Contents04. Foreword

05. Sector overview and contribution to the UK economy

06. Growth drivers

07. Case study – Nestlé UK & Ireland – Growing business and local opportunities

08. Export opportunities

09. Case study – Dorset Cereals – Exporting great breakfasts across the globe

10. Competitive advantages and areas for improvement

11. Case study – McCain – Investing in healthy innovation

12. Risk and growth barriers

14. Case study – Kraft Foods – Developing skills for the future

16. The role of Government in optimising growth

18. Conclusion

Con

tent

s

Lushani KodituwakkuDirector, Head of Commerical Strategic IntelligenceT +44 (0) 207 865 2428E [email protected] Ioana NobelManager, Commercial Strategic IntelligenceT +44 (0) 207 865 2142E [email protected] Vangelis ApostolidisExecutive, Commercial Strategic IntelligenceT +44 (0) 207 865 2535E [email protected] Please refer to the full report which is available in hard copy or on line at www.fdf.org.uk for the complete bibliography list and relevant sources

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Page 5

Sector O

verview &

contribution

to the UK

economy

Executive summary

Sector overview and contribution to the UK economyThe food and soft drinks manufacturing industry (FDM) is the largest manufacturing sector in the UK and

contributes substantially to the UK economy. The latest available figures show that in 2009 the FDM sector

contributed to the UK economy through turnover (£72.7 billion), gross value added (£19.7 billion), exports

(£10.8 billion), employment levels (377,000 average)1, employment salaries and tax contributions

(£10.1 billion) generated. Moreover, as a non-cyclical sector, the FDM has shown particular resilience in

the face of major recent challenges such as volatility of raw material prices and low consumer confidence

during the economic downturn. Moreover, the exchange rate has favoured exports which grew by 40% in

nominal terms during the 2007-2010 period (from £7.7 billion to £10.8 billion).

In contrast, other manufacturing sectors have been severely affected by the economic downturn, reducing

their turnover by 15% between 2007-2009 (from £441 billion to £376 billion) and employment salaries and

tax contribution by £12 billion (reaching £66 billion) over the same period. All these figures indicate that the

FDM sector is an important contributor to the UK economic recovery. However, during the recession, profit

margins have been squeezed, especially for SMEs. Therefore, food and drink manufacturers surveyed/

interviewed during this project are requesting a positive regulatory environment to overcome challenges

domestically and improve their competitiveness internationally now and in the future.

1 According to FDF this does not account for seasonal fluctuations, and therefore the employment level can peak to 400,000 at some points in the year

UK turnover food and soft drinks vs. other manufacturing

55 56 57 59 61 61 60 62 70 73

414 406 393 389 399 411 423 441 430376

1%3% 3% 3%

(0)% (1)%

3%

13%

3%

(2)%(3)%

(1)%3%

3% 3%

4%

(3)%

(13)%

(15)%

(10)%

(5)%

0%

5%

10%

15%

0

100

200

300

400

500

600

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Grow

th, %

Turn

over

, £bn

Othermanufacturingturnover

Food and softdrinks turnover

Food and softdrinks growth (%)

Othermanufacturinggrowth (%)

Notes: a. The increase in turnover in 2008 & 2009 is due to SIC code reclassification (from 2003 to 2007 system), which brought companies previously listed under non-FDM related codes into the FDM sector

Sources: 1. ONS (2011), Annual Business Survey

Fore

wor

d

Exe

cutiv

e su

mm

ary

Foreword

Message from FDF President Jim MoseleyFood and drink manufacturing in the UK is a Great British success story. By contrast with many of the

UK’s traditional industries, we have shown resilience and resolve to grow and adapt: increasing our

exports in each of the last six years, reducing our environmental footprint, providing job opportunities

over a range of skills and levels and developing healthier products, while continuing to deliver value

and choice to our customers.

This has not been easy. Businesses have dug deep to reduce costs and become more efficient, as well as

to cope with a range of external factors from new regulation to extreme volatility in commodity prices.

The way ahead is just as demanding. We know we are going to have to produce more, from less and

with less impact in order to meet the twin challenges of food security and climate change. And we

know that simply improving our efficiency will not automatically guarantee our future competitiveness

– even though it is a vital pre-condition. It is also clear we need innovation and investment – and

a better understanding of the limits and barriers to our growth potential in a global context.

So we decided to ask Grant Thornton to help us in this task by conducting an independent research

project into what FDF members really think are the threats and opportunities they face – and who

needs to do what about them.

The research findings constitute a powerful case for our industry to be central to the UK’s economic

recovery whilst continuing to make a real and unique difference to a more sustainable future for society

and to individual health and wellbeing. With the right entrepreneurial approach on the part of business,

and the right operating framework from Government, working together we believe we can fulfil our

vision to achieve a 20% increase in sustainable output by 2020 – provided that we work in genuine

partnership with the shared strategic objective of ensuring safe, nutritious and affordable food for all.

A number of excellent initiatives are already in place, from us, from Government and as joint projects.

But more needs to be done – this report justifies our belief that we should be ambitious in our aspirations

for what the food industry can achieve. That is our 20/20 vision for the future.

Jim Moseley

FDF President


Nes

tlé

Page 7

In November 2011, Nestlé UK & Ireland announced

the investment of £110 million in its Tutbury site in

Derbyshire creating a world class coffee

manufacturing facility. The extension to the existing

NESCAFÉ Dolce Gusto plant enables Nestlé to

treble its production capacity and create 300

new jobs.

This move follows an additional investment of

over £100m in Tutbury over the past five years,

which has strengthened its position as a leading

NESCAFÉ production plant and introduced the

NESCAFÉ Dolce Gusto brand. Tutbury is one of

only two production centres for NESCAFÉ Dolce

Gusto in the world and since its launch in 2006

demand for the ‘coffee shop at home system’ has

been phenomenal with current growth of around

50%. As demand for NESCAFÉ Dolce Gusto

continues to grow Nestlé identified the need to

increase production to keep pace with demand.

Already a major employer in the local area, the

workforce at the factory has grown from 160 to

500 employees since 2006 and will expand to 800

people by 2013. Of the 300 new employees some

will become part of the first intake into the Nestlé

Academy, a new initiative under which Nestlé UK

& Ireland has committed to double its number of

graduates, apprentices and internships, supporting

the economy through the training of skilled workers.

Paul Grimwood, Chairman and CEO, Nestlé

UK & Ireland said: “Over the past five years

we have undertaken a multi-million pound

investment programme in the UK, establishing

our next generation of world class competitive

manufacturing facilities. This investment in Tutbury

will extend our best in class facility, trebling our

production capacity for export to over 38 countries

across the globe. In order to grow we need to

innovate and we are committed to the continued

modernisation of our UK manufacturing capability.”

Nestlé UK & IrelandGrowing business and local opportunities

PM David Cameron speaking at the launch of Nestlé’s expansion plans

Growth drivers From the Grant Thornton surveys and interviews, companies were prompted to identify key growth •

drivers for UK FDM with reference to the types of products that will help drive growth during the

next 5-10 years. Companies believe that value products are more likely to drive the growth of the

UK food and drink market than premium products, as the disposable income of UK consumers is

increasingly squeezed and consequently consumers will continue to look for better value products

However, the segment that is expected to suffer the most is the mid-range products category as •

consumers combine better value at lower prices with innovative, premium priced products

In terms of brand vs. private label products, the views are split, with corporates believing •

that private label is more likely to drive growth, while SMEs expect branded products to

drive growth. Desktop research (Mintel) indicates that during the recession, branded food

products outperformed private label. Therefore, it is reasonable to suggest that this trend may

continue despite the increasingly trusted or premium image that private label brands such

as Tesco Finest or Sainsbury’s Taste the Difference may be enjoying with consumers

The ageing population (both in the UK and worldwide), as well as the health agendas increasingly •

promoted in the Western world, are expected to impact the demand for Health & Wellness

(H&W) products and, therefore, be one of the main categories to drive the industry’s growth

Both in the UK and globally, the forecasted population growth will result in a larger consumer •

base, which should drive demand within the food and soft drinks market. The UK is amongst

the European countries with the fastest population growth, forecast to reach 71.3 million in 2030

(15% growth from 62.3 million in 2010). France is forecast to grow at 11% reaching 73.5 million

in 2030. This contrasts with the 1% population decline in Germany and the stagnation in Poland

(at 39.7 million people in 2030 vs. 39.5 million in 2010). However, in the UK, the shape and pace

of economic recovery may impact consumer expenditure which in turn may affect consumer

purchasing patterns and the degree of real growth of the food and drink industry. Therefore,

the positive effect from the forecast population growth figures showing a 2.5 million increase

between 2010 and 2015 may be moderated due to the latest negative consumer and business

confidence indicators as well as the Bank of England’s 1% GDP growth forecast for 2012

Gro

wth

driv

ers


Page 9

Award-winning premium breakfast cereals maker

Dorset Cereals create all their recipes in the unique

village of Poundbury in Dorset, which was inspired

and created by HRH The Prince of Wales.

Dorset’s mueslis, granolas, porridges, Tasty Flakes

and cereal bars are all made to recipes that use

carefully sourced, great tasting ingredients.

For Dorset Cereals, international sales are

a fundamental part of the business and

represented 20% of the company’s turnover in

2011. Their exports have continued to increase,

doubling in the last five years to £5m.

The company’s award-winning mueslis are

Dorset’s core business overseas. In 2011, their

granolas were launched in North America and

Europe and are delivering further growth. The

granolas will roll out to all markets in 2012.

The major markets for Dorset Cereals are: the

United States, the Netherlands, the United

Arab Emirates and Canada, where the business

continues to grow impressively. In Canada,

the business is growing +33% year on year.

In the Netherlands, Dorset Cereals is now

available in a further 1,100 stores nationally.

Dorset’s distinctive packs are found in a significant

number of leading supermarkets and independent

stores around the world including in the Middle

and Far East, Central and Eastern Europe, the

Caribbean and Africa. In mid 2011, Dorset re-

started its business with E Mart and already

sales to the retailer have trebled following the

EU’s bi-lateral agreement with South Korea.

Chairman Peter Farquhar said: “For us,

international sales are a fundamental part of our

growth strategy as a business and the prospects

for the coming year are very promising.

“Our success shows that there is a tremendous

appetite for our products overseas. A reduction

in the high import duties and tariffs we have

to pay, as well as a harmonisation of the

varied packaging and ingredient requirements

demanded by different markets would help SMEs

like us to capitalise on this more effectively.

“It is a testament to our brand that many of

our consumers send us photographs of our

cereals from their holidays in far away places

like Barbados, Mauritius and even Nepal.”

Dorset CerealsExporting great breakfasts across the globe

Exp

ort

opp

ourt

uniti

es

Export opportunities Although UK FDM businesses continue to regard Europe as an important trading partner, they also •

recognise the increasing opportunities presented by developing nations. Globalisation, fast economic

growth and rising income levels in the emerging markets are expected to drive a shift in their populations’

diet, specifically an increase in the consumption of proteins and convergence towards Western diets

However, businesses will need to strategise effectively whilst marketing their products to these •

markets to ensure they address local consumer needs, purchasing power and preferences

Despite growing its food, beverage and tobacco exports by 5.4% year-on-year between 2000-2010, •

the UK has lost market share as world exports grew by 10% year-on-year. Over the same period

(2000-2010), most comparison markets grew faster than the UK (Canada at 7.7%, France at 6.5%,

Spain at 8.9%), whilst some countries have increased their market share by outperforming the world

average export growth (e.g. Poland at 21%, Brazil at 16.9%, Germany at 10.7%). This indicates that

despite the opportunities presented by export markets, UK FDM businesses are likely to face strong

competition from other countries who are also focusing on exports as a way to grow their industry

UK exports of food & soft drinks, 2000, 2005 & 2010

0100200300400500600700800900

1,000

Fran

ce*

Germ

any

Spai

n

USA

Japa

n

Aust

ralia

Russ

ia

Pola

nd

Chin

aUK F

ood

& So

ft Dr

inks

Exp

orts

,£m

2000

2005

2010

Notes: a. UK exports to France in 2010 reached £1.3bn, but for viewing purposes they have been scaled down. Similarly, Ireland that is UK’s largest export market has been excluded from the graph even though exports to Ireland have been growing strongly Sources: 1. UK Trade Info (2011), Trade Data

Dor

set

Cer

eals

Page 9


Page 11

Competitive advantages The UK FDM industry needs to exploit its competitive advantages, minimise its weaknesses and •

overcome a range of barriers in order to remain competitive in the world FDM market. Some

of these issues remain the responsibility of businesses, but in many cases they will require the

Government to provide a positive regulatory environment which optimises their growth

The food and soft drink manufacturers that participated in this study regard product quality, •

branding and new product development (NPD) as the industry’s main competitive advantages.

Other areas of distinction for the UK FDM industry, according to the executives interviewed,

are efficient supply chains, low waste and high levels of regulatory compliance

These characteristics were considered to contribute towards the industry’s competitiveness, allowing •

it to maintain margins and present itself as a reliable partner when conducting business abroad

The analysis conducted based on desktop research supports the FDM executives’ views. •

According to Mintel’s NPD Database, the UK food and drink industry has the highest number

of new product variant launches outside the US. Between 2005-2011 (up to October), UK

manufacturers launched 49,995 product variants compared to 47,677 in Germany, 41,005

in France, 36,652 in Brazil, 32,019 in Japan, 24,209 in Spain and 13,868 in Canada

The businesses surveyed credit the UK FDM with equally developed R&D and technology capabilities •

when compared to Western counterparts. This is consistent with the R&D investment data available

from the Organisation for Economic Co-Operation and Development (OECD) which indicates that

among comparison markets, the UK food, beverage and tobacco companies invest the highest

percentage of revenue in R&D (0.48% of turnover). However, the UK FDM is lagging behind Japan and

Switzerland both of which, when expressed as a percentage of turnover, invest almost double in R&D

The FDM executives interviewed stated that productivity improvement is a constant priority for •

their businesses, although they believe that the UK FDM industry has many legacy assets and is

characterised by overcapacity. Although utilisation rates were not tested, international productivity

comparisons indicate that the UK food and beverages industry has consistently improved productivity

when measured as gross value added per employee. UK’s FDM productivity has been steadily

growing at an annual rate of 4.7% during the 2003-2008 period. If compared in Sterling terms, UK

ranks above Germany and Japan, both of which have substantial manufacturing sectors and are

traditionally considered to invest heavily in technology as a means of improving their productivity

Areas for improvement The businesses surveyed rated the UK FDM’s competitiveness low in terms of labour cost. •

An international comparison proves that not only are UK labour costs above other countries’,

but, unlike most countries analysed, the growth in labour costs outpaced productivity growth

(between 2003-2007)

Businesses also stated that they operate in a highly regulated environment and Government does •

not adequately support them in areas such as taxation, advice provision and cutting ‘red tape’.

Therefore, they ranked the UK FDM’s competitiveness low in areas such as the ability to operate

in a positive regulatory environment, indicating that this is an area where the sector may have

a competitive disadvantage

McCain FoodsInvesting in healthy innovation

As a manufacturer of staple family foods

McCain has long recognised its responsibility

to make its products as healthy as they can

be and develop meal solutions for consumers

that are healthier, while still providing the

taste and convenience they expect.

Over the last ten years McCain has implemented

a major reformulation programme across its

existing retail and foodservice portfolio with an

emphasis on reducing saturated fat and salt,

adapting recipes and production processes

to achieve this. In 2006, as part of a strategic

repositioning of its product range, McCain

took the decision to switch to sunflower oil for

cooking all of its potato products resulting in a

significant reduction in saturated fat levels.

This change represented a multimillion pound

investment as well as a major production and

logistical challenge requiring over 300 new product

specifications and a complete packaging overhaul.

Further recipe changes to reduce salt were made at

the same time, and over thirty artificial ingredients

replaced with natural, healthier alternatives.

Since reformulation work first began in 2001

McCain has reduced saturated fats by over 70%

so that typical levels in its potato products are now

less than 1% when oven cooked. Over the same

period the company has also reduced salt levels by

22%, and are on track to meet 2012 Responsibility

Deal targets ahead of schedule. McCain products

contain no artificial colours, flavours or trans fats.

Healthier innovation is also a key priority, resulting

over the last four years in two very successful

product launches – McCain Rustic Chips have only

3% fat when baked and achieve four green traffic

lights under the FSA guidelines, and its Purely

Potato range of steam blanched products use no oil

in preparation and contain no added salt, making

them a popular menu choice for school caterers.

Com

pet

itive

ad

vant

ages

&

are

as fo

r im

pro

vem

ent

McC

ain

Food

s

60,5

25

39,9

66

66,4

33

8,62

2

44,7

17 56,9

53

99,1

62

69,0

53

68,6

11

60,0

22

9,96

1

50,7

81

56,4

55

125,

306

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

Fran

ce

Germ

any

Italy

Japa

n*

Spai

n

Unite

d Ki

ngdo

m

USA

GVA

per e

mpl

oyee

at c

urre

nt p

rices

,na

tiona

l cur

renc

y

Total food & beverageproductivity

Total manufacturingproductivity

GVA per employee for manufacturing sector vs. food & beverage, 2008

Notes: a. Japan’s figures are in 1,000’s YenSources: 1. OECD (2011). OECD Structural Analysis Statistics (STAN); 2. ONS (2011), Annual Business Survey


Page 13

Risks and growth barriersThe businesses surveyed perceive labour cost/legislation and the tax system as the biggest •

risks the industry has to deal with at present, while access to raw materials is expected

to be the major risk in the future

The UK has improved its ranking in international competitiveness indexes and is seen as an •

attractive destination for business investment overall. However, it is facing increasing competition

from a range of developed and developing countries. This is echoed by the businesses surveyed

which point out that the UK may not have a regulatory environment and tax system that encourage

businesses to invest and thus, puts British manufacturers at a competitive disadvantage

In this context, food and drink manufacturers emphasised that corporation tax is much more •

attractive in other countries such as Ireland, Poland, Slovakia or Romania, while the highest

personal tax rate of 50% in the UK acts as a barrier to recruiting skilled personnel from abroad

Although at present UK FDM businesses have access to raw materials, they are affected by volatility in •

commodity prices and believe that the UK should have a national food policy to address food security

The interviews with FDM executives also revealed that access to finance and retailer consolidation •

pose growth barriers for the sector. Businesses stated that access to finance is currently an issue

in particular for SMEs, as banks have tightened lending criteria and are more risk-averse, affecting

ability to invest in order to drive future growth. This view is supported by data from an EU survey

(with 25,000 SMEs across 20 countries and across industries) which indicates that in the UK, the

success rate of bank loan applications has decreased from 91% in 2007 to 65% in 2010. Only

Ireland and Spain had a success rate of bank loans lower than in the UK, whilst in France and

Germany, 84% and 75% of SMEs respectively were able to access loan financing in 2010

Retailer consolidation has skewed the balance of power in the industry’s supply chain and, to an •

extent, has acted as a growth barrier for the sector, despite offering manufacturers increased

access to consumers and driving innovation. More specifically, the difficulties in passing on raw

material price increases and the need to participate financially in retailers’ promotion

campaigns have resulted in lower margins for FDM businesses

Another barrier that the industry faces is access to skills. The industry’s outdated image has led to a •

small number of students pursuing food degrees (3,360 higher education students enrolled in food

and drink degrees compared to the total student population of 2.5 million). Although the economic

downturn and higher unemployment rate have increased the availability of personnel, the industry

still struggles to find suitable candidates for engineering, science and food technician positions.

In particular, companies face issues in recruiting food scientists, food nutritionists as well as

technologists and engineers with the ability to handle complex bespoke automated systems.

These views expressed by FDM businesses during the interviews are consistent with data from

FDM’s sector skills council Improve and other agencies showing that there is a shortage of qualified

food scientists and technologists

According to the FDM businesses surveyed/interviewed, potential employees do not find •

a career in the food industry attractive. They view the food industry as less prestigious and

innovative compared to sectors such as automotive, engineering, or pharmaceutical.

Ris

ks &

gro

wth

bar

riers

Ris

ks &

gro

wth

bar

riers

These arguments combined with the low numbers of apprenticeships and on-the-job training •

programmes lead to many positions being filled by people with insufficient qualifications and skills

However, the companies interviewed stated that the food and soft drinks industry is a more •

stable employer compared to other industries and has a range of roles that need to be better

advertised so that potential employees, especially young people, understand the wide range

of long-term career options available to them in creative, science and engineering areas

In response, FDF has launched a campaign called ‘Taste Success – A Future in Food’ to •

raise public awareness of the FDM industry’s contribution to society. The campaign aims to

promote the food and soft drink manufacturing sector as a career of choice for new graduates,

hoping to engage young people and change the outdated image of the industry. At the same

time, FDF hope this may help address the forecast demand gap of 137,000 new recruits

needed to replace the workforce that will retire or leave the industry in the next few years

However, it is unlikely the industry’s image will change overnight, and will most likely •

require a combination of actions from FDF, manufacturers and the Government (particularly

around the reform of the education system and support for apprenticeships) in order to

improve perceptions, close the skills gap and attract higher calibre candidates

Current and future risks for the UK FDM manufacturing (Findings from the FDF/Grant Thornton survey)

4.0 3.8 3.6 3.4

2.8 2.6

3.2 3.33.0

3.43.7

2.9

0

1

2

3

4

5

Gove

rnm

ent

ince

ntiv

es

& su

ppor

t

Labo

urco

st/le

gisl

atio

n

Tax

syst

em

Educ

atio

nsy

stem

& tr

aini

ng

Acce

ss to

raw

mat

eria

ls

Trac

k re

cord

of in

nova

tion

Risk

(1 lo

wes

t, 5

high

est)

Current

Future

Sources: 1. Grant Thornton survey analysis


Page 15

Kraft Foods is a significant employer in the UK, employing over 5,000 people in a range of roles from sales and marketing to manufacturing and R&D. The company recognises that its employees are at the heart of the business and therefore has a number of schemes to ensure that it recruits the most talented people, no matter what their background, and help develop workforce skills.

Kraft Foods has a three-year Graduate Programme (as well as a number of industrial placements) that offer real responsibility from day one. Together with structured training, it is designed to deliver a unique experience. The development programme means wide ranging experience in a world-class commercial enterprise that equips them for a senior-level management career. Kraft Foods has been named in the Times Top 100 and Guardian 300 Employer list.

Kraft Foods is also keen to lead on apprenticeships and is one of England’s Top 100 Apprenticeship Employers. Kraft apprentice Calum Marnock (above) was named Apprentice of the Year 2011 at the FDF Community Partnership Awards. Two apprenticeship schemes are offered: a four year engineering apprenticeship and a two year operations apprenticeship which include on-the-job training as well as gaining an NVQ Level 3 qualification. Historically, approximately 75% of Kraft Food apprentices go on to gain jobs in the

business at the end of their apprenticeship.

Recruiting skilled people into the business is

important to a company that places importance

on research and development. Innovation is at

the heart of Kraft’s business with three Global

Centres of Excellence in the UK. It attracts those

with relevant scientific, technical and engineering

through specialised recruitment campaigns

that try to capture the excitement of working

in innovation and that ‘Eureka!’ moment!

The company runs the World of Work scheme

which gives young people in Birmingham and

Sheffield the opportunity to experience learning

within real work environments. Around 150

students are given a real life business challenge

on which to base their coursework and then

receive feedback from Kraft staff. Some of

these students have gone on to be shortlisted

for the company’s apprenticeship scheme.

In some areas, it can be a challenge to attract

talent at all levels because food and drink

are not always front of mind for Government,

careers advisers and job seekers. Kraft Foods

is proud of its efforts to develop the skills of

its people and build a diverse workforce.

Kraft Foods Developing skills for the future

Ris

ks &

gro

wth

bar

riers

2,650 2,6953,065 3,380

2,362,815

2,306,105

2,396,050

2,547,470

2,150,000

2,200,000

2,250,000

2,300,000

2,350,000

2,400,000

2,450,000

2,500,000

2,550,000

2,600,000

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2006

/07

2007

/08

2008

/09

2009

/10

Total HE studentsNum

ber o

f stu

dent

s

Food andbeverageHE students

Total HEstudents

39,401

36,025

34,000

35,000

36,000

37,000

38,000

39,000

40,000

2006

/7

2008

/9

Num

ber o

f stu

dent

s

Sources: 1. HESA (2011), Students in Higher Education

Notes: a. The definition has changed, therefore the numbers for 2006/7, 2008/9 may not be directly comparableSources: 1. Improve (2010), FDM UK Sector Skills Assessment (quoting ILR, LSC, 2006/07 – 2008/09; SSC Summary Reports (A-D), WAG, 2006/07 – 2008/09; Modern Apprenticeship Performance Report, SDS, 2006/07 – 2008/09; Bespoke report for IMPROVE NI manager, DELNI, Northern Ireland Assembly)

UK food and beverage HE students vs. total HE student numbers

UK food and beverage manufacturing and processing FE

Kra

ft F

ood

s

Access to skills

Page 14


Page 17

The role of Government in optimising growthDuring the survey and follow up interviews, businesses mentioned several main areas where the industry

requires the Government to provide a positive business environment in order to maintain its performance

and encourage sustainable growth. They are:

The

role

of G

over

nmen

t in

op

timis

ing

grow

th

The

role

of G

over

nmen

t in

op

timis

ing

grow

th

•Tax system

Food and drink manufacturers identified the tax system as the main area in which the Government

can provide support. Despite Government plans to gradually reduce the main corporate tax rate

from 26% to 23%, businesses believe the UK tax system is not competitive enough and faces

strong competition from both developed and emerging markets. Currently UK’s corporation tax

rate is on par with the average of OECD countries, but countries such as Ireland, Poland, Slovakia

and Romania have much lower corporate tax rates

• Regulations and ‘red tape’

Another area where businesses would welcome Government involvement is in reducing the burden

of EU/Government imposed regulations and ‘red tape’. SMEs in particular, do not have the

resources to deal with the administration required to comply with regulations. Moreover,

businesses would like Government to push for a uniform implementation of EU regulations across

Europe, as they believe that the UK is an early adopter of EU Directives compared to some

countries where regulations are not enforced, which puts the UK FDM at a cost disadvantage

Businesses view compliance of 160 labour regulations as costly and have emphasised the

importance of flexible and streamlined regulations in order to help manufacturers grow and

in turn maintain employment levels

• Export incentives

In many cases, FDM businesses and SMEs in particular are not aware of the end-to-end actions

they need to take in order to export. They also require administrative support to navigate through

the regulations of the countries they are planning to export to. SMEs requested a greater level of

support for their export efforts. Specifically, Government bodies could be better at providing SMEs

with more effective guidance and advice on the technical, administration and logistics processes

associated with exporting to specific countries

During interviews, FDM executives mentioned that other countries are better at supporting their

manufacturers to participate in international trade fairs. In contrast, they perceive that the UK

Government is not providing sufficient marketing support. As a result, there is a perceived lack

of enthusiasm in the UK stands and the UK is under-represented at international food fairs

compared to other EU countries such as Germany, Italy or even smaller countries such as Greece

• Education and training

Education reform (focused on improving the quality of primary and secondary education and

making courses more relevant for the business world) is of major importance to the FDM sector

as a means of gaining improved and appropriate access to skills. Businesses would also like to

receive Government support to revitalise apprenticeship schemes which they perceive as essential

for securing a future workforce with industry-specific skills. In this context, the Government

pledge to increase apprenticeships across industries by 250,000 until 2015 and FDF’s initiative of

doubling food and drink manufacturing apprenticeships in England and Scotland will contribute

towards securing some of the pipeline of new recruits necessary to replace the ageing workforce

• R&D and innovation

Businesses would also like the Government to reform R&D tax credits and tax breaks in order

to offer better access to funding and promote innovation. SMEs find the process of claiming

R&D tax credits burdensome and have to bring in external consultants to help them submit

applications. Moreover, FDM companies may not qualify for R&D tax credits or tax breaks as

authorities do not recognise the type of innovation specific to food and drink manufacturing

Therefore, FDM businesses have expressed their desire for support from the Government to

widen the definition of R&D activities to include improvements in products, technology,

packaging, not just blue sky research which is rare in food and drink manufacturing

In addition, they believe that Her Majesty’s Revenue and Customs (HMRC) staff would benefit

from specialist training to understand the type of innovation taking place in the food and

drink industry and, therefore handle claims more effectively

•Trade barriers and food security

FDM businesses highlighted the need for the Government to re-engage in discussions with

international organisations for the removal of trade barriers to help grow exports and reduce the

cost of raw materials imported. Moreover, they expressed the need for a food policy that clearly

addresses long-term issues such as food security and measures to shield the UK FDM from

commodity price volatility

•Balance of power in the supply chain

Businesses would welcome Government support in the enforcement of the UK Groceries Supply

Code of Practice. They believe that in order to ensure fairness and competition, the Government

should monitor not only the food price paid by the consumer, but also take into account unfair

trading practices


ConclusionIn conclusion, the FDM industry can generate sustainable growth and contribute to the UK economic

recovery by building on its strengths and minimising its weaknesses. However, the industry will only be

able to achieve this if it operates in a supportive regulatory environment which incentivises business

investment and nurtures British food and drink manufacturers. In many cases, to remain competitive the

role of the Government in optimising growth is seen as a necessary requirement by those in the industry.

Working in partnership with governmentFDF has been working in partnership with Government on a number of key initiatives. These include

a new food and drink export forum jointly chaired by Defra Food and Farming Minister Jim Paice and

FDF Deputy President Paul Grimwood; the development of a skills action plan to attract talented young

people into the industry and, at the invitation of the Business Minister Mark Prisk, an industry showcase.

The food and drink manufacturing showcase was held in November 2011 at the Business Innovation and

Skills headquarters in Victoria Street. It was one of a series of events to highlight British manufacturing

and FDF was proud to highlight the work of the sector to around 3,000 visitors to the department.

Con

clus

ion


About FDF

The Food and Drink Federation is the voice of the UK food and drink industry, the largest manufacturing sector in the country.

FDF’s membership comprises manufacturers of all sizes as well as trade associations dealing with specific sectors of the industry.

Our role is to help our members operate in an appropriately regulated marketplace to maximise their competitiveness. We communicate our industry’s values and concerns to Government, regulators, consumers and the media. We also work in partnership with key players in the food chain to ensure our food is safe and that consumers can have trust in it.

In representing the interests of our members, we are focusing on four core priorities:

Food Safety and Science

Health and Wellbeing

Sustainability

Competitiveness

6 Catherine Street, London WC2B 5JJ tel 020 7420 7103 email [email protected] web www.fdf.org.uk

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