A change in the trade winds – impact on the Food & Beverage sector

A recent BBC article suggests that there has been a significant change in international trade sparked by the war in Ukraine and countries wanting to be more self-reliant. This is leading the large trading blocs to become more insular, preferring to buy, manufacture and process internally rather than rely on overseas countries which they fear may result in shortages in key components.

This marks a step away from increasing globalisation where previously countries were becoming increasingly reliant on certain countries, often as sole suppliers. An example seen recently was seen with car batteries and solar panels, the latter was highlighted by the fact that France was 95% dependent on China for Solar panels. The UK has also been over reliant on Taiwan for the supply of computer chips which was highlighted as a significant issue given the increasing threat Taiwan faces from China, but what is less well publicised in that this extends to the food and Beverage sector as detailed below.

So why are countries taking this stance?

The reality is that in the past few years the pandemic and the war in Ukraine have highlighted the reliance that countries have on other countries and when there is a problem it has led to supply shortages, reductions in manufacture, increased transportation costs and more recently high inflation. As well as an economic impact there is a security threat in terms of key resources such as food and energy. Again, this was highlighted by the recent war in Ukraine which led to food prices soaring and concerns that some countries would face significant shortages due to the importance of both Russia and Ukraine in key food production such as wheat and sunflower oil.

What is the impact?

The large trading blocs such as the US and Europe are starting to encourage home grown production and manufacture through technology and development. They are achieving this through grants and subsidies such as those targeting research and development. The UK appears to be some way behind the curve in encouraging UK companies, in fact HMRC have notably taken an interest in R&D claims recently making it harder for companies to make the claims. Ultimately UK companies will become uncompetitive and out of synch with their overseas rivals.

What are the risks for the sector?

If the trend continues this could make supplies more expensive, harder to obtain as well as making it much harder for the UK companies to compete.

What action can the sector take?

Ultimately the sector needs to lobby the government for support and a clear policy so that businesses can develop a longer term strategy, continue to invest in innovation with government support and develop products that can compete globally. In the meantime, keeping your suppliers as varied as possible will provide some protection against sudden price increases or shortages as well as developing IP to protect your products in overseas markets.

Are there opportunities?

There could be opportunities here for the UK Food and Beverage sector if sufficient investment and support is given to them to further research and development and make use of technologies. An example of this is vertical farming and being quick to spot opportunities. A great example of the latter is how the UK wine industry has capitalised on climate change. If the UK can carve out a niche in the sector which is technology driven and innovative this could help protect UK businesses. If the UK government follows other countries we might also see more subsidies and grants to help protect the UK sector, it will be important for businesses to identify and apply for these in order to benefit from them.

How can Crowe help?

We can help support your business for example by helping with business plans and tax structures, outsourcing as your business grows and assisting with R&D claims.