UK food and drink sector hit by surge in corporate insolvencies

Suppliers to Tesco and Pret A Manger are among those to have fallen victim to a surge of insolvencies in the UK food and drink sector, after a global shortage of crops pushed businesses to the brink.

The number of corporate insolvencies in the England and Wales food production sector nearly tripled to 173 in the year to February, from 64 in the previous period, according to government figures released on Tuesday.

The sector’s increase was the biggest among major industries and much larger than the 43 per cent rise recorded across the whole economy, or the 53 per cent increase in manufacturing generally.

Meanwhile, insolvencies in the beverage manufacturing sector jumped 136 per cent to 66 in the same period.

An unusually low number of insolvencies during the Covid-19 pandemic, when businesses received billions in government support, as well as the relatively small number of companies in the food and drink sector, have contributed to the outsized recent rise.

However, experts say the profitability of British food and beverage makers has been particularly hard hit by a “perfect storm” of business pressures.

Russia’s invasion of Ukraine, a key grain exporter, and poor weather have hit food supplies globally over the past year, driving up the cost of ingredients for businesses that produce goods for supermarket shelves. Post-Brexit trade barriers and price squeezing by UK grocers, meanwhile, have only added to the strain on British producers.

“You’ve had an immense cost shock,” said Clive Black, analyst at Shore Capital, who also pointed to the rising cost of energy, labour and financing as central banks lifted interest rates.

“Then you’ve had a demand shock [as people cut back on spending during the cost of living crisis]. It’s a perfect storm.” 

Orchard House Foods, which supplied fruit and juices to Pret A Manger and supermarkets, and Welsh company Garth Bakery, which supplied bread rolls to Tesco and other big grocers, are among the small businesses known to have entered administration over the past year. Vale of Mowbray, which had been producing pork pies since 1928, and Lancashire cheese business Singleton’s were also forced to close, according to local reports.

“Manufacturers of food and drink are always hit hard when agricultural prices rise and the last year has seen many of those prices surge,” said Rebecca Dacre, a partner in the restructuring business at consultancy Mazars. “A downturn in inflation couldn’t come too soon for the industry.”

Food and non-alcoholic beverage prices rose at an annual rate of 18.2 per cent in the year to February, the fastest pace in more than 45 years, according to the latest data published by the Office for National Statistics. Industry data suggested food inflation accelerated again last month.

UK supermarkets, which are among the world’s most competitive on price, have also been criticised for squeezing suppliers as they seek to keep a lid on rising costs. Producers had “increasingly come into conflict with the supermarkets they supply to”, Mazars said, adding grocers had “pressured manufacturers for a reduction in prices in a bid to keep costs down for them and consumers”.

Black said Brexit had not been “helpful” for food producers, although he added it was not the “central factor” driving the surge in insolvencies.

Brexit has complicated trade with the EU, which is responsible for about 70 per cent of the UK’s food and animal imports. Last year, food producers took up record volumes of UK warehouse space for storage, slaughterhouses and indoor farms as worries rose about the difficulty of importing from abroad.

This month, the government announced plans to introduce full customs checks on goods arriving from the EU by the end of October 2024.