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FDF_Sustainable growth exec summary

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Resumen ejecutivo del informe de Food Drink Federation "El desarrollo sostenible de la industria de alimentación y bebidas en Reino Unido".

Resumen ejecutivo del informe de Food Drink Federation "El desarrollo sostenible de la industria de alimentación y bebidas en Reino Unido".

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  • 1. Executive SummarySustainable Growth in the Foodand Drink Manufacturing IndustryDecember 2011 Grant Thornton report commissioned by the Food and Drink Federation
  • 2. Contents Contents 04. 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. ConclusionLushani KodituwakkuDirector, Head of Commerical Strategic IntelligenceT +44 (0) 207 865 2428E lushani.kodituwakku@uk.gt.comIoana NobelManager, Commercial Strategic IntelligenceT +44 (0) 207 865 2142E ioana.nobel@uk.gt.comVangelis ApostolidisExecutive, Commercial Strategic IntelligenceT +44 (0) 207 865 2535E vangelis.apostolidis@uk.gt.comPlease refer to the full report which is available in hard copy or on line at www.fdf.org.uk for the complete bibliographylist and relevant sources Page 3
  • 3. Sector Overview & contributionto the UK economy Foreword Executive summary Foreword Executive summary Sector overview and contribution to the UK economy The food and soft drinks manufacturing industry (FDM) is the largest manufacturing sector in the UK and Message from FDF 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 President Jim Moseley (£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 Food and drink manufacturing in the UK is a Great British success story. By contrast with many of the the face of major recent challenges such as volatility of raw material prices and low consumer confidence UK’s traditional industries, we have shown resilience and resolve to grow and adapt: increasing our during the economic downturn. Moreover, the exchange rate has favoured exports which grew by 40% in exports in each of the last six years, reducing our environmental footprint, providing job opportunities nominal terms during the 2007-2010 period (from £7.7 billion to £10.8 billion). over a range of skills and levels and developing healthier products, while continuing to deliver value In contrast, other manufacturing sectors have been severely affected by the economic downturn, reducing and choice to our customers. 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 This has not been easy. Businesses have dug deep to reduce costs and become more efficient, as well as FDM sector is an important contributor to the UK economic recovery. However, during the recession, profit to cope with a range of external factors from new regulation to extreme volatility in commodity prices. margins have been squeezed, especially for SMEs. Therefore, food and drink manufacturers surveyed/ The way ahead is just as demanding. We know we are going to have to produce more, from less and interviewed during this project are requesting a positive regulatory environment to overcome challenges with less impact in order to meet the twin challenges of food security and climate change. And we domestically and improve their competitiveness internationally now and in the future. 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 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 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 UK turnover food and soft drinks vs. other manufacturing project into what FDF members really think are the threats and opportunities they face – and who needs to do what about them. 600 13% 15% Other 500 10% manufacturing The research findings constitute a powerful case for our industry to be central to the UK’s economic turnover recovery whilst continuing to make a real and unique difference to a more sustainable future for society 3% 3% 3% 3% 3% 3% Turnover, £bn Food and soft Growth, % 400 1% 3% 5% and to individual health and wellbeing. With the right entrepreneurial approach on the part of business, (1)% (0)% (1)% 4% drinks turnover 300 (2)% 3% 0% and the right operating framework from Government, working together we believe we can fulfil our (3)% 423 441 430 414 406 393 389 399 411 376 Food and soft vision to achieve a 20% increase in sustainable output by 2020 – provided that we work in genuine 200 (3)% (5)% drinks growth (%) partnership with the shared strategic objective of ensuring safe, nutritious and affordable food for all. (13)% 100 (10)% Other 55 56 57 59 61 61 60 62 70 73 manufacturing A number of excellent initiatives are already in place, from us, from Government and as joint projects. 0 (15)% growth (%) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 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. 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 Jim Moseley FDF President Page 4 Page 5
  • 4. Growth drivers Nestlé Growth drivers • From the Grant Thornton surveys and interviews, companies were prompted to identify key growth Nestlé UK & Ireland 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 Growing business and local opportunities 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 In November 2011, Nestlé UK & Ireland announced Already a major employer in the local area, the the investment of £110 million in its Tutbury site in workforce at the factory has grown from 160 to • However, the segment that is expected to suffer the most is the mid-range products category as Derbyshire creating a world class coffee 500 employees since 2006 and will expand to 800 consumers combine better value at lower prices with innovative, premium priced products manufacturing facility. The extension to the existing people by 2013. Of the 300 new employees some • In terms of brand vs. private label products, the views are split, with corporates believing NESCAFÉ Dolce Gusto plant enables Nestlé to will become part of the first intake into the Nestlé that private label is more likely to drive growth, while SMEs expect branded products to treble its production capacity and create 300 Academy, a new initiative under which Nestlé UK drive growth. Desktop research (Mintel) indicates that during the recession, branded food new jobs. & Ireland has committed to double its number of products outperformed private label. Therefore, it is reasonable to suggest that this trend may graduates, apprentices and internships, supporting This move follows an additional investment of continue despite the increasingly trusted or premium image that private label brands such the economy through the training of skilled workers. over £100m in Tutbury over the past five years, as Tesco Finest or Sainsbury’s Taste the Difference may be enjoying with consumers which has strengthened its position as a leading Paul Grimwood, Chairman and CEO, Nestlé • The ageing population (both in the UK and worldwide), as well as the health agendas increasingly NESCAFÉ production plant and introduced the UK & Ireland said: “Over the past five years promoted in the Western world, are expected to impact the demand for Health & Wellness NESCAFÉ Dolce Gusto brand. Tutbury is one of we have undertaken a multi-million pound (H&W) products and, therefore, be one of the main categories to drive the industry’s growth only two production centres for NESCAFÉ Dolce investment programme in the UK, establishing Gusto in the world and since its launch in 2006 our next generation of world class competitive • Both in the UK and globally, the forecasted population growth will result in a larger consumer demand for the ‘coffee shop at home system’ has manufacturing facilities. This investment in Tutbury base, which should drive demand within the food and soft drinks market. The UK is amongst been phenomenal with current growth of around will extend our best in class facility, trebling our the European countries with the fastest population growth, forecast to reach 71.3 million in 2030 50%. As demand for NESCAFÉ Dolce Gusto production capacity for export to over 38 countries (15% growth from 62.3 million in 2010). France is forecast to grow at 11% reaching 73.5 million continues to grow Nestlé identified the need to across the globe. In order to grow we need to in 2030. This contrasts with the 1% population decline in Germany and the stagnation in Poland increase production to keep pace with demand. innovate and we are committed to the continued (at 39.7 million people in 2030 vs. 39.5 million in 2010). However, in the UK, the shape and pace modernisation of our UK manufacturing capability.” 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 PM David Cameron speaking at the launch of Nestlé’s expansion plans Page 6 Page 7
  • 5. Export oppourtunities Dorset Cereals Export opportunities Dorset Cereals • Although UK FDM businesses continue to regard Europe as an important trading partner, they also Exporting great breakfasts across the globe 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’ Award-winning premium breakfast cereals maker Dorset’s distinctive packs are found in a significant diet, specifically an increase in the consumption of proteins and convergence towards Western diets Dorset Cereals create all their recipes in the unique number of leading supermarkets and independent village of Poundbury in Dorset, which was inspired stores around the world including in the Middle • However, businesses will need to strategise effectively whilst marketing their products to these and created by HRH The Prince of Wales. and Far East, Central and Eastern Europe, the 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 1,000 900 UK Food & Soft Drinks Exports, 800 700 600 2000 500 2005 £m 400 300 2010 200 Dorset’s mueslis, granolas, porridges, Tasty Flakes Caribbean and Africa. In mid 2011, Dorset re- 100 and cereal bars are all made to recipes that use started its business with E Mart and already 0 carefully sourced, great tasting ingredients. sales to the retailer have trebled following the Australia Japan France* Spain Russia Poland China Germany USA EU’s bi-lateral agreement with South Korea. For Dorset Cereals, international sales are 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 a fundamental part of the business and Chairman Peter Farquhar said: “For us, has been excluded from the graph even though exports to Ireland have been growing strongly represented 20% of the company’s turnover in international sales are a fundamental part of our Sources: 1. UK Trade Info (2011), Trade Data 2011. Their exports have continued to increase, growth strategy as a business and the prospects doubling in the last five years to £5m. for the coming year are very promising. The company’s award-winning mueslis are “Our success shows that there is a tremendous Dorset’s core business overseas. In 2011, their appetite for our products overseas. A reduction granolas were launched in North America and in the high import duties and tariffs we have Europe and are delivering further growth. The to pay, as well as a harmonisation of the granolas will roll out to all markets in 2012. varied packaging and ingredient requirements demanded by different markets would help SMEs The major markets for Dorset Cereals are: the like us to capitalise on this more effectively. United States, the Netherlands, the United Arab Emirates and Canada, where the business “It is a testament to our brand that many of continues to grow impressively. In Canada, our consumers send us photographs of our the business is growing +33% year on year. cereals from their holidays in far away places In the Netherlands, Dorset Cereals is now like Barbados, Mauritius and even Nepal.” available in a further 1,100 stores nationally. Page 8 Page 9
  • 6. Competitive advantages& areas for improvement McCain Foods Competitive advantages • The UK FDM industry needs to exploit its competitive advantages, minimise its weaknesses and McCain Foods 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 Investing in healthy innovation 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, As a manufacturer of staple family foods Further recipe changes to reduce salt were made at are efficient supply chains, low waste and high levels of regulatory compliance McCain has long recognised its responsibility the same time, and over thirty artificial ingredients to make its products as healthy as they can replaced with natural, healthier alternatives. • These characteristics were considered to contribute towards the industry’s competitiveness, allowing be and develop meal solutions for consumers it to maintain margins and present itself as a reliable partner when conducting business abroad Since reformulation work first began in 2001 that are healthier, while still providing the McCain has reduced saturated fats by over 70% • The analysis conducted based on desktop research supports the FDM executives’ views. taste and convenience they expect. so that typical levels in its potato products are now According to Mintel’s NPD Database, the UK food and drink industry has the highest number Over the last ten years McCain has implemented less than 1% when oven cooked. Over the same of new product variant launches outside the US. Between 2005-2011 (up to October), UK a major reformulation programme across its period the company has also reduced salt levels by manufacturers launched 49,995 product variants compared to 47,677 in Germany, 41,005 existing retail and foodservice portfolio with an 22%, and are on track to meet 2012 Responsibility in France, 36,652 in Brazil, 32,019 in Japan, 24,209 in Spain and 13,868 in Canada emphasis on reducing saturated fat and salt, Deal targets ahead of schedule. McCain products • The businesses surveyed credit the UK FDM with equally developed R&D and technology capabilities adapting recipes and production processes contain no artificial colours, flavours or trans fats. when compared to Western counterparts. This is consistent with the R&D investment data available to achieve this. In 2006, as part of a strategic Healthier innovation is also a key priority, resulting from the Organisation for Economic Co-Operation and Development (OECD) which indicates that repositioning of its product range, McCain over the last four years in two very successful among comparison markets, the UK food, beverage and tobacco companies invest the highest took the decision to switch to sunflower oil for product launches – McCain Rustic Chips have only percentage of revenue in R&D (0.48% of turnover). However, the UK FDM is lagging behind Japan and cooking all of its potato products resulting in a 3% fat when baked and achieve four green traffic Switzerland both of which, when expressed as a percentage of turnover, invest almost double in R&D significant reduction in saturated fat levels. lights under the FSA guidelines, and its Purely • The FDM executives interviewed stated that productivity improvement is a constant priority for This change represented a multimillion pound Potato range of steam blanched products use no oil their businesses, although they believe that the UK FDM industry has many legacy assets and is investment as well as a major production and in preparation and contain no added salt, making characterised by overcapacity. Although utilisation rates were not tested, international productivity logistical challenge requiring over 300 new product them a popular menu choice for school caterers. comparisons indicate that the UK food and beverages industry has consistently improved productivity specifications and a complete packaging overhaul. 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 GVA per employee for manufacturing sector vs. food & beverage, 2008 ranks above Germany and Japan, both of which have substantial manufacturing sectors and are 125,306 traditionally considered to invest heavily in technology as a means of improving their productivity 140,000 GVA per employee at current prices, 99,162 120,000 Areas for improvement 100,000 national currency 69,053 68,611 66,433 60,022 60,525 56,953 80,000 Total food & beverage 56,455 50,781 productivity 44,717 • The businesses surveyed rated the UK FDM’s competitiveness low in terms of labour cost. 39,966 60,000 An international comparison proves that not only are UK labour costs above other countries’, Total manufacturing 40,000 productivity but, unlike most countries analysed, the growth in labour costs outpaced productivity growth 9,961 8,622 20,000 (between 2003-2007) 0 • Businesses also stated that they operate in a highly regulated environment and Government does Japan* Italy United Kingdom Spain France Germany USA 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 Notes: a. Japan’s figures are in 1,000’s Yen Sources: 1. OECD (2011). OECD Structural Analysis Statistics (STAN); 2. ONS (2011), Annual Business Survey Page 10 Page 11
  • 7. Risks & growth barriersRisks & growth barriers Risks and growth barriers • 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 • The businesses surveyed perceive labour cost/legislation and the tax system as the biggest • However, the companies interviewed stated that the food and soft drinks industry is a more risks the industry has to deal with at present, while access to raw materials is expected stable employer compared to other industries and has a range of roles that need to be better to be the major risk in the future 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 • 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 • In response, FDF has launched a campaign called ‘Taste Success – A Future in Food’ to from a range of developed and developing countries. This is echoed by the businesses surveyed raise public awareness of the FDM industry’s contribution to society. The campaign aims to which point out that the UK may not have a regulatory environment and tax system that encourage promote the food and soft drink manufacturing sector as a career of choice for new graduates, businesses to invest and thus, puts British manufacturers at a competitive disadvantage 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 • In this context, food and drink manufacturers emphasised that corporation tax is much more needed to replace the workforce that will retire or leave the industry in the next few years 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 • 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 • Although at present UK FDM businesses have access to raw materials, they are affected by volatility in around the reform of the education system and support for apprenticeships) in order to commodity prices and believe that the UK should have a national food policy to address food security improve perceptions, close the skills gap and attract higher calibre candidates • 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 Current and future risks for the UK FDM manufacturing in particular for SMEs, as banks have tightened lending criteria and are more risk-averse, affecting (Findings from the FDF/Grant Thornton survey) 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 5 success rate of bank loan applications has decreased from 91% in 2007 to 65% in 2010. Only 4.0 4 3.8 3.7 Ireland and Spain had a success rate of bank loans lower than in the UK, whilst in France and 3.6 Risk (1 lowest, 5 highest) 3.3 3.4 3.4 3.2 3.0 Germany, 84% and 75% of SMEs respectively were able to access loan financing in 2010 2.8 2.9 3 2.6 Current • Retailer consolidation has skewed the balance of power in the industry’s supply chain and, to an Future 2 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 1 material price increases and the need to participate financially in retailers’ promotion campaigns have resulted in lower margins for FDM businesses 0 of innovation Government Labour cost/legislation Tax system Education system & training Access to raw materials Track record incentives & support • 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 Sources: 1. Grant Thornton survey analysis 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. Page 12 Page 13
  • 8. Kraft Foods Risks & growth barriers Kraft Foods Access to skills Developing skills for the future UK food and beverage HE students vs. total HE student numbers 4,000 2,547,470 2,600,000 3,500 2,550,000 3,000 2,500,000 Number of students 2,396,050 2,450,000 2,500 Total HE students 2,362,815 2,400,000 Food and 2,000 beverage 2,306,105 3,380 2,350,000 HE students 1,500 3,065 2,650 2,695 2,300,000 Total HE 1,000 2,250,000 students 500 2,200,000 0 2,150,000 2006/07 2007/08 2008/09 2009/10 Sources: 1. HESA (2011), Students in Higher Education Kraft Foods is a significant employer in the UK, business at the end of their apprenticeship. employing over 5,000 people in a range of roles UK food and beverage manufacturing and processing FE Recruiting skilled people into the business is from sales and marketing to manufacturing and R&D. The company recognises that its employees important to a company that places importance are at the heart of the business and therefore has on research and development. Innovation is at a number of schemes to ensure that it recruits the heart of Kraft’s business with three Global 40,000 39,401 the most talented people, no matter what their Centres of Excellence in the UK. It attracts those background, and help develop workforce skills. with relevant scientific, technical and engineering 39,000 Kraft Foods has a three-year Graduate Programme through specialised recruitment campaigns 38,000 that try to capture the excitement of working Number of students (as well as a number of industrial placements) that 37,000 offer real responsibility from day one. Together with in innovation and that ‘Eureka!’ moment! 36,025 structured training, it is designed to deliver a unique 36,000 The company runs the World of Work scheme experience. The development programme means wide ranging experience in a world-class commercial which gives young people in Birmingham and 35,000 enterprise that equips them for a senior-level Sheffield the opportunity to experience learning 34,000 management career. Kraft Foods has been named in within real work environments. Around 150 2006/7 2008/9 the Times Top 100 and Guardian 300 Employer list. students are given a real life business challenge on which to base their coursework and then Kraft Foods is also keen to lead on apprenticeships receive feedback from Kraft staff. Some of Notes: a. The definition has changed, therefore the numbers for 2006/7, 2008/9 may not be directly comparable and is one of England’s Top 100 Apprenticeship Sources: 1. Improve (2010), FDM UK Sector Skills Assessment (quoting ILR, LSC, 2006/07 – 2008/09; SSC Summary Reports Employers. Kraft apprentice Calum Marnock these students have gone on to be shortlisted (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) (above) was named Apprentice of the Year 2011 for the company’s apprenticeship scheme. at the FDF Community Partnership Awards. In some areas, it can be a challenge to attract Two apprenticeship schemes are offered: a four talent at all levels because food and drink year engineering apprenticeship and a two year operations apprenticeship which include on-the- are not always front of mind for Government, job training as well as gaining an NVQ Level 3 careers advisers and job seekers. Kraft Foods qualification. Historically, approximately 75% of is proud of its efforts to develop the skills of Kraft Food apprentices go on to gain jobs in the its people and build a diverse workforce. Page 14 Page 15
  • 9. The role of Government in optimising growth The role of Government in optimising growth The role of Government in optimising growth During 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: • Tax system pledge to increase apprenticeships across industries by 250,000 until 2015 and FDF’s initiative of Food and drink manufacturers identified the tax system as the main area in which the Government doubling food and drink manufacturing apprenticeships in England and Scotland will contribute can provide support. Despite Government plans to gradually reduce the main corporate tax rate towards securing some of the pipeline of new recruits necessary to replace the ageing workforce from 26% to 23%, businesses believe the UK tax system is not competitive enough and faces • R&D and innovation strong competition from both developed and emerging markets. Currently UK’s corporation tax Businesses would also like the Government to reform R&D tax credits and tax breaks in order rate is on par with the average of OECD countries, but countries such as Ireland, Poland, Slovakia to offer better access to funding and promote innovation. SMEs find the process of claiming and Romania have much lower corporate tax rates R&D tax credits burdensome and have to bring in external consultants to help them submit • Regulations and ‘red tape’ applications. Moreover, FDM companies may not qualify for R&D tax credits or tax breaks as Another area where businesses would welcome Government involvement is in reducing the burden authorities do not recognise the type of innovation specific to food and drink manufacturing of EU/Government imposed regulations and ‘red tape’. SMEs in particular, do not have the Therefore, FDM businesses have expressed their desire for support from the Government to resources to deal with the administration required to comply with regulations. Moreover, widen the definition of R&D activities to include improvements in products, technology, businesses would like Government to push for a uniform implementation of EU regulations across packaging, not just blue sky research which is rare in food and drink manufacturing 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 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 Businesses view compliance of 160 labour regulations as costly and have emphasised the drink industry and, therefore handle claims more effectively importance of flexible and streamlined regulations in order to help manufacturers grow and in turn maintain employment levels • Trade barriers and food security FDM businesses highlighted the need for the Government to re-engage in discussions with • Export incentives international organisations for the removal of trade barriers to help grow exports and reduce the In many cases, FDM businesses and SMEs in particular are not aware of the end-to-end actions cost of raw materials imported. Moreover, they expressed the need for a food policy that clearly they need to take in order to export. They also require administrative support to navigate through addresses long-term issues such as food security and measures to shield the UK FDM from the regulations of the countries they are planning to export to. SMEs requested a greater level of commodity price volatility 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 • Balance of power in the supply chain associated with exporting to specific countries 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 During interviews, FDM executives mentioned that other countries are better at supporting their should monitor not only the food price paid by the consumer, but also take into account unfair manufacturers to participate in international trade fairs. In contrast, they perceive that the UK trading practices 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 Page 16 Page 17
  • 10. Conclusion Conclusion In 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 government FDF 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. Page 18
  • 11. About FDFThe Food and Drink Federation is the voice of the UK food and drink industry, the largest manufacturing sectorin the country.FDF’s membership comprises manufacturers of all sizes as well as trade associations dealing with specific sectorsof 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 consumerscan 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 CompetitivenessDelivering Sustainable Growth6 Catherine Street, London WC2B 5JJtel 020 7420 7103 email caroline.fox@fdf.org.uk web www.fdf.org.ukThis document is printed on paper which is made from 100% recycled fibressourced only from post-consumer wasteDesigned by Red Ant Solutions

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