A global crop shortage has pushed many businesses to the edge of bankruptcy, including suppliers to Tesco and Pret A Manger.
According to figures released by the government on Tuesday, the number of corporate bankruptcy cases in England and Wales’ food production sector almost tripled in one year, to 173, from 64 the previous period.
The increase in the sector was much greater than the 43 percent increase recorded for the entire economy or the 53 percent increase in manufacturing.
Insolvencies in the beverage industry jumped by 136 percent to 66 during the same period.
The recent outsized rise in insolvencies is due to the unusually low insolvency rate during the Covid-19 Pandemic when businesses received billions of dollars in government assistance, and the relatively small number companies in the food-and-drink sector.
Experts say that the “perfect storm” has had a particularly negative impact on the profitability of British food producers.
The invasion by Russia of Ukraine and the poor weather in the last year have all affected food supplies worldwide, increasing the price of ingredients for companies that make products for supermarket shelves. The post-Brexit trade restrictions and price squeezes by UK supermarkets have also added to the pressure on British producers.
Clive Black, an analyst at Shore Capital said, “You’ve experienced a huge cost shock.” He also highlighted the rising costs of energy, labor and financing, as central banks raised interest rates.
“Then, you had a demand-shock [as consumers cut back on their spending during the crisis of cost of living]. It’s the perfect storm.”
Orchard House Foods – which provided fruit and juices for Pret A Manger, supermarkets and Tesco – and Garth Bakery based in Wales – which supplied bread rolls to Tesco, among other large grocers – are just two of the small businesses that have been reported to be going into administration. Local reports state that Vale of Mowbray which has been making pork pies in Lancashire since 1928 and Singleton’s, a Lancashire cheese company, were also forced to shut down.
Rebecca Dacre is a partner at Mazars, who works in restructuring. She said that food and beverage manufacturers are often hard hit when agricultural prices increase. “A downward trend in inflation could not come soon enough for the industry.”
According to the Office for National Statistics, food and non-alcoholic beverages prices increased at a rate of 18.2 percent in the 12 months to February. This is the highest pace seen in over 45 years. Data from the industry suggested that food inflation increased again last month.
has also criticised UK supermarkets for trying to squeeze suppliers in order to control rising costs. Mazars stated that producers had “increasingly become in conflict with the supermarkets which they supply”, adding that grocers “pressured manufacturers to reduce prices to keep costs low for both them and their customers”.
Black said Brexit was not “helpful” to food producers. He added that it wasn’t the “central” factor driving the increase in insolvencies.
Brexit has complicated the UK’s trade with the EU. The EU is responsible for around 70 percent of UK food and animal imports. As concerns grew about the difficulties of importing goods from abroad, food producers occupied large volumes of UK warehouses to store, slaughterhouses, and indoor farms.
The government announced this month that it will introduce full customs controls on all goods coming from the EU before the end of 2024.