Flavours of Norfolk article: The food business - Here's to a challenging but happy New Year!
By: Justin Wright Date: 6 November 2015
Category: Article,Food and drink
Justin Wright, gazes into his crystal ball to assess the opportunities and the challenges facing the food and drink industry in 2016.
After five or six years of recession, the past year or two have seen a welcome return to economic growth, and a gradual, if slow, resumption of consumer confidence. But after a year which saw a decisive election win and even more austerity cuts announced, what does 2016 have in store for our industry?
First the good news: consumers are once again starting to feel financially comfortable enough to start spending money, and the food and drink sector is reaping the benefit of this. 2016 is likely to see strong economic growth, which at household level will translate into rising incomes, while inflation remains low.
We may still see consumers buying the basics at low-cost retailers, but we will also see much more discretionary spending, which is good news for producers of artisan and luxury foods.
Speciality retailers are reporting strong sales, and shoppers are out spending at farmers’ markets and food festivals once again; I predict that this trend will continue into the New Year. Finally household budgets will stop feeling squeezed; for many (although not all) the ‘cost of living crisis’ is over, and many consumers will celebrate by putting better food on their table.
That isn’t to say that our sector doesn’t still face significant challenges in the next 12 months. Despite low interest rates looking like a long-term fixture due to stubbornly low inflation, the pound remains buoyant against other currencies, which has the double whammy effect of making imported food cheaper, and British goods more expensive to export - and this at a time of falling global demand for some types of food and drink products, such as dairy and proteins.
However, there are home-grown challenges, too. Chief amongst these will be the introduction in April 2016 of the National Living Wage (NLW), which will see minimum wage levels rise from £6.50 to £7.20 – a 10.8% increase. What’s more, the NLW will continue to rise each year until it reaches £9 in 2020.
At a time of low inflation, and when there is little room to manoeuvre on prices charged to retailers, this move is the single biggest challenge food and drink producers will face in 2016. To survive, all non-human costs will have to be squeezed hard, and productivity must rise. We should not underestimate the effect this will have on our industry.
I don’t just want to be a harbinger of doom though; the wider picture is actually good for 2016. Growth is widely anticipated in the sector, and there is increasing global interest in artisan UK foodstuffs. The UK is finally being taken seriously as a premium food producer – even our cheese is finding a market in France – and this burgeoning reputation is being driven from the bottom up.
It is small-scale, artisan and craft producers who are driving this new level of esteem for British food and drink. I hope that 2016 is the year when they finally get the recognition and support that they so richly deserve.