FDF response to the House of Commons BIS Select Committee
inquiry into Government’s Industrial Strategy
The Food and Drink Federation (FDF) is the trade association representing the food
and drink industry, the largest manufacturing sector in the UK. Our industry underpins
the UK economy by creating wealth for the nation with Gross Value Added (GVA) of
£21.9bn (equal to automotive and aerospace combined) and a turnover of £81.8bn
which accounts for 16 per cent of the total manufacturing sector. The industry
employs around 400,000 people; self-funds three quarters of the sector’s research
and development; and exports over £18bn of food and drink1.
The food and drink manufacturing sector has a strategic role in ensuring UK future
food security against the combined effects of climate change, higher global demand
and increasing pressure on finite resources. It provides a vital link in the food supply
chain, buying UK and global agricultural produce and turning it into exciting,
innovative products that are sold by retailers and caterers to millions globally.
In recent years, food and drink manufacturing has been a productivity success story.
Productivity in food and drink grew by 11 per cent in the five years from 2009-2014,
compared to 0.5 per cent across the whole economy. However we have since seen
food and drink productivity growth fall to 5 per cent in the last five years from 20102015. A lack of investment in automation has resulted in employees being retained
with some even moving into less productive roles. This slump in automation
investment and ‘labour hoarding’ has contributed to the productivity growth
slowdown. We therefore believe exploring where and how productivity can be
improved is not only good for the food and drink manufacturing sector, but good for
the UK as a whole. Given the size and scale of the industry, any productivity
improvements will have a significant impact on the UK’s manufacturing performance
and that of the wider economy. In July, FDF published a report Unlocking talent: the
key to driving food and drink productivity.
In light of the UK’s decision to leave the European Union, we are set to face an
extended period of uncertainty about the economic and political landscape and
potential future decisions by major customers or parent companies. Government
must counterbalance any negative consequences from this uncertainty on
investment, innovation and job creation with incentives to support growth through a
long-term industrial strategy. This long term strategic focus is required in order to
maximise returns for Government’s investments and give business confidence to
invest and innovate. FDF and its members are seeking proactive engagement with
Government to help shape and develop this agenda. You can find FDF’s priorities for
a new UK-EU relationship set out in our manifesto.
1
Including alcohol (FDF does not represent alcohol manufacturers)
Food and Drink Federation ■ 6 Catherine Street ■ London WC2B 5JJ ■ Tel: +44 (0)20 7836 2460 ■ Fax: +44 (0)20 7836 0580 ■ Web: www.fdf.org.uk
Registered office as above. Registered in London with limited liability. Certificate of Incorporation no. 210572. VAT number: 761253541. The Food and Drink Federation seeks to ensure that information and guidance
it provides are correct but accepts no liability in respect thereof. Such information and guidance are not substitutes for specific legal or other professional advice.
1. What does the Government mean by industrial strategy, and what does the
private sector want from one?
The food and drink manufacturing industry makes a vital contribution towards
rebalancing the economy and closing the productivity gap. Our contribution of
£21.9bn in GVA is almost equal to automotive and aerospace’s GVA combined.
Government must put in place conditions to deliver a more productive, investment
and export-driven economy that aligns with food and drink manufacturers’ plans to
grow in the UK. All Government departments must share this ambition by recognising
the impact of policy changes on investment and developing solutions to
environmental and societal challenges.
FDF welcomes the fact that the Government has recognised the strategic importance
of our industry, including food as part of the UK’s Critical National Infrastructure, as
well as its vital economic contribution as the UK’s largest manufacturing sector. Now
more than ever, we need the Government to work in partnership with the food and
drink manufacturing sector to take advantage of long term opportunities. The focus of
an industrial strategy partnership should:
1. Address long term productivity growth;
2. Foster R&D and innovation;
3. Deliver a long-term, employer-led skills strategy through real business
leadership within the Institute for Apprenticeships;
4. Target export promotion;
5. Develop a long term coherent energy and decarbonisation strategy; and
6. Boost long-term funding for infrastructure
Our key demands of a future industrial strategy have never been more urgent with
the risks and opportunities that the UK’s decision to exit the EU will bring to its largest
manufacturing sector. Food and drink manufacturers will need to consider the
implications for their businesses in terms of access to people, ingredients and key
markets and whether it is still commercially viable to continue to operate in the UK.
Skills
Food and drink manufacturers in the UK, like the rest of the agri-food supply chain,
benefit from bringing in skilled labour from outside the UK. Around 29 per cent of the
UK’s food and drink manufacturing workforce are non-UK EU nationals – almost
115,000 workers. Our industry will need 130,000 new skilled workers by 2024. FDF
has already taken steps to ensure that the UK develops more home-grown talent,
especially skilled food engineers and scientists, through ambitious graduate and
apprenticeship programmes. However, workers from other EU Member States will
continue to provide a highly valued solution in helping to close the skills gap.
Government must develop a new migration policy that ensures manufacturers have
continued access to the workers we need to address a looming skills gap and the
drive for future innovation to support the UK’s competitive advantage.
At the same time there needs to be a significant step change in developing homegrown talent from showcasing the exciting career opportunities on offer and better
schools engagement to support for employer-led, collaborative further and higher
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education courses that meet the needs of the food and drink sector. The
Apprenticeship Levy is also an opportunity to improve the uptake and quality of
apprenticeships in our sector but only if it is implemented in the right way. An
industrial strategy must provide support for employers given this is a significant
investment for them and a tight timescale to implement changes to the
apprenticeship landscape especially when current delivery is highly fragmented in our
sector.
Exports and Imports
The overwhelming majority of UK trade in food and non-alcoholic drink is with the EU
– more than 70 per cent of both exports and imports. We have seen 15 years of
consecutive growth for exports of value-added food and non-alcoholic drink, boosted
by improved market access secured via EU Free Trade Agreements (FTAs). Many
food and drink manufacturers will struggle to substitute EU customers for ones in
other parts of the world, including emerging markets, because of differing consumer
tastes and limited product shelf-lives. The loss of tariff-free access to imports from
the EU would pose a grave threat as many food and drink manufacturers would
struggle to secure alternative sources. Government must therefore prioritise tariff-free
customs union with the EU, ensuring continued market access for both exports and
imports via a comprehensive UK-EU trade deal before proceeding with the Article 50
exit negotiation process. We are already seeing companies, particularly small and
medium sized enterprises (SMEs), struggling with rising import costs of up to 20 per
cent where they have been unable to hedge on the futures market or their hedging is
due to expire. Many food and drink manufacturers are locked into 12-18 month
contracts with their customers and are unable to pass on rising costs which is
affecting some smaller companies’ viability. Export growth is hugely important to the
sector particularly for SMEs. We fully support the forthcoming Government-Industry
Food and Drink Export Action Plan. A future industrial strategy must build on this
Export Action Plan and provide direct interventions that support new and existing
food and drink exporters.
Innovation
The UK food and drink sector is a world leader in innovation and we self-fund three
quarters of the sector’s research and development. In 2014, Government contributed
0.6 per cent (£3m) to the sector’s R&D Spending, whilst the automotive and
aerospace sectors received respectively 1.6 per cent (£37m) and 11.9 per cent
(£202m). A future industrial strategy should enable the UK to be an attractive
platform for companies to create or launch innovative products and to adopt
innovative manufacturing technologies as well as to direct foreign investment to the
UK. We are calling for a long-term strategy that supports and channels investment in
R&D, innovation and knowledge transfer into the sector with flexible regulations,
backed up by robust impact assessments. Government should play a strong role in
ensuring future legislation is fit for purpose and research and innovation-friendly.
Public funding is particularly important for SMEs, which are some of the most
innovative in our sector, yet lack the capacity to undertake R&D on their own
account.
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Supply Chain
SMEs represent 96 per cent of companies in the UK food and drink manufacturing
sector and have huge growth potential. Unlike other manufacturing sectors, they do
not only supply larger manufacturers but also directly compete with them for shelf
space in a highly competitive retail environment. A solid understanding about how the
food and drink manufacturing industry is structured and how its supply chains operate
can enable policy development that meets the needs of the country’s largest
manufacturing sector. Policy makers must ensure they create a flexible policy
framework that supports different supply chains within British manufacturing and
establishes the right business environment for all sectors to thrive.
2. How interventionist in the free market should Government be in
implementing an industrial strategy?
A successful industrial strategy must be built on an internationally competitive
business environment – regardless of sector or location. Tax, regulation, competition
policy and a strong education system must be internationally competitive if the UK is
to succeed.
FDF believes the Government has a role to play in supporting private-sector activities
by expanding infrastructure, helping to ensure adequate skills through education and
training, and supporting R&D investment, particularly where a market failure occurs.
For example a number of food and drink manufacturers have limited access to key
skills and infrastructure that are critical to delivering an efficient and high-quality
response to real-time demand from a highly competitive UK retail environment. In
recent years, one of our multinational members agreed to support a local flood
defence scheme with £1.65million in order to ensure the risk of flooding was removed
from an investment proposal of £200million on a new factory. In other European
markets, this would have been fully Government funded in order to secure the
investment that has created 125 new jobs in this particular area. We believe
Government investment in infrastructure and education can make a real difference in
enabling sectors with a UK competitive advantage.
3. What lessons can be learnt from previous governments’ and other
countries’ industrial strategies?
In 2012 the coalition Government identified the agri-tech sector as one of eleven
industrial strategies but its initial scope did not extend beyond the farm gate.
Following positive engagement with industry, Government recognised the need to
extend the remit of the strategy to the agri-food sector, encouraging a wider supply
chain approach to innovation.
The food and drink industry supports and drives growth in many parts of the value
chain. From the research community, renewable energy sector, farming and
machinery manufacturing to retail, digital and marketing services. Our industry
provides a platform enabling these sectors to grow – creating a multiplier effect – as
happened with the UK’s world leading end-of-line machinery sector. We urge the
Government to take a whole food supply chain approach in its future industrial
strategy given the major contribution the agri-food value chain makes to the UK
economy. The UK agri-food supply chain creates £108bn in GVA, £431bn in turnover
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and employs 4 million people in total and offers huge potential to deliver real
productivity gains.
4. What tensions exist between the objectives of an industrial strategy and the
objectives of other policies, and how should the Government address these
tensions?
An industrial strategy in the UK must deliver a joined-up policy approach that does
not have unintended consequences for sectors that are impacted by non-traditional
business departments (e.g. Defra, Department for Health); or allow Government
policy to be developed without due regard to the overall impact on growth (e.g. the
cumulative effect of a rising National Living Wage, the introduction of the
apprenticeship levy and the soft drinks levy). Where tensions may arise, these need
to be addressed and considered within the context of Government’s overall industrial
strategy objectives.
5. What are the pros and cons of an industrial strategy adopting a sectoral
approach?
FDF fully supports a sector-led approach to industrial strategy, using both horizontal
and vertical measures to support the development of sectors in which the UK has a
competitive advantage and offers significant opportunities to secure world-class
status.
We believe the following measures should be used to identify key sectors:

Is the sector strategically important for the UK?

Is the sector currently globally competitive, and if not why not?

What actions could Government and businesses take to make it more
competitive?
Responding to the key measures, as identified above, in relation to food and drink
manufacturing:

Food and drink manufacturing is strategically important for the UK in terms of
its vital economic contribution as the UK’s largest manufacturing sector in
terms of GVA, turnover and employment. It also helps to ensure food security
for a growing population by supplying safe, nutritious and affordable food.

The UK food and drink manufacturing sector is globally competitive, with world
class capabilities in production, logistics, innovation, sales and marketing. The
sector’s labour productivity has been significantly higher than many of its
global competitors, with the exception of Ireland and the United States2.
However, UK food and drink manufacturers are facing unique challenges and
productivity growth has recently fallen.

There are a number of joint actions the Government and industry could take to
make the sector more competitive by focusing on long-term productivity,
increasing R&D and innovation, attracting skills and talent and driving export
growth.
2
Annual Survey of Manufactures, Data Set AM1331GS101 and Data & Trends of the European Food
and Drink Industry 2013-2014
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6. Should the industrial strategy have a geographical emphasis?
The food and drink manufacturing sector is geographically spread across the UK and
has an important role in creating wealth and supporting employment, particularly in
rural communities. There is a positive role for place-based thinking as a part of this
approach, ensuring that industrial strategy plays a part in delivering prosperity across
the whole of the UK. This means aligning central Government and devolved policies
to play to the UK’s industrial strengths and to avoid inconsistencies in policy making
at a local or regional level, for example on the public health agenda, which can have
a detrimental effect on productivity growth.
There are opportunities to combine ‘sectors’ and ‘place’, particularly given many
Local Enterprise Partnerships (LEPs) and devolved nations such as Scotland and
Northern Ireland have identified food and drink manufacturing as a priority sector. It is
critical that an industrial strategy with a geographical emphasis must not be
developed with only strong regional sectors in mind. We urge policy makers to create
a flexible policy framework that supports sectors that are located across all parts of
the UK. FDF welcomes the Prime Minister’s focus on a strategy that will deliver for
every city and rural area, not restricted to one or two major cities.
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The UK Food and Drink Manufacturing Industry
The Food and Drink Federation (FDF) is the voice of the UK food and drink
manufacturing industry, the largest manufacturing sector in the country. The industry
has a turnover of £81.8bn, which is 16 per cent of total manufacturing turnover, and
Gross Value Added (GVA) of £21.9bn. The industry employs around 400,000 people.
Exports of food and non-alcoholic drink have doubled in the last ten years, amounting
to a worth of £12.8bn in 2014.
The following Associations actively work with the Food and Drink Federation:
ABIM
ACFM
BCA
BOBMA
BSIA
BSNA
CIMA
EMMA
FCPPA
FOB
PPA
SMA
SN
SNACMA
SPA
SSA
UKAMBY
UKTIA
Association of Bakery Ingredient Manufacturers
Association of Cereal Food Manufacturers
British Coffee Association
British Oats and Barley Millers Association
British Starch Industry Association
British Specialist Nutrition Association
Cereal Ingredient Manufacturers’ Association
European Malt Product Manufacturers’ Association
Frozen and Chilled Potato Processors Association
Federation of Bakers
Potato Processors Association
Salt Association
Sugar Nutrition UK
Snack, Nut and Crisp Manufacturers’ Association
Soya Protein Association
Seasoning and Spice Association
UK Association of Manufacturers of Bakers’ Yeast
United Kingdom Tea & Infusions Association Ltd
FDF also runs specialist sector groups for members:
Biscuit, Cake, Chocolate and Confectionery Group (BCCC)
Frozen Food Group
Ice Cream Committee
Meat Group
Organic Group
Seafood Committee
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