Navigating the new world of rising import costs

The latest trade data by the Office for National Statistics confirms that sterling’s post-Brexit slide has significantly impacted the price of imports, signaling new challenges ahead for the UK food industry.

Though British exporters are set to reap the benefits of a weaker pound, food manufacturers relying on imported ingredients will need to squeeze all aspects of their business model to offset rising costs. Streamlining the end-to-end supply chain and reducing overheads will help to reduce overall costs, but there are a number of other specific steps that can be taken to tackle the problem.

‘Value engineering’ recipes

The UK is a net food importer and many food manufacturing businesses depend on imported ingredients. Tackling the increased costs for these ingredients through a combination of product reformulation and increased local sourcing where possible can help, since both retailers and consumers expect prices to remain competitive. That said, increased food price inflation is inevitable.

Sharing the cost burden

There is intense competition between retailers for the hearts, minds and wallets of UK consumers. This impacts shopping baskets across the country, keeping a cap on price rises. For many food retailers, this will however, further increase the commercial stress with their suppliers around price and cost. Recognising that this is genuinely a shared problem and finding new ways to collaborate can help take costs out for both of parties without reducing the value for customers.

Keeping close to policymakers

The lack of a clear plan from the UK government as to what might replace the support provided by the Common Agricultural Policy post-Brexit is adding to the widespread uncertainty in the food production sector. While many food producers will be able take advantage of heightened domestic demand and better pricing, they should also continue to work through the relevant industry bodies to lobby government for clarity on future transitional support arrangements.

By Lawrence Hutter, managing director at Alvarez & Marsal