Risks and growth barriers

The businesses surveyed perceive labour cost/legislation and the tax system as the biggest risks the industry has to deal with at present, while access to raw materials is expected to be the major risk in the future.

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 from a range of developed and developing countries. This is echoed by the businesses surveyed which point out that the UK may not have a regulatory environment and tax system that encourage businesses to invest and thus, puts British manufacturers at a competitive disadvantage.

In this context, food and drink manufacturers emphasised that corporation tax is much more 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.

Although at present UK FDM businesses have access to raw materials, they are affected by volatility in commodity prices and believe that the UK should have a national food policy to address food security.

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 in particular for SMEs, as banks have tightened lending criteria and are more risk-averse, affecting 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 success rate of bank loan applications has decreased from 91% in 2007 to 65% in 2010. Only Ireland and Spain had a success rate of bank loans lower than in the UK, whilst in France and Germany, 84% and 75% of SMEs respectively were able to access loan financing in 2010.

Retailer consolidation has skewed the balance of power in the industry's supply chain and, to an 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 material price increases and the need to participate financially in retailers' promotion campaigns have resulted in lower margins for FDM businesses.

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 The industry's outdated image has led to a small number of students pursuing food degrees (3,360 higher education students enrolled in food and drink degrees compared to the total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 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.

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.

However, the companies interviewed stated that the food and soft drinks industry is a more stable employer compared to other industries and has a range of roles that need to be better 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.

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 around the reform of the education system and support for apprenticeships) in order to improve perceptions, close the skills gap and attract higher calibre candidates.

Current and future risks for the UK FDM manufacturing (Findings from the FDF/Grant Thornton survey)

Risks for the UK FDM Manufacturing

Sources: 1. Grant Thornton survey analysis

UK food and beverage Higher Education (HE) students vs. total HE student numbers

Higher Education students

Sources: 1. HESA (2011), Students in Higher Education

UK food and beverage manufacturing and processing Further Education (FE)

Food and drnk manufacturing in further education

Notes: a. The definition has changed, therefore the numbers for 2006/7, 2008/9 may not be directly comparable
Sources: 1. Improve (2010), FDM UK Sector Skills Assessment (quoting ILR, LSC, 2006/07 – 2008/09; SSC Summary Reports (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)

Case study: Developing skills for the future - Kraft Foods

Kraft Foods is a significant employer in the UK, employing over 5,000 people in a range of roles from sales and marketing to manufacturing and R&D. The company recognises that its employees are at the heart of the business and therefore has a number of schemes to ensure that it recruits the most talented people, no matter what their background, and help develop workforce skills.

Kraft Foods has a three-year Graduate Programme (as well as a number of industrial placements) that offer real responsibility from day one. together with structured training, it is designed to deliver a unique experience. The development programme means wide ranging experience in a world-class commercial enterprise that equips them for a senior-level management career. Kraft Foods has been named in the Times Top 100 and Guardian 300 Employer list.

Calum  MarnockKraft Foods is also keen to lead on apprenticeships and is one of England's Top 100 Apprenticeship Employers. Kraft apprentice Calum Marnock (above) was named Apprentice of the Year 2011 at the FDF Community Partnership Awards.

Two apprenticeship schemes are offered: a four year engineering apprenticeship and a two year operations apprenticeship which include on-thejob training as well as gaining an NVQ Level 3 qualification. Historically, approximately 75% of Kraft Food apprentices go on to gain jobs in the business at the end of their apprenticeship.

Recruiting skilled people into the business is important to a company that places importance on research and development. Innovation is at the heart of Kraft's business with three Global Centres of Excellence in the UK. It attracts those with relevant scientific, technical and engineering through specialised recruitment campaigns that try to capture the excitement of working in innovation and that 'Eureka!' moment!

The company runs the World of Work scheme which gives young people in Birmingham and Sheffield the opportunity to experience learning within real work environments. Around 150 students are given a real life business challenge on which to base their coursework and then receive feedback from Kraft staff. Some of these students have gone on to be shortlisted for the company's apprenticeship scheme.

In some areas, it can be a challenge to attract talent at all levels because food and drink are not always front of mind for Government, careers advisers and job seekers. Kraft Foods is proud of its efforts to develop the skills of its people and build a diverse workforce.


More Information

A Grant Thornton report commissioned by Food and Drink Federation. Note that the case studies in the executive summary were written by the Food and Drink Federation.