Is the UK Food Supply Chain in Turnaround?

The United Kingdom has one of the most globally connected, diverse and flexible food supply chains in the world. Over the last 40 years, diversity of product and nutritional choices has been a huge change, for the better, for the general population. Recent events – whether they be the unprecedented level of cost inflation recently experienced; shelf shortages of reasonably “standard products” or the very public conflicts between retailers and UK food growers and manufacturers have demonstrated the extent to which this critical area of the UK economy is currently exposed and the reality that this is an area of vital importance to many that needs a step change in how it is thought of.

The challenges faced by the UK food industry are numerous and complex – the matter of cost price inflation alone is actually the end result of a myriad of factors. The issue of labour availability post-Brexit is a factual matter – c. 35% of the UK’s food production labour force was previously from the EU and this was further compounded by COVID-19 leading EU nationals to repatriate themselves – that has driven up the cost of labour. Add to that supply chain disruption throughout the COVID period (freight container rates more than doubled) and the impact of lockdowns on production efficiency and most food producers were already strained.

The energy price surge – often up to 300% – through the war in Ukraine has been the final macro challenge creating fundamental risks to participants in the UK supply chain. Historically, the food industry in the UK has been underinvested from a capital perspective – employment laws making it easy to hire and fire and lack of regulatory incentivisation or support for investment has hampered progress regarding areas such as automation and technology innovation. Equally, the cyclical nature of the industry and the power of grocery retailers to keep prices low has made the segment less attractive than others to providers of capital.

None of this touches on the reality of a long-term climate related challenge that food production will face due to changing rain and temperature patterns – the impact of this on the UK supply of tomatoes made recent headlines and, in a globally competitive market, when supply is restricted it will go to who pays most. At the same time as fighting for its life on a day-to-day basis, the UK food supply chain is being forced to consider a net zero future and the importance of sustainability.

UK agriculture and food production is at a crossroads: never more in the spotlight in regard to the importance that it holds for our national security and infrastructure but with a potential lack of clarity on what it needs to move forward and also lacking in new talent coming through or into the industry at the same volume it has done previously.

Creation of incentives to invest in long-term capital projects (such as those seen in technology or green industries); support for industry specific training and development programmes; assistance in the short term to manage post-Brexit labour challenges and a regulatory regime that encourages investment into the industry are crucial. All of this needs to be underpinned by the support of people skilled in helping businesses through times of stress and turbulence.

Michael Rice is a Partner at Isara Capital and leads the investment team. With over a decade’s experience of investing in and transforming businesses, he focuses on sourcing and leading on new investments along with driving Isara’s overall strategy.