Food and drink manufacturers have set out how the Prime Minister1 can ease mounting pressure on the industry, as 88% of businesses report that business conditions have deteriorated since Labour came to power2.
The Food and Drink Federation’s latest State of Industry shows that business confidence in the sector remained pessimistic for a ninth consecutive quarter at -31% in Q2 2026. While this is an uplift from -64% from the previous quarter, 91% of businesses reported that conditions were the same or worse than in Q1 20263.
Higher costs, and less to invest
The report shows that over the past 12 months, the makers of Britain’s food and drink have seen production costs – which include labour, energy and ingredients – rise by an average of 3.8%. As margins become squeezed, food manufacturers’ ability to absorb additional cost pressure and to make investments in their long-term growth and resilience is threatened. For example, the State of Industry showed that the majority of businesses don’t have plans to increase investment in skills (87%) or R&D (84%) in the next year.
Impact of Middle East conflict: Another shock to the system
As businesses’ ability to absorb additional cost pressures wears thin, they become increasingly exposed to external shocks. For example, over a third of manufacturers have seen costs rise by 5-10% as a result of the conflict in the Middle East. While nearly two thirds of businesses (60%) have absorbed all of this additional cost pressure up to now, this can’t last and over three quarters (72%) of manufacturers have said that they will need to raise prices for consumers. This means that shoppers are likely to see the impact of these cost increases play out into next year.
A message to the Prime Minister
With the future resilience of the food system at risk, urgent action must be taken to rebuild business confidence and sector resilience. This is especially the case as drought across Europe is now causing the cost of key ingredients for manufacturers to rise, putting further upward pressure on prices.
Ahead of the new government’s first Budget, food and drink manufacturers have shared how the Prime Minister could help relieve future cost pressure, galvanise investment and growth in the industry, and reduce the impact of additional supply chain pressures on consumers.
Three quarters (75%) of businesses, including 91% of SMEs, said that the government should prioritise not raising labour costs higher than inflation, having already covered changes to National Insurance Contributions and National Living Wage over the past year. Half of food and drink manufacturers (50%) urged the new administration to review regulation to limit excessive burden on food and drink businesses. This comes against a backdrop of a piling of regulatory pressures, from Extended Producer Responsibility fees on packaging, to changes to advertising restrictions coming all at once.
Over half (56%) want the government to focus on measures to reduce energy costs for businesses, while half of businesses (50%) also wanted the government to bring in the SPS agreement to reduce friction to trade with the EU. Over a third would welcome support with skills (34%).
Balwinder Dhoot, Director of Growth and Sustainability, The Food and Drink Federation (FDF), said:
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“Rising costs and policy uncertainty are dampening investment, so it’s no wonder that the mood among food and drink manufacturers has been persistently low. Especially with extreme weather conditions putting increasing price pressure on businesses, Andy Burnham and his team need to set a new direction for the food system and demonstrate that they take the nation’s food security seriously.
“Food and drink businesses have spoken on the measures that would help them invest and bring opportunities to the communities where they’re based. We hope to see some of these actioned in the upcoming Budget, to help restore confidence and build a more competitive, innovative and resilient food system.”
