UK food and drink businesses are feeling less optimistic about future growth than 12 months ago, with several firms citing rising National Insurance Contributions (NIC) and National Minimum Wage (NMW) costs as a contributing factor, according to a new survey of the sector.
Commissined by leading UK independent accountancy and business advisory firm Johnston Carmichael for its food and drink report, the findings highlight the various challenges and opportunities for this industry across 2025.
Although 58% of companies surveyed across Scotland and the UK are feeling optimistic about future growth in 2025, that is a 10% year on year drop from the 68% polled in last year’s survey.
The vast majority of those who took part experienced a rise in costs over the last 12 months – with the largest increases this year being labour costs (53%), compared to energy bills in the previous year. This was followed by facilities/building rental (20%) and raw materials (11%). Several respondents mentioned the rise in NI contributions as one of the main challenges they will face in 2025.
In more positive news, there was a rise in firms citing exports as their primary growth driver in the last 12 months – up from 25% to 30%. Europe was identified as the key region with 60% of respondents, followed by the UK with 58%, while 46 % are targeting North America, and 40% are targeting Asia pacific.
Adam Hardie, partner and head of food and drink at Johnston Carmichael, said: “After the continued growth of food and drink business optimism in recent years, it is disappointing to see that decline at the start of 2025.
“The issues relating to increased raw materials, energy and labour costs have been constant for some time, with firms also having to deal with poor availability of labour and consumers continuing to trade down.
“However, it is clear from our feedback that one of the biggest challenges has been the changes to National Insurance Contributions and National Living Wage and the increased costs this leaves for employers, which will continue to be a concern for many in the months ahead.
“That all being said, it’s an incredibly resilient sector and there is still much to be positive about in the sector. Businesses citing export growth as their primary growth driver has increased from 25% in the previous year to 30% this year, which is reassuring and something we can continue to grow.
One leading UK wholesale exporter of food and drink told the report: “One of our main challenges coming out of 2024 and into 2025 is around the ongoing increase in employment costs and the risks associated with this.
“Whilst this was a challenge throughout 2024, the NI increase announced in October just increased the challenges further.
“We’re also finding that there remains a skills shortage across the industry and investment in new skills should be an area of focus for the Government.”
Availability of funding is another significant challenge for businesses. More than 59 per cent of firms said they had been unable to secure funding in the last 12 months, with half of those questioned saying they will be looking for funding across the next year.
Ben Iravani, founder of ready-to-drink brand Whitebox Cocktails in Edinburgh, said: “Growth of the business is always at the forefront of our minds. Scaling this business quickly is vital for us if we are to remain competitive in the market.
“We have a great business with fantastic products, but growth funding to support our ambitions is often difficult and time consuming to secure.”
Nicola Thomas, Director, Food and Drink Exporters Association (FDEA) said: “It is really encouraging to note that finding new customers in export markets is the primary driver of growth for survey respondents. Furthermore, although 30% currently feel less positive about trade in/with the EU than they did 12 months ago, Europe is still outperforming the UK and other global regions in terms of target markets for food and drink companies.
“Whilst fully acknowledging that trading with the EU has presented many additional challenges for sector exporters, particularly SMEs, since Brexit, we are seeing new and renewed appetite to build sales in European markets from our members and the wider UK export community.”
