Rebalancing the Economy: Trade and Investment

Written evidence from Food and Drink Federation

1. The Food and Drink Federation (FDF) represents the UK’s food and drink manufacturing industry, the largest manufacturing sector in the country, with a Gross Value Added of about £21.6 billion and plays a vital role in underpinning the economy through our ongoing efforts to create jobs, add value and boost exports. The UK is also the world’s eighth largest exporter of value-added food and non-alcoholic drink products, with nearly £10 billion of overseas sales. FDF shares the Coalition Government’s view that export-led growth will be key to boosting the UK economy and supports efforts to develop an ambitious and overarching trade and investment strategy for the UK.

2. We need sufficient clarity, coherence and consistency in policy making across Government to give companies the confidence to make the kinds of investments that will enable us to pursue our international trade objectives.

3. The most important challenge will be feeding a growing world population [1] under ever-increasing pressure on key resources such as energy, water and land, exacerbated by the likely effects of climate change. The UK food system cannot be seen in isolation from the wider global challenge of increasing supply and ensuring that people have access to sufficient, safe, sustainable and nutritious food. In this context we consider that the UK has an obligation to exploit its own productive potential, particularly where the effects of climate change could increase our comparative advantage in growing certain types of food. International trade will have a key role to play in helping to balance global supply and demand and mitigating risk.

4. Given these challenges and opportunities, the UK’s future international export advantages must lie in strategic industries such as food and drink manufacturing. The UK food and drink industry is demonstrating leadership through maximising efficient resource use [2] and has a key role to play in the transition to low carbon growth to meet the future challenges of food security and climate change.

The role of BIS in providing support for exports and investment

5. We believe that the Department for Business, Innovation and Skills (BIS) must address certain domestic factors that prevent businesses from competing internationally such as: regulatory burden; access to finance and skills; and investment in R&D. FDF believes that some of these factors can be addressed in the following ways:

– We need a positive business environment where Government pursues alternatives to regulation and for new policies to encourage growth rather than impede it. Much of the legislation that impacts our sector comes from Europe. Government needs to engage early enough in negotiations to influence outcomes in a way that benefits the industry in this country;

– The Government must maintain pressure on finance providers to increase the level of credit facilities available to ensure their actions do not hold back British businesses. Where finance providers are more risk averse, they should distinguish between different manufacturing industries and companies, since the risk may be less in the food and drink sector as oppose to the other manufacturing sectors;

– The Government must continue to work with industry to promote manufacturing as a career destination of choice, and use every opportunity available to talk up the importance of manufacturing, including the food and drink sector;

– The UK must address some of the barriers to innovation to ensure that we are not left behind our global competitors. For example, the use of new technologies will be increasingly important for the future and the bureaucracy needed to comply with increasingly complex regulations, such as Novel Food Regulation applications, needs to be tackled to prevent innovation from being stifled; and

– We need to remove potential future barriers to innovation through showing leadership in debates about the use of technologies such as GM and nanotechnologies.

6. One of the greatest trade barriers faced by exporters of food and drink products are related to food safety and animal and plant health – Sanitary and Phytosanitary (SPS) measures – which go beyond international standards without providing necessary scientific evidence. FDF supports the continued efforts of the UK Government to enhance the legal framework for harmonised international standards which address issues such as food safety to achieve a level playing field. Where regulatory changes have been notified to the WTO, we would ask BIS to ensure relevant stakeholders are informed in a straightforward and timely fashion, providing ample opportunity to provide feedback on potential impacts.

7. The closure of SITPRO could also have a significant impact on trade facilitation – it is vital that its most fundamental functions are adequately covered within BIS.

How the Government measures success in its support for trade and investment

8. The Government should pay particular attention to the volumes of exports, growth rate and the global ranking of sectors. This can help to ensure UK trade and investment activity is better targeted towards strategically important sectors, in which the UK holds a particular comparative advantage, and is well placed to deliver export growth to emerging economies.

9. As the world’s eighth largest exporter of food and drink [3] , the UK food and drink manufacturing industry is well positioned to compete internationally. Our sector’s exports have risen by approximately 15% over the past decade, showing a strong demand for UK high value-added food products abroad.

10. In the first half of 2010, UK exports of food and non-alcoholic drink grew to more than £5bn – a rise of 4.3% on the same period in 2009 – with full-year sales to overseas markets forecast to break the £10bn barrier for the first time. This will be our sixth consecutive full year of growth.

The role of UKTI with regard to identifying opportunities in established & emerging markets; key sectors; and working with industry to take advantage of opportunities

11. UK Trade & Investment (UKTI) must include food and drink as one of its export priority sectors and help identify potential growth opportunities for small and medium sized enterprises (SMEs) to explore. SMEs represent nearly 99% of enterprises in the UK food and drink manufacturing sector and often they are not aware of the opportunities in exporting overseas. Of those companies that do decide to export overseas, many find it consistently difficult to break into certain foreign markets due to the legal, linguistic and cultural complexities of doing business overseas.

12. UKTI must takes a more proactive role, encouraging manufacturers to export and helping to tackle the key challenges that prevent businesses from trading overseas, namely finding customers overseas, building relationships with decision-makers as well as handling legal, tax and intellectual property issues in foreign markets. The UKTI must ensure that their services are visible to all UK businesses especially SMEs; provide expert advice; and work with its European and global counterparts to help businesses make the right connections.

The effectiveness of the Export Credit Guarantee Department and the flow of trade credit

13. Whilst the food and drink manufacturing industry has remained very stable through the credit crisis and the recent economic downturn, the lack of access to trade finance remains a concern for many food and drink manufacturers, particularly SMEs. The Government must maintain pressure on finance providers to increase the level of credit facilities available to ensure their actions do not hold back British businesses. Where finance providers are more risk averse, they should distinguish between different manufacturing industries and companies, since the risk may be less in the food and drink sector as oppose to the other manufacturing sectors.

How other countries, similar to the UK, export to emerging markets and what our Government could learn, if anything from them

14. It is clear that trade promotion is a top priority for Italy, France and other European countries. Chinese Commerce Minister Chen Denming was recently reported in the press during the UK trade visit to China saying that British brands are far less familiar to Chinese consumers than Italian and French ones, and need to be promoted much better. The UK must prioritise key export sectors for trade promotion in emerging markets to compete with our European counterparts but also other global trade partners.

The role of the British Business Ambassadors

15. FDF welcomes Government’s commitment to international trade and its decision to appoint Business Ambassadors to promote UK trade in overseas markets. However, as the UK’s largest manufacturing sector and with annual turnover of over £72.8bn, accounting for 15% of the total manufacturing sector, it is disappointing that the Government has not appointed any representatives from UK food and drink manufacturers as Business Ambassadors.

January 2011