How drinks producers are impacted by price rises and raw materials shortages:
As the UK grapples with soaring inflation and a cost-of-living crisis, manufacturers and producers are facing ongoing supply chain issues.
Like all others, the food and drink sector has experienced unparalleled challenges in recent years. The combined effects of the global pandemic, Brexit transition and climate crisis have slowed supply chains and caused raw materials shortages, all impacting production costs and consumer spending.
What started global supply chain issues?
The coronavirus pandemic began disrupting businesses globally in early 2020, as lockdowns slowed manufacturing, logistics and consumer spending. This drastically impacted the production and transportation of commodities globally.
For UK manufacturing, global challenges were further compounded by the effects of Brexit, slowing the speed and ease at which goods move in and out of the country. Contractions across the labour market caused by Brexit, particularly for seasonal farm workers and HGV drivers, also put added pressure on many sectors, including the UK drinks industry.
At the same time, the climate crisis has impacted food production, creating raw material shortages as farmers struggle to grow essential crops due to droughts or climate events.
Why are supply chain issues still ongoing?
Russia’s invasion of Ukraine in Spring 2022 further fuelled supply chain issues, pushing up fuel and energy prices. And China’s zero Covid policy has slowed supply chains too, as ongoing lockdowns disrupt major production facilities and ports.
These have created extra input costs for UK manufacturing, contributing to a worsening cost-of-living crisis as inflation has reached a record high of 10.1%.
In the UK, strike action across a number of sectors will further exacerbate supply chain issues, as walk outs over pay disputes slow operations at major ports and rail terminals.
How is the UK drinks industry being impacted by supply chain issues?
While UK manufacturing businesses have been responsive and resilient in the face of these supply chain issues, all sectors have been negatively impacted in some way.
For the UK drinks industry there have been produce shortages and price rises alongside changes or contractions in consumer spending habits. Food price inflation is now expected to reach 15-20% for UK consumers this year.
What food produce has been impacted by supply chain issues?
Almost all food groups have been impacted by either the supply chain issues or the effects of climate change.
Wine production dropped in 2021 due to adverse weather events across the European countries usually relied upon for 45% of wine grapes globally. Prices of coffee beans are also up due, in part, to climate change hampering growing conditions, while a heatwave in Canada has halved production of mustard seeds.
Eggs, chickpeas, beans, honey and fresh fruit and vegetables are all impacted by both rising energy costs and climate change too.
While droughts have been declared in some UK regions in recent weeks, the government has offered reassurance that these won’t impact commercial needs, protecting producers across the food and drinks industry.
The war in Ukraine has also created global food shortages, as Ukraine and Russia are major producers of wheat, barley, corn and edible oils. These raw material shortages are impacting producers worldwide, pushing up prices and slowing lead times.
It’s not only food and drinks themselves that are limited, elements essential to their production are also in short supply.
A glycerine shortage has impacted the food and drink, pharmaceuticals, and cosmetics industries. Glycerine is used as a preservative or flavour enhancer in food, or within the base extracts of soft drinks to create a smooth texture.
Similarly, the closure of the UK’s largest fertiliser plant due to spiralling energy costs will limit the availability of CO2. CO2 is a by-product of the fertilisation process and is vital to the packaging and chilling of food, as well as the production of fizzy drinks.
When will supply chain issues subside for the UK drink industry?
It is difficult to put any time stamp on when supply chain issues and raw material shortages might subside. However, there are some signs that will improve things.
Regulatory changes are helping to speed up the number of HGV drivers able to take their tests and qualify, supporting the logistics sector get goods moving. And as a new Prime Minister steps in, industry leaders are hoping for announcements on further support for businesses struggling with energy price hikes.
While some of the steps taken at the onset of the pandemic are protecting businesses from the worst of ongoing challenges – diversifying or reshoring suppliers, for example – things remain challenging for the UK drinks industry.
Recognising how supply chain issues are impacting all sectors and working closely with suppliers and customers to understand limitations is key to businesses navigating this ongoing uncertainty.
To stay up-to-date on the latest news affecting the UK drinks industry, check out our other blog posts.