The Food and Drink Federation (FDF) has published a report exploring business confidence in the food manufacturing sector, which it said had fallen to its lowest level since the Ukraine conflict.
Confidence among food and drink manufacturers in the UK was found to have dropped to -64% in Q1 2026, with FDF stating that the levels were “on par with the low confidence levels seen at the beginning of the Covid pandemic”, signalling the impact that the conflict in Iran has had on UK food and drink production.
The latest FDF State of Industry report claimed that this was not a short-term impact, as most businesses anticipated conditions would “continue to deteriorate” into Q2.
Ongoing conflict raises prices
According to the report, for a fifth of food manufacturers, energy amounts to more than 10% of their total operating costs, and for 8% of manufacturers, energy makes up as much as 20%-24% of their operating costs.
Food and drink manufacturers also highlighted that the cost of plastic packaging has risen by up to 15%, while some reported facing increases to transport costs of more than 20%.
The increased cost of fertiliser was also cited as a concern. FDF said the Gulf region was responsible for 30% of the world’s urea production, which, alongside increased transport and energy costs, will contribute to the rising price of ingredients. According to the UN FAO, global agricultural prices were 4.1% higher in April than in February.
As a result, 82% of food and drink manufacturers said they would need to increase prices to cover rising costs. A third of manufacturers said they were planning to restructure or reduce their headcount (33%), or reduce marketing spend (33%). More than a quarter (26%) are planning to cancel or pause investment projects and a fifth (21%) said they will need to reduce staff training, which FDF said could hamper the long-term growth and resilience of the sector.
Manufacturers suggest top priorities for Government
FDF has called on Government to take steps to “address the pressure building on food and drink manufacturers”, while also protecting the sector’s resilience and avoiding further food inflation.
More than two thirds (69%) of food manufacturers say support with energy costs should be a top priority for Government to help “ease the current strain” on the sector, and minimising regulatory pressure is also considered a priority.
Looking at manufacturers, FDF found:
- 38% are calling for Government to simplify packaging recycling reforms
- One-third (33%) for a phased introduction of the Employment Right’s Act
- 28% for a delay to changes to the proposals on Nutrient Profiling Model (NPM)
- Nearly a quarter (23%) have said realistic transitional arrangements for the upcoming EU trade deal would help them with current pressure
Karen Betts, chief executive at the Food and Drink Federation (FDF), said: “It’s unsurprising that confidence is low among food and drink manufacturers. Companies in our sector have been hit by a series of shocks over the past five years and now face significantly rising energy and other costs because of the war in Iran. In the last inflation spike, companies made savings to absorb some of their rising costs, but now there’s little flexibility left to do this again. What’s more, Government is proving inflexible in its own asks of the sector – they are reluctant to offer energy support to intensive users across food and drink production while they continue to layer on regulatory change.
“Companies are having to change their operations to realign with EU law, cover the huge costs of recycling reforms, work out if they can continue to make food healthier to rapidly shifting Government targets, and adapt to new employment law – and piling so many asks on industry at once comes at a cost.
“Food and drink isn’t something people can go without. It’s an everyday essential, and the cost rises caused by energy prices and regulatory costs have consequences in homes everywhere. It also impacts companies’ ability to succeed and grow, and to support the prosperity of whole communities who work in our sites everywhere across the UK. Government needs to work in much better partnership with the food industry to shore up our resilience while helping shoppers manage a maelstrom of rising costs.”
Looking to the future, FDF forecast that food and drink inflation could reach at least 9% by the end of 2026. To minimise the impact on shoppers and help stabilise inflation, FDF has called for rapid, targeted and time-restricted support for energy prices during this crisis, focusing on categories that use the biggest share of energy. It suggested that this could be modelled on the scheme that was introduced during the Russian invasion of Ukraine.
It also highlighted the importance of minimising additional regulatory pressure and cutting red tape, and suggested a delay to the proposed changes to the Nutrient Profiling Model until a five-year review of the current HFSS ad restrictions has taken place.
Ensuring realistic transition periods to allow businesses time to adapt to the sanitary and phytosanitary (SPS) agreement with the EU will also ease the impact of upcoming regulatory change, said FDF.
