Global markets are increasingly volatile, with the current Middle East conflict and the ongoing war in Ukraine sending profound geopolitical shockwaves internationally.

For the UK food and drink (F&D) industry, these are not distant headlines but events that are having a direct impact on food inflation, margin pressure, and, ultimately, consumer pricing. The blockade of the Strait of Hormuz, for instance, had immediate and far-reaching consequences, particularly affecting oil price volatility and, by extension, nearly every aspect of the F&D supply chain.

The hidden costs of conflict

Geopolitical instability creates a cascade of critical yet, oftentimes, unforeseen cost pressures. As UK F&D exporters actively chase sales growth, currency volatility is hitting profits hard. As a result, manufacturers and businesses are grappling with a broad spectrum of vulnerabilities.

Firstly, packaging materials and costs. The price of essential materials, such as paper, corrugated board, and food-grade plastics, has surged. This is driven not only by raw material shortages, but elevated energy costs in production, and the fact that many base materials are globally traded in US dollars makes them susceptible to currency fluctuations. New UK regulations, including the Plastic Packaging Tax and Extended Producer Responsibility, further compound these financial burdens.

Secondly, labour shortages and wage inflation are also impacted, as geopolitical events directly disrupt the availability of crucial seasonal labour. The conflict in Ukraine, for example, has significantly reduced the pool of Eastern European workers who, historically, formed a substantial part of the UK’s agricultural and food processing workforce. This scarcity drives up wage demands and operational costs, as manufacturers and businesses in the sector compete for a smaller, more expensive labour pool.

Lastly, insurance premiums and risk coverage are skyrocketing. The heightened risk environment in key maritime routes, particularly in the Middle East, has led to a dramatic increase in marine and cargo war risk insurance premiums. In some cases, policies have been cancelled or have experienced huge price hikes, directly increasing the ‘landed cost’ of imported goods and adding significant operational risk for UK food importers.

From conflict to cost

But how do these vulnerabilities translate into tangible businesses costs? Understanding this is crucial as the mechanisms are complex.

Ongoing tensions, particularly like the blockade of the Strait of Hormuz, directly impact global oil supplies and drive price volatility. Since oil is a fundamental input for energy, transportation, and petrochemical-derived products (such as plastics for packaging), its price fluctuations have a profound effect across the F&D supply chain. Our recent research from February 2026 reveals that currency fluctuations eroded profitability by nearly a third. Nearly half (45%) of F&D businesses are operating on net margins below 10%, with currency volatility wiping out an average of 3.33% of net profits last year, highlighting the impact of this often ‘invisible’ cost.

Looking more closely at commodities, a significant proportion, including many critical for F&D production, such as grains, coffee and sugar, are priced in US dollars. In fact, as much as 50% of input costs for UK F&D producers can be directly or indirectly linked to the US dollar, making them highly vulnerable to its strength or volatility. This means that even if UK manufacturers and businesses transact in other currencies, the underlying cost is indirectly affected by US dollars.

Furthermore, a dramatic shift in global trading is in play. UK F&D businesses are now three times more likely to see major export opportunities in China (29%) than in the US (11%). This increased apathy for the US market follows high compliance costs, recent tariff impositions and the unpredictable market access linked to geopolitical uncertainty.

As a result, UK F&D manufacturers find themselves in a precarious position, caught between rising input costs and the immense purchasing power of major retailers. This dynamic severely limits their ability to pass on FX-driven cost increases to the consumer, leading to a significant squeeze on already tight margins.

FX risk is now a structural reality

F&D businesses must now recognise that FX risk has become a permanent, structural feature of the operating landscape. The signs are all there if you know where to look.

Up first is persistent volatility. The current geopolitical climate ensures that currency and commodity market volatility will remain elevated. A shift from reactive responses to proactive, long-term strategic planning is, therefore, a necessary move.

This is supported by the fact that currency instability is actively handicapping daily business operations. Nearly half of decision makers state that FX fluctuations cause highly challenging delays between paying global suppliers and receiving customer payments. This gap significantly impacts business growth and research and development critical for the industry, with 45% admitting ongoing currency instabilities directly reduces the capital they have available to reinvest.

Next is long-term structural shifts. Beyond immediate market swings, we are seeing businesses increasingly focusing on longer-term structural shifts in currency valuations, and, in particular, the strength of the US dollar and its implications for global trade and commodity pricing.

And finally, SME adaptation. Historically, SMEs have operated with fewer resources and shorter planning horizons compared to multinational corporations. However, the current environment demands increased financial sophistication, with more future-minded businesses now adopting formal risk management frameworks and policies that were once exclusive to larger enterprises.

How UK businesses can adapt

In this unstable environment, resilience is not about hoping for stability, but about intentionally adapting to volatility. UK F&D businesses and manufacturers can implement several key strategies.

Businesses should move beyond speculative FX practices and integrate robust, non-emotional hedging policies. Techniques such as layering can help avoid over-hedging or locking in worst-case scenarios, ensuring a more predictable, blended FX rate over time.

Businesses should also look months ahead to secure new energy contracts before existing fixed-rate deals expire. Locking in certainty, even at rates higher than historical averages, is crucial to avoiding crippling cost spikes that can suddenly appear.

Supply chain diversification and stress testing is vital, too. By identifying alternative suppliers and routes, and including inflationary clauses in new contracts, manufacturers and businesses can mitigate the impact of disruptions. This, of course, will involve a thorough understanding of food supply chain vulnerabilities.

Another key strategy is making data-driven decisions that can help support operational efficiency. Implementing real-time cost monitoring is essential to track profitability per product line, preventing businesses from inadvertently trading at a loss.

Lastly, businesses can strengthen their financial health by proactively managing and improving their credit profile. This will mean better terms with suppliers and lenders, providing crucial working capital and financial flexibility during uncertain times.

Navigating an unstable future

For the UK’s F&D sector, geopolitical tension is now a direct and complex driver of operational costs and financial risk. The challenges extend far beyond the immediate impacts on energy, shipping and ingredients, permeating into packaging, labour, insurance and equipment supply.

If a business strives to be successful in this new, unstable global environment, it must recognise FX risk as a structural reality and embrace a proactive, data-backed approach to financial and operational resilience. By understanding exposure, diversifying supply chains, and implementing robust hedging strategies that cater for uncertainty, businesses can confidently navigate this geopolitical instability and protect their future.

Eliot Bassett is the managing director of Lumon Corporate, a specialist in foreign exchange solutions. With extensive experience in global financial markets, Eliot advises businesses across various sectors on navigating currency volatility and building robust FX risk management strategies.

Lumon Corporate provides foreign exchange services, supporting businesses to manage currency risk effectively. Through expert guidance and innovative solutions, Lumon Corporate works to help clients optimise their international payments, protect profit margins and achieve greater financial predictability.