“Despite 2016 being a monumental year with Brexit and other significant global political events, the food and drink sector had to keep pushing forward despite a weaker pound affecting imports,” said Greg Smith, head of trading at Global Reach Partners.
“The prospect of what now looks likely to be a hard Brexit will create more uncertainty for the sector in the year ahead.”
Smith reported that the pound to euro exchange rate – which sat at 1.35 at the beginning of 2016 – had fallen below 1.10 and, last month (January 2017), sat around 1.15. The pound to dollar rate dipped from levels of 1.49 in early 2016 to recent lows below 1.20, he added.
‘Weaker sterling exchange rate’
“A weaker sterling exchange rate may be beneficial for many things, but not for UK raw material imports, including food,” said Smith.
He pointed to research published in the Journal of the Royal Society Interface, which reported that the UK currently imported over half of its food and feed.
This was driven by consumer demand for commodities such as fruit, cereals, meat and dairy products from destinations including the EU, South America and south-east Asia.
“The reliance on other nations for food and further downward fluctuations in sterling could cause a hike in prices,” warned Smith.
“As we enter 2017 and businesses face new and uncertain prospects in the food and drink industry, there’s likely to be a lot of currency volatility as markets adjust to new developments.
“As details emerge of potential trade deals with the EU, there is likely to be increased volatility in sterling, which will affect the price of food and manufactured products for British people. There will also be an impact on the profit margins of food production businesses and those operating within the agricultural sector.”
Smith advised companies in the sector to adopt effective currency management to minimise the damage that a weak or fluctuating exchange rate could cause.
Meanwhile, Fergus Ewing, cabinet secretary for the rural economy and connectivity in the Scottish government, has warned that leaving the Single Market would be disastrous for Scotland’s farming and food sectors.