Written by: Keith Tully
Reviewed: Wednesday 26th November, 2014
Dozens of British food producing companies have been forced into insolvency in recent months having faced increasingly severe pressures on their earning capacities and cash flow.
According to latest figures, as many as 146 food producers have so far entered insolvency during the 12 months to the end of September 2014, with supermarket price wars being held largely responsible.
The data has been compiled by the accountancy firm Moore Stephens, which points to a 28 per cent spike in operators in the sector going out of business this year.
According to the firm, an already squeezed supply chain in the UK’s food industry has been hit hard by supermarkets looking to offer their customers increasingly low prices while maintaining or raising their own profit margins.
Moore Stephens also points out that the sharp rise in insolvencies among food producers around the country came as the number of company liquidations fell by 8 per cent within the wider UK economy.
“The fact that food producer insolvencies are rising so rapidly, while business insolvencies are falling overall, shows just how much pressure the sector is under,” said Duncan Swift, a Moore Stephens partner who leads its Food Advisory Group.
“UK supermarkets are trying to compete on price with Aldi and Lidl but with profit margins that are far higher than these discount chains. To try and make the maths work, the big supermarkets are putting food producers under so much pressure that we have seen a sharp increase in the number of producers failing,” he said.
Swift and his accountancy colleagues at Moore Stephens also suggest that the actual rate at which food makers are going out of business is notably higher than its figures indicate because so many operate as sole traders or simple partnerships rather than organisations whose financial details and dealings are officially recorded by Companies House.
Part of the problem for food producers of all sizes around the country is also thought to be that they are completely beholden to the supermarkets who dominate the supply chain in a variety of ways.
“The fear of losing business from supermarkets means that food producers rarely – if ever – complain about clear breaches of agreed industry standards,” Swift explains.
“That means there is no check on the highly aggressive buying practices of the supermarkets; which causes great uncertainty that a price agreed by a buyer will actually be paid and more food producer insolvencies is the result.”
The figure of 146 food producer insolvencies in the UK is considerably higher than any number recorded over the past five years. The figure though has been rising since 2010, when 48 such businesses became insolvent, according to Moore Stephens’ data on the subject.