The global food industry is an extraordinarily complex network that encompasses agricultural producers, food manufacturing plants and wholesalers around the world. As the world’s population continues to expand, the food and beverage market size is expected to grow from $5.8tn in 2021 to $8.9tn in 2026 at a compound annual growth rate of 8.7%.
As one of the most world’s most interconnected and globalised industries, the food and drink sector is heavily dependent upon highly complex international supply chains and global trade. Whether you need to import or export food and drink, the amount that you and your business pay is significantly impacted by fluctuations within the foreign exchange market. Taking the time to understand the potential impact of the currency exchange markets on your business’s bottom line can help you to navigate currency exposure risk and benefit from favourable movements in exchange rates.
What contribution does the food and drink industry make?
The food and drink sector plays an integral role in both the UK and EU economies. The food and drink industry is the largest manufacturing sector in the European Union, both in terms of the number of people that it employs (4.5 million in 2021) and the value that it adds to the wider European economy: the European Union is the world’s largest exporter of food and drink products, with exports reaching €145bn and a trade surplus of €67bn.
This industry also represents the largest manufacturing sector in the UK: it contributed £30bn to the UK economy and directly employed more than 468,000 people, up 3.4% from 2020. Despite the impact that Brexit has had, the UK remains on good trading terms with Europe. Following a drop in exports to the EU in January 2021, exports of goods from the UK recovered and now exceed pre-Brexit levels. The UK exported £20.2bn in food, feed and drink in 2021, with Ireland, France and the USA acting as the UK’s top export partners.
How international payments and exchange rates can affect the UK food and drink industry
As with everything that is imported and exported, the price of food and drink can be significantly affected by currency fluctuations. In a nutshell, depreciations in the home currency make food exports more competitive; on the flipside, this leads to an increase in the import prices of food. The UK’s food and drink industry is particularly vulnerable to movements in exchange rates, as it is dependent upon food imports from countries that have increased in price; in 2020, the UK imported 46% of the food that it consumed. The fall in the value of the pound from September 2022 onwards has contributed in part to food price inflation hitting 14.6% the following month.
If you have received payments in currencies that have increased in value against the pound, you can expect to receive less in revenue when you exchange these foreign currencies for sterling. Fluctuating exchange rates can ultimately affect every cross-border payment that you make, whether you are sending money to overseas suppliers, covering the cost of international overheads or paying staff based abroad. Furthermore, exchanging your money via high street banks can further undermine your profitability through poor exchanges rate and costly transfer fees.
How we can help your business save money
Each of the food and drink businesses who partner with us are assigned an account manager who understands the ins and outs of their sector. They will guide you through periods of currency volatility and ensure that you are offered a range of foreign exchange solutions that are tailored to your business needs.
These FX solutions for the food industry include the ability to lock in a prevailing exchange rate for up to two years via currency forward contracts, as well as having the option to buy foreign currencies at a rate that suits your needs with an FX order. Such solutions are ideal if you are in no rush to make the payment and are willing to wait for currency exchange rates to turn in your favour.
We will work to keep you informed of which options to choose and how you can go about getting the best returns for your business.
How has Covid-19 affected the food and drink industry?
While the UK’s withdrawal from the EU served as the FMGC industry’s primary concern, the Covid-19 pandemic caused far more disruption; the sector had to deal with extreme stockpiling in the early stages of the pandemic and changing consumer demands, forcing the industry to adapt its supply chains.
Read our whitepaper on embracing the global food & drink industry during a period of extensive change here.