Some 41% of food and drink manufacturers have scaled back or cancelled investments for long-term growth, according to new data.

The Food and Drink Federation’s (FDF) latest State of Industry report finds confidence among food and drink businesses remains persistently low, at -43% in the first quarter of 2025.

The report also found that a third of businesses, including nearly half (47%) of small and medium sized enterprises (SMEs), said they expect conditions to deteriorate further. The companies say they are grappling with volatile global economic conditions and increased costs as a result of new government policies.

These include rises to National Minimum Wage and employer National Insurance Contributions, as well as a £1.4bn Extended Producer Responsibility (EPR) packaging tax.

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Production costs increased by an average of 4.5% over the year to March 2025, with 22% of food and drink manufacturers having seen costs increase by 10% or more. Manufacturers expect their costs to rise by a further 4.8% in the next 12 months as energy, ingredients and labour prices continue to climb.

In response, the FDF is calling for the government to send a strong signal that that it will support the future health of the industry. The group said it can achieve this by creating a joined-up, cross-government approach that prioritises sector growth and skills in upcoming Food and Industrial Strategies.

The FDF added that the government should also continue to push for a reduction in the current 10% tariffs imposed by the US and strengthen the UK’s relationship with the EU.

FDF director of industry, growth and sustainability Balwinder Dhoot said: “Not only does the food and drink manufacturing sector contribute £37bn and half a million jobs to communities across the UK, but it’s also fundamental to the nation’s food security. So, it’s concerning that businesses are having to scale back investments that would help drive long-term growth and productivity as they ride out a wave of cost rises.

“The government must reflect the value that food and drink manufacturing has to our country by ensuring growth for our industry is a top priority in its upcoming Industrial and Food Strategies. We urge government to give businesses the support they need to make investments that will support the resilience of the food industry.”