More than two-thirds of food and drink companies have had their sustainability plans negatively impacted by rising inflation, a new industry survey has found.

Leading accountancy and business advisory firm, Johnston Carmichael, surveyed more than 100 businesses across Scotland and the UK as part of its annual Food & Drink industry report.

The report revealed 70 per cent of firms in the sector had found their “sustainability plans had been negatively impacted by the rising cost of inflation”.

Dave Grant, founder of brewery company Fierce Beer, who took part in the survey, explained rising costs have had a serious impact on their own net zero plans in recent months. Dave, who is also managing director of the Aberdeen-based firm, said: “Being as sustainable as possible has been a priority of our business since it was founded in 2015.

“But the reality is that our plans to achieve net zero have effectively been put on hold in recent months because of the current economic climate.

“We’re facing rising costs in raw and packaging materials, utilities, and wages because of rising inflation, and our main focus has to be on the ongoing success of our business.

“It is really unfortunate, but until the wider situation shows signs of improvement, we simply can’t afford to spend significant time and money on progressing sustainability projects, however important they may be.”

Another drinks company asked about the issue in the report, responded: “We don’t have a sustainability plan. Right now, our plan is to stay in business.”

Firms listed inflation, rising energy and raw material costs, and the Scottish Government’s planned Deposit Return Scheme, amongst the top challenges facing their business currently.

However, despite respondents revealing the various issues the sector faced, 59 per cent of businesses replied that they were optimistic or very optimistic about their firm’s future growth.

Adam Hardie, Head of Food & Drink at Johnston Carmichael, said: “We have spoken to businesses of all shapes and sizes for our report, and it’s been hugely insightful to hear first-hand of the challenges that many in the sector are facing right now.

“The journey to net zero is very important for the industry, but it’s clear that for many the issue of rising inflation has negatively impacted these aims, and some have even felt they have had to shelve those plans for the time being.

“Despite this, it’s reassuring to see there’s still a real positivity around this resilient sector as it looks to the future.

“There’s an overriding belief that although there might be tough months ahead, better times are around the corner and that’s encouraging to hear.”

Many of Scotland’s leading food and drinks brands were interviewed for the report, with a third of the companies taking part based in the rest of the UK.

These included large firms with a turnover of more than £100m a year, and a range of medium-sized companies with a turnover between £1m-100m in the last 12 months.

A total of 76.7 per cent of firms said inflation had also impacted supply chain relationships with their customers and suppliers.

More than 50 per cent of those questioned said they’d seen their largest price increases in raw materials, followed by energy costs and labour.

Other findings include nearly 40 per cent of companies revealing they had significantly invested in innovation or new product development across the last 12 months in a bid to future-proof the company.

Allan Wilkinson, Head of Agrifoods, HSBC UK Bank plc, whose business was a supporting partner in the report, agreed with the findings but pointed out that some food and drink businesses had managed to reduce their carbon footprint as part of their overall drive to increase efficiencies.

He added: “This observation from the survey mirrors HSBC's own recent experience with our growing portfolio of food and drink businesses.

“The inflation which commenced in mid 2021 is of such a magnitude, that many businesses have decided that focusing on the day to essentials and their own survival eclipsed long term goals including their sustainability strategies and action plans.

“As time has moved along, businesses have made two observations. Firstly, that this inflationary period is far from over and could well exist for quite a while yet, and secondly that plans to drive efficiency to mitigate cost increases have delivered action towards lowering their carbon footprint, which in turn takes them back to their own sustainability ambitions in the first place.

“As such, some sustainability plans are being delivered at a greater pace than may have been first envisaged. In all of this, businesses still want to become more sustainable, and from our viewpoint HSBC wants to support them, and help them achieve these ambitions”.

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You can download our Food & Drink industry report, here. Please don't hesitate to get in touch if you would like to discuss this further.