Packaging Scotland

Business

Events align to create perfect storm for sectors

Barry Twigg

THE dual challenges of Brexit and climate change have come together to cause a “major impact” to the food industry and the supply of flexible packaging.

That’s the view of Barry Twigg, CEO of National Flexible, who believes the origins of the current issues affecting both markets can be traced back to these seemingly unconnected events.

Referring to the increasing cost pressures being faced by various market segments in the food industry, Barry said, “What we see is input prices for ingredients, meat, fish, fruit, etc, are all increasing well above the rate of inflation. Some figures suggest the price of sugar is 100% up year on year with butter 40%, milk 18%, meat and fish 17%, fruit and veg 12-14%. All these cumulative cost increases have left the finances of some food companies in a truly parlous state.

“Whilst the effect of Brexit on Sterling is well documented, these reductions only explain part of the cost increases. Those in sugar, wheat, animal products, feed and milk are in a major part due to climate change across the globe. Whilst some regions have been too hot, others have suffered from unseasonable wet and cold spells. The result has been a totally disproportionate increase in input costs for each and every food manufacturer and processer.”

Barry said the significance of this to the flexible packaging sector lies in the “symbiotic” relationship between the sector and the food industry.

“It is no exaggeration to suggest that much of the food industry would not exist without the advances made in film technology and so-called ‘plastic packaging’,” Barry added. “However, apart from polyethylene it’s fair to say the manufacturing base for flexible film in the UK is virtually non-existent. As a consequence, all the film used has to be imported either pre or post conversion. Therefore the decline in Sterling has over the past 12 months increased all the flexible industries raw material costs by 12-14%. This increase is well beyond the financial resources of the industry to absorb. In the past it would have gone directly along the supply chain to the ultimate consumer, but that’s where Brexit comes in. The supermarkets and the major food retailers have, in their wisdom, decided they can’t or won’t accept price increases. As a consequence the food manufacturers and processers are adopting a similar approach.”

Despite some of the current challenges, Barry believes the future is bright for the flexible market, evidenced by some international paper companies entering the sector via a series of mergers and acquisitions.

“The replacement of glass, tin and board packaging with flexibles ensures continued volume growth,” he explained. “These predominantly paper companies obviously believe that eventually the increased cost of flexible film can be accommodated, as in every case it is a lower cost than the alternatives. It also reduces waste and has lower adverse environmental impact. We believe there are more mergers and acquisitions to come as the flexible industry continues to consolidate.”

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