The effect of currency volatility on food and drink exports is a topical issue. The recent rise of sterling against a sharply depreciated euro means UK exports are less competitive in key Eurozone markets.
Food and Drink Federation’s (FDF) latest exports report for food and non-alcoholic beverages show a fall in the value of exports of 5.3% in the first six months of the year. Although branded goods bucked the trend in total with growth of 1.6%, the impact of a weak euro is apparent. Exports to the Eurozone fell 7.5% in the first half of 2015, not helped by question marks over Greece and the stability of the euro.
A less competitive pound makes British products more expensive internationally. In order to avoid passing costs onto customers, companies can consider sourcing raw materials from the Eurozone where the strength of sterling works in favour of the buyer. In food and drink, the UK currently has a trade deficit importing £11.4bn more than we export. So as we sell less in the Eurozone and import more the balance of trade may worsen.
There are growth opportunities beyond Europe as growth to non-EU markets were up 1% in first half 2015, though China is now beginning to cast a shadow. The world’s largest economy is experiencing uncertain times with potentially wide-ranging impacts for second half 2015. Experts suggest that the positive outlook of the UK economy, reflected by a strengthening sterling, has reached a point where it is overvalued against all the major currencies on the basis of purchasing power parity.
During the Food and Drink Exports Feature, online export community Open to Export hosted a live currency Q&A to help companies understand how to deal with currency volatility. It featured experts from HSBC business banking, currency experts Sales Generator and case studies, including Beyond the Bean, a distributer to international coffee shops.
The Q&A covered topics such as managing transactions, rates & payments across different currencies and how your bank can best support you. Advice and personal experience from exporters on how to deal with a less competitive sterling without compromising margins is invaluable to anyone who has concerns around currency. If you missed the live Q&A, the full presentation is available on Open to Export’s You Tube channel: Currency Surgery.
Topics: Business Development, Export Planning, and Finance