IN Brief:
- Lumon's research puts average net margins among surveyed UK food and drink businesses at 11.7%.
- Respondents reported that exchange-rate movements had removed the equivalent of 3.33 percentage points of net profit.
- Currency uncertainty is increasing cash buffers and constraining investment while structured FX management remains limited.
Currency volatility is adding another layer of cost pressure for UK food and drink manufacturers, with research indicating that exchange-rate movements are affecting margins, supplier payments, working capital, and the cash available for factory investment.
Lumon Corporate surveyed 100 senior finance and business decision-makers at UK food and drink companies importing or exporting at least £4 million of goods annually. Respondents reported an average net profit margin of 11.7%, while 45% operated below 10% and 18% reported margins below 5%.
The research estimates that currency movements removed the equivalent of 3.33 percentage points of net profit across the surveyed businesses during the previous year. For companies already operating below a 10% margin, Lumon calculates that the effect represented around one-third of profitability.
Food manufacturing carries particular exposure because several currencies can sit inside the same finished product. Ingredients, packaging, machinery, freight, and imported components may be bought in euros or dollars, processing costs are incurred in sterling, and finished goods may then be sold into export markets with another currency exposure before the customer payment is received.
Working capital absorbs the volatility
Nearly half of the surveyed manufacturers reported difficult timing gaps between supplier payments and customer receipts. Those gaps create exposure because an exchange rate can move between the date a purchase is agreed, the invoice falls due, finished goods are sold, and export revenue is converted back into sterling.
The effect extends beyond the individual transaction. Forty-six per cent of respondents said currency uncertainty had led them to hold higher cash buffers than normal, while 45% said volatility reduced the funds available for investment and growth. More than a third reported greater difficulty forecasting cash flow.
For a production business, retaining more cash against currency risk has a physical consequence. Capital left on the balance sheet as a buffer is capital that cannot simultaneously fund a new filler, packing line, refrigeration plant, automation project, warehouse system, or factory expansion.
The manufacturer also has limited control over how quickly adverse currency movements can be passed to customers. Retail contracts and competitive pressure can delay price changes, while customers may resist adjustments that appear to transfer exchange-rate risk directly into shelf prices.
Procurement teams can change origins or negotiate contracts in different currencies, but switching supplier is not always straightforward. A food ingredient may be approved against a particular specification, origin, certification scheme, allergen profile, or customer requirement, and qualifying a replacement can take longer than the currency movement causing the immediate problem.
Stockholding introduces another trade-off. Buying more material when an exchange rate appears favourable can protect against a later movement, but it ties up working capital and increases storage requirements. Perishable ingredients and products with limited shelf life give businesses even less freedom to use inventory as a financial hedge.
Formal currency hedging offers another route by defining or fixing future exchange costs. It does not make an imported ingredient cheaper in economic terms and does not guarantee that the business will achieve the most favourable possible exchange rate. Its operational value is greater predictability when prices, margins, and cash flows are being planned.
Lumon’s research found a substantial gap between concern and structured action. Seventy-four per cent of decision-makers said they did not review their FX strategy regularly, only 14% planned a review during the following 12 months, and 59% said they were not using hedging and related tools.
Those figures come from a foreign-exchange services provider and should be read in that context, but the underlying manufacturing exposure is straightforward. A company purchasing in one currency and selling in another carries a financial variable that can change the cost of exactly the same physical shipment without any movement in the supplier’s base price.
Commodity exposure can magnify that movement. A UK business buying dollar-denominated cocoa, oils, grains, or other ingredients may face an increase in the commodity price and a less favourable sterling exchange rate at the same time. Freight, packaging, and energy-linked costs can add further variability.
Growth can make the problem larger. Lumon found that 99% of respondents planned to increase sales during 2026. New export customers and international suppliers create additional currency transactions, so turnover can rise while the business becomes more exposed to changes in exchange rates if treasury controls do not expand with it.
The useful distinction for manufacturers is between trying to predict currencies and measuring exposure. Procurement terms, customer contracts, payment dates, inventory policies, and planned capital expenditure can be mapped without pretending to know where sterling will trade several months ahead.
That allows a business to decide which exposures it is prepared to leave open and which require greater certainty. The appropriate approach will vary with margin, cash reserves, purchasing volumes, customer contracts, and the currencies involved rather than following one universal hedging formula.
UK food manufacturers have spent several years dealing with raw-material inflation, energy costs, labour pressure, freight disruption, and changing customer demand. Exchange rates cut across several of those lines simultaneously, which makes them easy to underestimate when responsibility is divided between procurement, sales, finance, and operations.
Where net margins are already in single figures, the effect does not have to be dramatic to alter an investment decision. A relatively small adverse movement repeated across imported ingredients, packaging, and export receipts can determine whether cash earmarked for plant improvement is committed to equipment or retained as protection against another volatile purchasing cycle.
