The fifth annual IFAC report on the food and agribusiness SME sector makes grim reading, as firms face increased headwinds from rapidly rising inflation and difficulty recruiting staff while still trying to deal with the fallout from Brexit.

The scale of those challenges is clear from the report, with 84% of respondents seeing costs increase this year and two-thirds saying they are having difficulties recruiting the right people.

Overall, only 54% of small and medium enterprises are optimistic about the coming year, the lowest level since the survey began.

Increased costs and inflation problems

Almost two-thirds of companies surveyed for the report cited increased costs of raw materials as the biggest threat to growth.

While inflation is the biggest, and newest, problem faced by the sector, the difficulties in recruitment which started during the pandemic are persisting, as the labour force becomes more interested in remote and flexible working opportunities.

Food industries generally have little scope for work-from-home employment, putting them at a clear disadvantage in the post-COVID hiring environment.

Disruptions

Supply-chain disruptions continue to cause trouble too, with stock management costs rising dramatically for many firms needing to hold much larger inventories as lead times from suppliers, particularly in the UK, lengthen.

Those supply-chain issues also continue to be worsened by the seemingly never-ending fallout from Brexit.

Businesses are reacting to these challenges by cutting costs where possible, implementing price increases and actively focusing on cashflow management.

Another significant concern on the minds of business owners is rising salary costs

Speaking at the launch of the survey, IFAC head of food and agribusiness David Leydon said: “This is a tough time for Irish food and agribusiness SMEs following a global pandemic.

"One of the biggest challenges is rising input costs and for many to maintain margins, this means implementing challenging price increases.

"Another significant concern on the minds of business owners is rising salary costs coupled with recruiting difficulties - 67% of business owners have experienced difficulty when recruiting.”

Looking ahead, respondents see the cost of raw materials and the war in Ukraine as the biggest threats to business.

More than 20% see rising interest rates potentially causing problems as the European Central Bank starts hiking rates for the first time in more than a decade.

Even further down the line, half of firms in the survey say they have no succession plan in place, while only 24% have a fixed plan on how ownership will be transferred.