Last November reports circulated that the humble Mars Bar saved the UK from a no-deal Brexit catastrophe. According to several newspapers, Michael Gove, Secretary of State for Defra, sounded the alarm after learning that two vital, perishable ingredients used in the manufacture of Mars Bars would be unavailable in the event of no deal.

As it turned out, the story was largely fake news, whipped-up by a Gove SpAd (who has since resigned) as part of Gove’s manoeuvring which (almost) saw him end up as Brexit Secretary 3.0.

The story goes to show that the food and drink industry, the largest of all the UK’s manufacturing sectors, is right in the thick of it politically, facing a barrage of short and long-term threats across a number of fronts.

Until now, many of these challenges have been bubbling on the horizon, but in 2019 many of these will come into play for real.

Here are the top political and regulatory challenges for food and drink businesses in 2019 that investors should be aware of, and what the sector can do to combat them.

Sustainability – piling the pressure on packaging

Arguably the biggest regulatory headache facing food and drink brands in the UK is sustainability. Environmental regulation has been one of the few hits of post-2015 Tory policy, and it has put the spotlight firmly on those sectors whose processes and products contribute most heavily to environmental issues.

The Autumn Budget introduced a new tax on single-use plastics, which comes into force in 2022 and will apply to all packaging that doesn’t include at least 30 per cent recycled content. The government’s Waste Reduction Strategy, published in December, also maps out reforms to the Packaging Producer Responsibility System, increasing industry’s contribution towards the disposal and management of plastic products.

Much like the sugar levy, both of these measures are aimed at pushing industry to implement more sustainable packaging more quickly, rather than being revenue-raisers in their own right. But any changes enforced on companies operating a global supply chain will cause unwanted hassle and potential price increases for consumers.

Changing the approach to plastics isn’t as easy as just cutting back. Cucumbers, for example, get wrapped in 500 tonnes of plastic a year – but removing this would cut their shelf life from two weeks to just three days.

While packaging and plastics are the big issues facing brands, manufacturers and producers have their own challenges. The dairy and farming sectors have come under increased pressure recently for perceived adverse environmental impacts, in particular their contribution to global warming. Despite having made great strides towards cutting their carbon footprints in recent years, eco-conscious consumers are turning away from meat and dairy products, opening up new market opportunities for alternative product categories.

Obesity – the ‘big debate’ just gets bigger

Few issues touch a cultural nerve more regularly and deeply than the ‘obesity debate.’ While rates of smoking and drinking have dipped in recent years, obesity is on the rise. Not many weeks go by without front-page splashes on the spiralling obesity crisis, particularly amongst young people.

Pre-2013, the food and drink sector’s relationship with the Department of Health was relatively rosy – the Responsibility Deal included voluntary targets, set by industry and government, but was seen as too lenient.

Since the inception of Public Health England and the ramping up of campaign groups like Action on Sugar, pressure has mounted on manufacturers and retailers alike to reformulate products and change advertising practices.

The marquee policy to-date has been the introduction of the soft drinks levy, but 2019 and 2020 will see a new wave of additional responsibilities for food and drink, including cutting sugar by 20 per cent by 2020, the restriction of the advertisement of HFSS products on certain TV slots, and the removal of supermarket promotions such as 2-for-1 deals.

If the sector fails to achieve the reformulation targets set by PHE, mooted expansion of the sugar tax to include puddings, milkshakes and fruit juice is a very real possibility.

Decisions about how deep the interventions from government will be on obesity-reduction will be as much about the politics as the evidence. While there is a vociferous anti-sugar campaign, backed by a cross-party group of prominent MPs, there is equally a backlash to the nanny-stateism implications of PHE’s policy programme.

Matt Hancock, the prevention-mad Health Secretary, has recently described his desire to move away from population-wide interventions (including minimum alcohol unit pricing) and target interventions at those who need them most. Positive signs for the sector, but as ever the proof of the pudding will be in the eating.

Brexit – food and drink feels the brunt of political uncertainty

Not many industries can claim to be unaffected by Brexit. But neither can many say they would be as deeply or swiftly affected as the food and drink sector.

The sector has always been unanimously clear that any potential Brexit scenario offers an inferior option to the status quo of EU membership. Food and drink trade is unique, with perishable products often needing to be consumed within days of importing and therefore any changes in trading terms which lead to border delays would be catastrophic.

Pragmatically, the industry is now pushing for future trade alignment and market access as close as possible to the status quo, but as time ticks by the reality of a no-deal is leading retailers and producers to plan for the worst. Many businesses are already beginning to stockpile ingredients and products and prepare for potentially extreme volatilities in the price of butter, milk and other daily essentials.

What would be even worse for UK business would be non-reciprocation on tariffs in order to keep supermarket prices low. EU tariffs on food and drink are up to 90% in some cases, and UK exporters could be left high and dry if the UK chooses not to impose similar tariffs on EU goods.

The government’s Immigration White Paper also creates unique challenges for the food and drink sector, which relies often on European labour for seasonal or short-term work and is already experiencing a workforce deficit. If the government sticks to its preferred approach of prioritising high-skilled foreign workers, the challenges will only mount.

Looking forward, even in a best-case scenario new foreign trade deals would spell trouble for some parts of the sector.

For example, trade with America, Australia and New Zealand might entail cheaper imports, creating new competition for the UK market. Still, there is no doubt that UK food and drink has the potential to thrive in global markets and exporters have had growing success in Asia and Africa in recent years – but support (financial and strategic) from the Department of International Trade will be essential.

Silver linings

Despite these challenges, it’s worth remembering this is an industry growing, innovating and investing all the time. Last year Britvic, Diageo and Muller all made new capital investments of more than £50, million, and they are not alone.

What is more, there is a balance of views both within government and politics more broadly, and the food and drink sector is not without its supporters. Engaging these supporters and bringing them out to bat on each of the issues impacting the industry will be a significant factor in the industry’s success in 2019 and beyond.

For millions of consumers across the UK, the findings in this week’s report from the National Audit Office (NAO) would have come as no surprise. Faced with rising costs – resulting for many in rising debt levels – consumers are feeling the pinch in their pockets and an overwhelming feeling they are getting ripped off.

The NAO was clear: the UK’s regulators (Ofwat, Ofgem, Ofcom and the FCA) need to do more to prove they are offering enough protection to those consumers that need it most. According to the NAO, there is a 70% increased likelihood of consumers in deprived areas using unarranged overdrafts. This alarming rise is no surprise as between 2007 and 2018, there was a 28%–37% real-terms increase in average gas and electricity prices.

A combination of high prices and poor customer service has severed trust across a number of consumer markets, and there is seemingly no silver bullet to remedy the lack of confidence. In the energy market, Ofgem’s latest market report noted that consumers continue to be feel let down by poor customer service from suppliers. The outlook is similarly bleak in the water industry, as only last summer, Ofwat criticised water companies for their financial structures and top executive pay, claiming they had damaged customer trust.

Labour believes these failings are down to the fact that regulators have limited ability to protect consumer interests. In their eyes, private companies can maximise profits at the expense of bill payers, without being kept in check by regulators. In response, Labour wants to fundamentally reform the regulatory system – and in the water industry absorb Ofwat into the Department for Environment, Food and Rural Affairs to create a National Water Agency. While this would give government greater oversight of the way the market operates, it would represent a large shift from existing government policy.

It would be unfair to say the government has not sought to reform consumer markets. The introduction of the energy price cap, a temporary rather than permanent solution was supposed to help reduce consumer bills by limiting the price a supplier can charge per kWh of electricity and gas used. However, around 11 million households are set to see their bills increase by an average of £117 per year after Ofgem hiked the price cap due to higher wholesale gas and electricity prices.

Clearly the price cap isn’t a long-term solution and Ofgem are considering several measures to drive competitiveness in the energy market. To start with, they are in the process of developing a Consumer Vulnerability Strategy which is set to be launched in the spring. The Strategy will guide Ofgem’s understanding of vulnerability and guide expectations of the types of services that should be offered to consumers with different needs. Alongside this, Ofgem have been instructed by the Competition and Markets Authority to develop a database of disengaged customers, which includes 8 million people that have been on the standard variable tariff with the same supplier for over three years. Encouraging these consumers to change supplier will go a long way to addressing disengagement in the market – helping consumers save money.

In the face of rising prices and dissatisfaction across a range of markets, regulators are faced with the unenviable task of finding solutions with limited resources. The ongoing debate surrounds whether regulators need fundamental reform or incremental change to deliver better consumer outcomes and in the end it’s likely that future change will be driven by a combination of the both. The National Infrastructure Commission’s ongoing review into regulators placing them firmly under the microscope, meaning they will need to show their value and worth to consumers. In the short term, regulators will hope that the existing measures they have to jump start engagement help to place power back in the hands of consumers.