74% of senior food and drink finance leaders fail to review FX strategy despite historic market volatility
A staggering 74% of senior financial decision makers within the UK food and drink (F&D) export sector do not regularly review their foreign exchange strategy, new research has revealed.
Towards the end of last year, currency markets experienced their most turbulent period in nearly two decades, characterised by violent daily swings of 2% to 6%. Despite this extreme environment, most finance leaders are taking a DIY or an entirely passive approach to FX risk.
The FX Factor Report, a report on the F&D industry by leading foreign exchange and currency risk management specialist Lumon Corporate, reveals that 59% of companies do not use currency hedging or any other financial tools to protect their bottom line from market volatility. The reasons cited highlight an acute knowledge gap within corporate finance teams. 30% admit they lack the in-house expertise to hedge, 28% avoid it because they wrongly believe it sounds too risky, and nearly one in five have never even heard of hedging as a viable corporate strategy.
This widespread lack of structural protection is proving incredibly costly. On average, UK F&D companies lost 3% of their total net profits directly to FX fluctuations over the past 12 months. With 45% of the sector operating on thin net profit margins below 10%, currency movements effectively wiped out a third of their total profitability.
The report also reveals that currency instability is handicapping day-to-day business operations. Nearly half of decision makers state that FX fluctuations create highly challenging timing gaps between paying global suppliers and receiving customer payments. 45% admit that these ongoing currency instabilities directly reduce the capital they have available to reinvest back into business growth and critical research and development.
Eliot Bassett, managing director at Lumon Corporate, comments: “There is an incredible underlying positivity across the UK’s F&D sector right now, with 99% of leaders actively chasing sales growth and nearly one in five planning to launch new products this year.
“However, chief financial officers and finance directors within the industry are universally acknowledging that currency volatility is wreaking havoc on cashflow forecasting, input costs, and margins, yet are failing to take action to protect the revenue driving that growth.”
The urgency for strategic FX management is heightened by a massive geographical pivot away from traditional trading partners. F&D companies are now three times more likely to see major export opportunities in China (29%) than in the U.S. (11%). This sharp drop in enthusiasm for the U.S. market follows recent tariff impositions, high compliance costs, and unpredictable market access linked to geopolitical uncertainty.
Bassett concludes: “Relying on standard retail bank execution or a passive approach is no longer sustainable in an era where geopolitical upheavals are the ongoing norm rather than the exception. Financial leaders need to shift away from simple trade execution and move toward sophisticated, tailored hedging strategies to secure margin stability.”