FX strategies not prioritised in Food and Drink sector despite extreme currency 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.
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.
Eliot Bassett, managing director at Lumon Corporate, comments: “While there is positivity in the sector right now, business leaders are universally acknowledging that currency volatility is one the biggest challenges hitting sector. It is wreaking havoc on cashflow forecasting, input costs, and margins, yet businesses are failing to take action to protect the revenue driving that growth.
“Businesses need to take a proactive approach and safeguard themselves from FX risk. By treating FX as an integral part of their operational landscape, and taking on board comprehensive strategies and frameworks, business leaders can manage currency instability, build resilience in their companies and develop financial confidence.”