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A new report from the Food and Drink Federation (FDF) highlights how confidence among UK food and beverage manufacturers has plummeted amid conflict in the Middle East, currently at its lowest level seen since the invasion of Ukraine in 2022.

According to the latest State of the Industry report from the FDF, confidence among manufacturers has dropped to -64% in Q1 2026 – on par with the low confidence levels seen at the beginning of the Covid-19 pandemic.

The report highlights the severe impact of the war in Iran, warning that most businesses expected conditions to continue deteriorating through Q2.

For a fifth of F&B manufacturers surveyed, energy amounts to more than 10% of their total operating costs, while nearly a tenth (8%) said energy makes up 20-24%. Businesses also pointed out the rising cost of plastic packaging – up to 15% – while some reported transport cost increases of over 20%.

With the Gulf region responsible for 30% of the world’s urea production, fertiliser costs were flagged as an additional challenge. This contributes to rising ingredients prices – according to the UN Food and Agriculture Organization (FAO), global agricultural prices were up 4.1% in April compared to February.

The majority (82%) of food and beverage manufacturers said they need to increase prices to cover these costs. Meanwhile a third are planning to restructure or cut jobs (33%), or reduce marketing spend (33%) to bring costs down. Over a quarter (26%) plan to pause or cancel investment projects, and a fifth (21%) said they will reduce staff training.

FDF has recommended that the UK government takes steps to address this mounting pressure, to protect the industry’s resilience and avoid further food inflation.

The organisation has forecast that food and drink inflation could reach at least 9% by the end of the year, and is calling for ‘rapid, targeted and time-restricted’ support for energy prices during the crisis. This could be modelled on the scheme introduced during Russia’s invasion of Ukraine, it said.

It also calls for ‘breathing room’ for F&B businesses through minimised regulatory pressure and ‘cutting red tape’. One such example it gives is the delay of proposed changes to the Nutrient Profiling Model (NPM) until a five-year review of current High Fat, Sugar and Salt (HFSS) advertising and promotion restrictions has taken place.

Meanwhile, ‘realistic’ transition and sell-through periods to enable businesses to adapt to the Sanitary and Phytosanitary agreement with the EU will also ease impact of regulatory changes, FDF highlighted. Nearly a quarter of food manufacturers (23%) said this would help with current pressure.

Over two thirds (69%) of manufacturers said support with energy costs should be a top priority for government. Meanwhile, 38% are calling for simplified packaging recycling reforms, 33% for a phased introduction of the Employment Rights Act, and 28% for a delay to the NPM changes.

Karen Betts, chief executive at the FDF, said: “Companies in our sector have been hit by a series of shocks over the past five years and now face significantly rising energy and other costs because of the war in Iran. In the last inflation spike, companies made savings to absorb some of their rising costs, but now there’s little flexibility left to do this again.”

She said the government is proving “inflexible” in its asks of the sector, adding: “Companies are having to change their operations to realign with EU law, cover the huge costs of recycling reforms, work out if they can continue to make food healthier to rapidly shifting government targets, and adapt to new employment law – and piling so many asks on industry at once comes at a cost.”

“Food and drink isn’t something people can go without. It’s an everyday essential, and the cost rises caused by energy prices and regulatory costs have consequences in homes everywhere… Government needs to work in much better partnership with the food industry to shore up our resilience while helping shoppers manage a maelstrom of rising costs.”