Some 146 food producers went into administation and became insolvent in 2014 compared to 114 in 2013. This trend runs counter to the overall picture where, over the last five years, company liquidations as a whole have fallen.

Duncan Swift, Moore Stephens partner leading the firm’s food advisory group, said: ‘UK supermarkets are trying to compete on price with Aldi and Lidl but with profit margins that are far higher than these discount chains. To try and make the maths work, the big supermarkets are putting food producers under so much pressure that we have seen a sharp increase in the number of producers failing.

Moore Stephens says that the rate of financial failure is even greater than it appears, as most farmers and many horticulturalists operate as sole traders or in simple partnerships which are not recorded at Companies House and cannot be readily researched.

The recent accounting problems at Tesco shone the spotlight on supermarkets’ practice of demanding supplier contributions, and Duncan argues that the culture of the buying teams at the supermarkets is a major problem, with the introduction of banker-style trading floors and bonus schemes for buyers.

‘Supermarket buyers’ bonuses are contingent on securing cash contributions from suppliers, which typically lead to delisting threats, short-notice cancellation of supplier orders and spurious deductions from monies the suppliers are owed. Supplier contributions cause major cash flow problems for food producers and can tip them into insolvency. It’s a raw deal for food producers who need the supermarkets to reach the public, but who can’t afford the terms of business that the supermarkets foist on them,’ Duncan said.

A separate study by PKF Littlejohn and the Centre for Counter Fraud Studies at the University of Portsmouth suggests UK listed food and drinks companies could be losing more than £11.2bn a year to fraud and error, equivalent to more than 85% of their total profits.

The report, Minimising Fraud and Maximising Value in the UK Food and Drink Sector 2014, reviewed data from 73 listed food and drink industry companies with total annual sales of more than £200BN.

The food and drink industry could boost its profitability by £4.48bn, or over 34%, by tackling fraud, says Moore Stephens, while tougher action would result in the cost of groceries being cut by as much as five pence in every pound.

Jim Gee, co-author of the report and head of forensic and counter fraud services for PKF Littlejohn, said: ‘Food and drink fraud is the crime in our baskets. It results in food and drink being more expensive than it should and its reduction can significantly improve value for money. The good news is that addressing fraud can cut the cost of fraud by up to 40% and increase profitability significantly.’

The report is here:  www.pkf-littlejohn.com/food-fraud-report-2014.php