The Midlands' hidden innovation economy: Why food and drink manufacturers could be missing out

Written by Dr Laudina Duffus, Innovation and Capital Incentives, PwC UK 

Food and drink manufacturers across the Midlands are innovating every day – but many may be missing opportunities to reduce the cost of that investment.

In our work with manufacturers in this sector, we often find the issue is not a lack of innovation; it is that reformulation, packaging trials and process improvements are treated as business as usual, so potential research and development (R&D) tax relief, patent box and capital allowance opportunities are not identified early enough.

Birmingham sits at the heart of one of the UK's most significant food and drink manufacturing regions.

According to the Food and Drink Federation, food and drink manufacturing contributes more than £2.2 billion to the regional economy and supports around 34,000 jobs across the West Midlands.

The region is home to global manufacturers alongside a vibrant community of specialist producers, reflecting a long-standing strength in food production and innovation.

That strength is being tested by an increasingly complex operating environment. Manufacturers are responding simultaneously to changing consumer preferences, evolving regulation, supply chain disruption, rising raw material costs and increasingly ambitious sustainability commitments.

Whether reformulating products, redesigning packaging or adapting manufacturing processes, businesses are continually investing in solving complex technical challenges.

The regional policy backdrop is also placing greater emphasis on R&D and commercialisation. In July 2026, the West Midlands received a £50m allocation from UKRI’s £500m Local Innovation Partnerships Fund to support regional R&D programmes, including initiatives focused on advanced manufacturing.

Not every food and drink project will fall within those programmes, but the direction of travel is clear – innovation is increasingly central to the region’s growth agenda.

Against this backdrop, finding ways to make investment budgets stretch further is critical. Yet many organisations don't recognise that some of the work they are already funding may be eligible for tax incentives such as R&D, patent box, and capital allowances.

When people think about R&D, they often picture laboratories developing breakthrough technologies or entirely new products. In reality, innovation frequently takes place much closer to the production line. It can be found in development kitchens, pilot plants and manufacturing facilities, where technical teams work through uncertainty to solve problems that have no obvious solution.

These practical challenges are often exactly the type of activity that the UK's R&D tax relief regime is intended to support.

Product reformulation is rarely straightforward

Take sugar reduction as an example. Sugar affects far more than sweetness; it can also influence texture, moisture retention, shelf life and manufacturing performance. Reducing it can change mixing characteristics, processing times and product stability, with subtle difference also affecting taste or mouthfeel.

Development teams may need to test alternative sweeteners, fibres and processing conditions through multiple rounds of experimentation before identifying a viable non-standard solution.

A formulation that works at laboratory scale may fail on a full production line, while another may manufacture successfully but fall short on shelf life.

In some cases, no workable solution is found and projects are abandoned altogether. That structured work to resolve technological uncertainty can go well beyond routine product development.

Sustainability is creating new technical challenges

Sustainability ambitions are also driving significant innovation across the sector. Manufacturers are seeking to reduce packaging waste, improve recyclability, remove unnecessary additives and lower environmental impact without compromising product quality or operational efficiency and achieving these objectives is rarely straightforward.

Replacing conventional plastic packaging with recyclable alternatives may reduce shelf life because barrier properties differ.

Reformulating products to remove preservatives can affect microbiological stability. Introducing alternative packaging materials may require significant adjustments to high-speed filling, sealing or handling equipment.

Often, what begins as an environmental objective quickly becomes a multidisciplinary technical project involving food science, engineering and manufacturing expertise.

Supply chain disruption continues to drive innovation

The pandemic, the wars in the Ukraine and the Middle East, disruption to major shipping routes and wider volatility in commodity and energy markets have also demonstrated how rapidly supply chains can change.

When key ingredients become unavailable or economically unviable, manufacturers often need to reformulate products, validate alternative raw materials and change production processes.

Replacement ingredients may behave differently during mixing, heating or cooling, or impact the functionality of existing ingredients within the formulation, requiring extensive testing and formulation redevelopment before consistent product quality can be achieved.

From the outside, these activities may appear to be routine business continuity. Internally, however, they often involve substantial technical investigation carried out by product developers, process engineers, quality specialists and production teams working collaboratively to overcome challenges they have not previously encountered.

Why opportunities are often missed

Despite the scale of innovation taking place, many food and drink businesses often fail to identify qualifying R&D activity, where they could patent a process as well as a product, and where manufacturing plants are expanded or refurbished, the level of capital allowances they can benefit from to improve their cashflow.

One reason is cultural. Technical teams often view problem-solving as simply part of their day-to-day responsibilities rather than recognising that they are addressing scientific or technological uncertainties.

At the same time, finance teams may only become aware of projects once they have concluded, by which point valuable evidence of the development process has been lost or has left the business.

This has become increasingly important in an environment of heightened HMRC scrutiny. Identifying potentially qualifying projects while they are underway enables businesses to capture evidence contemporaneously and build a stronger basis for any future claim.

Recognising innovation already taking place

Innovation in the food and drink sector is not limited to breakthrough products or new manufacturing technologies. It is equally evident in the day-to-day work of improving recipes, responding to regulatory change, enhancing sustainability and adapting production processes to meet evolving commercial demands.

Identifying opportunities to reduce the cost of investment in innovation and enhanced manufacturing through incentives is critical to maintain a competitive advantage in today’s complex and rapidly changing environment.

The opportunity for many organisations lies in recognising the innovation already taking place across their business and ensuring it is appropriately identified, evidenced and claimed.