Wednesday, April 13, 2011

Scrap VAT on ice cream, ICA urges Osborne

ICA chief executive Zelica Carr is calling for ice cream to be reclassified as a food, rather than a luxury item, exempting it from VAT, after duty rates rose to 20% in January; the sector is also facing unprecedented input costs and seasonal difficulties.

“You will be aware that the ice cream industry within the UK has suffered a number of setbacks in recent years,” she wrote in her April 8 letter to Osborne, where the ICA represents around 600 UK producers. “Such a move would be welcomed by a struggling ice cream industry, and would have a significant and positive impact upon the spirit and morale of the nation,” she said. Restore profitability.

Sugar now costs £800 per tonne, up from £460 in January, the ICA said, and it warned that prices could hit £1,400 in June. Skimmed milk powder now costs £2,900 per tonne, compared to £1,800 in January, while cocoa powder is up from £1,250 to £3,600.

But would scrapping VAT solve the problem of high commodity prices for food manufacturers, given that there was no guarantee supermarkets, for instance, would raise the prices they paid producers for ice cream?

“I guess there are different sectors, and that some would benefit less than others, who as you rightly suggest, are quite heavily squeezed by the retailers anyway,” an ICA spokesman told

“Beyond retail there are also artisan producers and dairy farmers, guys with mobile ice cream vans, ice cream parlours, etc.

“If VAT is not levied on the final product, then perhaps the big producers would see some benefit as well, if the supermarkets gave them a bit more leeway.”

Swingeing price increases

Asked what realistic response Carr expected from her letter, he said: “You’ve got to at least try and raise awareness. To a certain extent people take ice cream for granted, and not everyone appreciates the problems faced by the sector.”

Carr wrote that many ice cream businesses “fear for the future after being hit with a succession of swingeing price increases”. She also blamed wet summers and extremely cold and prolonged winters that have adversely affected sales in what is an extremely seasonal business.

Speaking to last week , one food sector M&A expert noted that a number of ice cream firms have gone bust in recent years, and blamed a highly cyclical market coupled with retailers turning the screw on producers.


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