FOOD and drink producers must prepare now to stop Brexit taking a bite out of the £5.5 billion export market, analysts are warning.

Exports were up 11 per cent in the first quarter as the industry’s burgeoning success continues.

Last year overseas sales grew by £421 million, hitting a record £5.5bn.

Food and drink sales were worth £1.2bn over the first three months of 2017 alone, but audit experts KPMG yesterday issued a warning to producers over Brexit threats to their trade.

Susan Dunlop, who leads on the sector for the international accountancy firm, called on companies to identify and plan for anticipated financial challenges now.

The call came as the Scottish Government announced grants of almost £3.5m to help 13 producers diversify and expand their operations.

Warning that domestic consumers will not bear rising prices as a result of supply chain cost increases, Dunlop said: “We are now more than a year on from the announcement of the EU referendum decision, and financial fluctuations and increased costs continue to impact on Scotland’s food and drink industry.

“To ensure ambitious growth targets are met and Scotland strengthens its competitive position both in Europe and globally, the sector must identify and plan for anticipated financial challenges of leaving the EU.

“In the short term, financial pressure on food producers could potentially be reduced by passing supply chain costs induced by supermarket margins on to the end consumer. However, fiercely competitive pricing in food retail has made it increasingly difficult for food producers to share costs at the final retail stage.”

KPMG says the Scottish food and drink sector has traditionally focused on a “relatively narrow band of products” known for their high quality, protecting pricing. Big value products include salmon and whisky.

However, Dunlop said this approach may not work in just two year’s time. Suggesting that the ability to control imports may help provide some competitive advantage, she said: “Scotland’s food and drink sector must remain agile and continually adapt and innovate in response to rapidly changing customer trends.

“It is vital for companies to adopt more flexible thinking and continually assess business strategies.

“Now is the time to consider any requirements to establish EU subsidiaries, apply for European regulatory licenses and run defensive scenarios to consider business resilience in the face of changing VAT or custom codes, reduced access to EU migrant workers, or increased costs of storage and warehousing overseas.

“Companies that plan for forthcoming change will steal a march on those that don’t.”

The funding committed by Holyrood yesterday was released through the Food Processing, Marketing & Co-operation grant programme.

Growers, distillers and similar companies from the Highlands to the Borders will benefit.

Douglas Laing & Co have been awarded over £855,000 to help fund the construction of a new distillery in Govan, Glasgow, and family-owned Maxwell Farms to expand their Aberdeenshire vegetable processing plant.

Commenting on the awards, Rural Economy Secretary Fergus Ewing said: “Scotland’s food and drink industry is a cornerstone of our economy, environment and culture, and the quality of our produce is world renowned.

“We are announcing £3.5m of new funding for 13 organisations across Scotland which will support sustainable cooperation and collaboration from primary production and processing to the market, so industry can continue to flourish.

“I congratulate each recipient of these awards, and wish them the best of luck for the future.”