Energy prices “threaten the continuity of agri-food production,” industry warns

08 Sep 2022 --- The agri-food sector is calling for authorities to reflect on the “vital importance” of the sector ahead of tomorrow’s Extraordinary Energy Council. The council will try to find a solution to tame out-of-control energy prices, which are driving more F&B companies to lay off workers, shut down operations and make other serious cutbacks as they struggle to maintain operations.

Industry associations - including Copa-Cogeca, Primary Food Processors and FoodDrinkEurope - are demanding intervention from the European Commission. They want the energy sector to bring prices down, increase the liquidity of energy markets, diversify energy supply, boost sustainable energy generation and support the competitiveness of operators.

“To continue operating and to maintain a fully functioning food supply chain, the sector needs certainty on the access to energy and stable prices,” highlight the agri-food associations.

“The latest increases in energy prices, especially natural gas and electricity, threaten the continuity of agri-food production cycles and therefore the ability to continue delivering essential agricultural commodities, food ingredients and products and feed materials.” 

German industry players revealed to FoodIngredientsFirst last week that dramatic increases in energy costs are forcing companies to pass price increases to consumers, with businesses warning of a persisting inflation rampage in 2023.

Climate not helping
On top of sky-high energy prices, the industry associations remind EU authorities that this year has also been complex due to extreme weather events, with droughts, storms and frosts ravaging crops.

A sweltering summer heatwave drained European rivers with the worst drought in 500 years, diminishing the capabilities of barge traffic – 47% of the EU territory was under a drought warning in August.

Extraordinary weather conditions have led to lower outputs of maize, soybeans and sunflowers, 16%, 15% and 12% respectively, compared to the five-year average, according to the JRC Global Drought Observatory.

A sweltering summer heatwave across Europe recently led to the drying up of crucial waterways.Food sector priority
The agri-food chain backed the Commission’s “Save Gas for a Safe Winter” strategy to reduce gas usage across the broad economy, as it singled out the “critical importance of Europe’s agri-food supply chain and the need for a secure supply of gas to maintain food security.”

With this in mind, the sector expects the Extraordinary Energy Council to consider the sector’s strategic importance.

“More EU oversight of Member State gas rationing plans is also needed, to make sure they prioritize the agri-food sector,” state the organizations.

“As during the COVID-19 crisis, we are committed to working with the European institutions to provide a continuous supply of high-quality and affordable products.”

Energy-intensive sector trouble
Energy price volatility has taken a toll on the parts of the industry most reliant on stable electricity costs.

Pekka Pesonen, secretary-general of Copa-Cogeca, flags that dairy and bakery businesses are some of the most affected due to high energy prices. 

In the case of dairy, the EC’s latest data (June 2022) shows that butter prices are up 77.3% compared to last year, way over the global prices average increase (of 29.2%). 

Cheese prices are also uncontrolled, displaying a 38.7% inflation (22.3% global average) and an 8.8% monthly inflation in the latest month analyzed – in line with the latest UN data, which puts cheese prices in a ten consecutive streak of price increments.

The bakery sector is also under heavy strain due in part to the continuing effects of the Ukraine war. Soft and durum wheat prices are 84.4% and 90.6% higher than last year, with maize up 23.4% and barley up 65%. As in all analyzed commodities, EU prices outperform the global average.

A notable exception is sugar, a case of its own, as sugar prices are up 14.1% compared to the global average of 25.6%. Low sugar prices in Europe are troubling the industry, which admits it’s moving from “crisis to crisis” and is embarked on a sugar subsidies war with India. Dramatic increases in energy costs are forcing companies to pass price increases to consumers.

Unlike sugar, which is not dependent on high energy prices, the refrigeration and brewery sector are also in trouble. 

Iceland’s frozen foods business has decided to cut back its business expansion plans and center on the “fight to keep the lights on.”

In the brewery sector, glass requires a lot of energy for its production. Furthermore, according to the German Brewers’ Association, the industry is particularly susceptible to gas price increases, with the sector flagging that it is impossible to replace gas as the main energy source.

Halts in production
CF Fertilisers recently said that soaring natural gas prices meant it would have to “temporarily halt” activity at its UK ammonia plant, which creates CO2 as a byproduct used to produce and pack goods.

In the same vein, Sweden’s largest tomato producer Nordic Greens announced it will not plant seedlings in January due to prohibitive electricity bills. Greenhouses have been struggling for months with energy costs, with many UK producers abandoning their businesses.

In Germany, centennial brewery Bischoff is closing its operations after it failed to restructure operations after insolvency proceeding in 2020. The managers blame the COVID-19 pandemic, high energy prices and a faulty ammonia line for refrigerations.

By Marc Cervera