Taxed for gas: Food producers face crippling levies if they don’t switch to electricity, warns trade body

20 Jun 2023 --- Food manufacturers in the Netherlands fear the potential consequences of the Dutch cabinet’s plans to increase taxes on gas significantly later this year. According to a preliminary study by the Federation of the Dutch Food Industry (FNLI), some food companies may see their taxes and levies rise sevenfold by the decade’s end.

The effects will translate into higher prices and “perhaps even production that becomes unprofitable,” according to the association.

The FNLI highlights that while food producers want to switch from gas to electricity they aren’t able to because the grid is overloaded. The difficulty to transition away from gas will force F&B businesses that use gas to pay the tax until the energy grid is improved.

Given all this, FNLI is calling on authorities to reconsider the tax increases in today’s parliamentary debate on the government’s extra climate package. Moreover, the organization says that the steep tax increases are “counterproductive” and will only end up cannibalizing companies’ sustainability budgets.

The bakery sector will be one of the most affected by the proposed tax increases.A 305% to 687% increase
The study, which examined a selection of average companies in the food industry, found that the percentage increase in costs of climate taxes and levies in the period 2019-2030 will vary from 305% for breweries, 454% for bread bakeries to 687% for dairy companies. 

According to FNLI, The sector worries that if the tax is approved, it could supercharge inflation, at a time when industry is already facing other inflationary pressures.

The study’s final results are expected to be published in two weeks.

Overstressed energy grid
FNLI calls on the Dutch parliamentarians to exempt entrepreneurs who cannot switch to electricity from the gas tax increase and to make the consequences of the planned measures transparent through an impact test.

“Our members are ready to become more sustainable but can hardly switch from gas to electricity anywhere in the Netherlands due to the overloaded power grid. In the meantime, gas costs will increase by more than a billion euros (US$1.09 billion) in the coming years,” says Cees-Jan Adema, director at the FNLI.

“The research we commissioned shows that this has a significant impact on many companies. While the companies still have to wait years for a connection to the electricity grid, the investment space to become more sustainable at those companies will become smaller and smaller due to huge tax increases. Exactly the opposite of the goal of this government’s climate package and the sector’s ambition.”

Food sector under attack?Some food producers are unable to switch from gas to electricity.
The Netherlands is experiencing double-digit food inflation, with food prices accelerating by 14.5% in the months of January to April, according to the De Nederlandsche Bank.

Moreover, food inflation is expected to be 10.8% for the full year.

An energy tax increase would come amid a food prices crisis and an agricultural crisis as the Dutch government is offering to buy farms, which farmers call “land expropriation,” to meet EU conservation and agriculture rules and cut nitrogen emissions in half by 2030.

The Netherlands is one of the world’s largest exporters of agricultural goods – only after the US – with July 2022 documents from the Ministry of Finance revealing that plans to cut nitrogen nationwide would mean the closure of 11,200 farms. 

Agri-cooperatives and European farmers representatives Copa-Cogeca told Food Ingredients First last September that any reduction in farming output in the Netherlands or other EU countries will yield limited climate gains, as it would lead to environmental leakage. Where food imports, from more polluting countries, would increase and thus offset any gains achieved by reducing emissions in the EU.

By Marc Cervera

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