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Energy update: farmers burning oil, dumping (too) early

There were no huge spikes in European gas prices last week, but, nonetheless, winter gas prices were still rising in the weekend, so the energy crisis is certainly not over yet. Reason enough for German growers to start burning oil and elsewhere, perfectly good crops are being pulled up too early. Here an overview from this Monday.

Our writers were in North-West Germany on Friday, where they saw and heard that farmers are not happy with the current energy crisis. Many growers have recently been approaching installers with countless questions in an attempt to try and take energy-saving measures.

One such measure is burning oil. Farmers have to adjust their heating systems' settings for that. Some growers still (partly) burn coal, but grants are enticing them to switch to gas. Gas that is very expensive now.

Some Dutch farmers, for example, are glad to be using geothermal energy, or they are farming in 'gasless' or 'all-electric greenhouses'. In Germany, however, electricity is even more expensive than in the Netherlands. In fact, Germany is one of the most expensive countries in Europe in terms of electricity prices.

Some German farmers in the northwest of the country do not use lighting and are nearing the crop rotation period, or are busy cleaning their greenhouses. One cucumber farmer stopped cultivating a week earlier because of the high energy prices, but he almost regretted it on Friday, as the weather was actually quite good and an extra week of cultivation might have been possible after all. That grower's greenhouse will be empty for slightly longer, and he hopes he can use that time to recover from the stress of being locked into a few more years of extremely high gas prices.

The energy crisis is still very topical, but it seems that the first energy shock wave has now subsided somewhat in Germany, and this week should, hopefully, not bring any more stories from worried growers. However, the first analyses and forecasts are appearing in the Dutch media.

Glastuinbouw Nederland, for instance, points out the consequences of the sustainability battle the greenhouse sector faces, and ABN Amro published a (financial) analysis which considers the impact (read 'heavy losses') for various sectors, including greenhouse horticulture.

Fiscal specialists state that greenhouse horticulture is the sector with 'the highest energy bill'. They say greenhouse growers need to be able to pass all the extra cost of the pricier gas to their customers, or it will cost them their profits.

With zero profits, farmers struggle to invest in, for example, sustainability. Glastuinbouw Nederland agrees with the bank analysts: growers' current cost prices are much higher compared to before the current (energy) price increases. They are calling for the country's renewable energy storage tax to be reversed.

Glastuinbouw Nederland's chairperson, Adri Bom-Lemstra, labels the current situation as 'exceedingly annoying for growers who are largely dependent on buying gas on the day market.' She points out that this also applies to other sectors such as the fertilizer industry and packaging companies.

The high energy and gas prices are going to lead to higher consumer prices for vegetables, flowers, and plants. "That seems inevitable. However, Wageningen University & Research recently did a study that shows that consumers are increasingly willing to pay more for sustainably produced food. That's a positive omen for the future. The retail sector should also respond to that," says Bom-Lemstra.

Less volatile, but much remains uncertain
AgroEnergy provided an analysis of a different kind. They write that "it remains difficult to estimate the short-term price developments. Winter contracts seem to be moving towards a new price equilibrium, and things are already far less volatile than last week. However, it will take very little for the market to become unbalanced again. President Putin reiterated on Wednesday that Russia can deliver more gas if Europe requests it."

"He also firmly denied that gas is being withheld as a political weapon to get Nord Stream 2 approved faster. Russia's gas injection season lasts until November 1. Russian Energy Minister Pavel Sorokin has already hinted that they're in no rush to supply Europe with additional gas any sooner than they must."

Moreover, "the long term situation is very much at the mercy of short term contracts. Very little directional news can affect the long term more strongly than the short term. In the gas market, Q1 of '23's prices are more than half as high as Q1 of 2022. That shows that the current tightness is temporary. Taking Nord Stream 2 into use seems to have been considered."

"On Wednesday, the European Commission presented a 'toolkit' which member states can use to manage the high energy costs their citizens are incurring. It was noted that the recent price increases are a 'temporary phenomenon' that should subside after the winter. The EC is going to further investigate whether purchasing gas on a European level might be beneficial. That should better guarantee supply security."

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