Sign up for our daily Newsletter and stay up to date with all the latest news!

Subscribe I am already a subscriber

You are using software which is blocking our advertisements (adblocker).

As we provide the news for free, we are relying on revenues from our banners. So please disable your adblocker and reload the page to continue using this site.

Click here for a guide on disabling your adblocker.

Sign up for our daily Newsletter and stay up to date with all the latest news!

Subscribe I am already a subscriber

High energy prices are another test for the resilience of EU food producers

Surging energy prices create uncertainty for EU food producers, although national energy support measures reduce the impact and shield production. Nonetheless, food producers need to reassess their energy strategies because mandatory cuts in energy use can't be ruled out this winter, and concerns about longer-term gas supply continue to linger.

A considerable increase in energy costs for food and beverage manufacturers
Back in 2019, when energy markets were still calm, energy had a 2% share in the total costs of food manufacturers in the EU. Given the sharp increase in energy prices, we estimate that the share currently ranges between 7.5-10% (without price caps or compensation). There are also many signals that some food manufacturers have seen their energy bills rise to up to 30% of their total costs. In food processing, activities such as flour milling, baking, and fruit/vegetable/potato processing are relatively energy intensive.

At this stage, there are large differences between what companies are paying for energy because some still have longer-term fixed contracts, while others have to renew their contracts at much higher rates. Companies that locked in energy prices before 2021 and companies that use other energy sources than gas for generating heat are certainly in a more favorable position. However, differences will become less pronounced in the months ahead as older, lower-priced contracts and lucrative hedges expire, and government support measures level out some variances.

Food manufacturers feel the pinch from second-round effects
Besides the direct impact on costs, there is also a pass-through of higher energy prices towards food and beverage makers as they procure many inputs from agriculture and because they need transportation.

Agriculture is generally quite energy-intensive, and this is especially the case for horticulture under glass and mushroom growing. Energy represented 25% of total costs in Dutch horticulture in 2021, and based on energy prices in 2022, that share has gone up to more than 60%. When prices of agricultural products go up due to higher energy costs, the food industry has to deal with this as well.

Energy support measures also help to sustain food production
Do we see any signs of a reduction in food production in the EU because of high energy prices? Thus far, food manufacturing output has proven to be quite resilient, aided by the ability to pass on (some of) the higher costs to customers and consumers. This pass-through is illustrated by current double-digit levels for food inflation in the EU.

Still, food production data up until August show that production volumes in the food and beverage industry in the EU are higher this year compared to 2021. The long-term trend shows that output volumes are generally not very susceptible to external shocks, apart from a considerable drop at the start of the Covid-19 pandemic.

For more information:

Publication date: