Top 5 News From the Industry

Author Dorota Cłapa
Reading time 7 minut
Publication date 08 September 2022

The situation on the markets is constantly changing. We are all living in the unusual times of the lack of stability but also of the business opportunities. Is there too much going on, and you are completely lost?  Looking for a brief summary about the most important events affecting the industry? Continue reading!

Gas prices and supply uncertainty – biggest threat against powder products

Extreme geopolitical tension affects people not only directly, but also through its impact on the market. Europe’s gas supply problems forced many manufacturers from different countries to change their production strategy for the upcoming autumn/winter season. Sugar manufacturers are not an exception!

German tycoon Nordzucker, one of the biggest sugar producers in Europe, announced the beginning of this year’s sugar refining season on September 3rd and switching from gas power to oil fuel due to the uncertainty of gas supplies. More than 80% of the company’s power supplies were changed to oil fuel. The sugar tycoon was basing its production on gas regarding its green agenda, which is no longer possible.

The issue of two biggest France sugar producers, Tereos and Cristal Union, is a similar case. Manufacturers decided to bring forward this year’s production by about a week out of fear that there will be gas shortages during the winter that in turn would force the government to put gas usage restrictions on businesses and manufactures. 

The United Kingdom’s prime minister-elect Liz Trussal has already announced her plans toward rising gas and energy prices in the UK. She is planning for her government to spend 40 billion pound to support businesses in dealing with rising costs of production. Meanwhile, Gazprom is playing dumb and claims that the reason why the most important route of supplying Europe with Russian gas, Nord Stream 1 pipeline, is not working due to technical malfunction. The company responsible for maintaining the equipment states that the problem is not so serious to justify the complete suspension of gas transmission.

It wasn’t so dry in Europe for last 500 years – droughts affecting market situation

The droughts have been a hot topic since before the beginning of summer. Warm months always equal high temperatures and dry air, but this year’s summer was exceptional in that matter. For a couple of weeks, experts were warning that summer 2022 was characterized by the drought so intense it was the biggest one in the last 500 years. It was predictable that such unusual weather conditions would deeply affect plant-based, dairy, and additives production.

It was the case for Spanish wine and grape producers. Usually, wine harvests are scheduled around mid-September, but some planters decided to start them in the third decade of August. August temperatures, the same ones that led to the premature ripening of grapes, make daytime harvesting impossible. Grape harvesters were forced to start working at night. The thin silver lining is that the work is more enjoyable in August nights than in September days. Additionally, the cooler the grapes are when they arrive at the winery, the better their taste and smell, even though they were not given enough time to properly develop.

The hot, drought-stricken summer also had a very negative impact on the potato harvest and, as a result, the products derived from its processing. Extremely harsh conditions were noticed in France, the Netherlands, and Belgium, among other countries. Due to the unpleasant circumstances, this year’s potato harvests will be remarkably modest, both in terms of the number of potatoes harvested and the size of a particular potato. The latter feature can be a particular problem, given that there are relevant standards, for example, for the minimum length of fries. A poor harvest will result directly in further increases in product prices, which is a concern for consumers, who are already struggling with inflation, and reduced demand will negatively affect farmers, producers, and retailers. 

Europe is not the only part of the world that experienced devastating droughts during the summer. Experts said that around 44% of the continental United States fell in the moderate to extreme drought categories (based on the Palmer Drought Index) at the end of July 2022. Such extreme conditions directly resulted in deterioration of yields and other related problems.

Inflation – unwelcomed, but expected guest

Poor harvests, extreme weather conditions, and current geopolitical situation led to a financial crisis that affects both consumers and enterprises in a very painful way. Inflation is being felt around the world. In the United Kingdom, inflation increased prices by 5.1% in the 12 months to August. That is the highest growth rate since 2005. Such a high inflation value has been caused primarily by the increase in the price of milk, margarine and chips, whose production costs, linked to the price of animal feed, fertilizer, wheat and vegetable oils, have risen significantly recently. According to Eurostat, inflation on an annualized basis in July 2022 in the eurozone was 8.9%, in the European Union as a whole 9.8%, in Poland 14.2%, in France 6.8%, and in Estonia 23.2%. Like every other case of inflation, it deeply affects the market, both due to rising costs of production and declining interest in particular products.

Climate change – some are failing to fulfill their promises while some others are already paying the price

Climate change and its impact on both personal lives and enterprises is an issue that has been discussed for a long time. Experts are alarming about the condition of the planet regularly. One of the most important documents that were signed to fight climate change was the Paris Climate Agreement. Under the terms of the agreement, companies operating in the G7 countries, i.e., Britain, Canada, France, Germany, Italy, Japan and the United States, were required to reduce emissions to limit global warming to 2 degrees Celsius (°C) and aim to keep growth below 1.5 °C, which some scientists believe would avoid some of the worst effects of climate change. As a recent study shows, these goals are not being met. If companies stay on the path they are on now, their emissions will lead to a warming of 2.7 °C. According to the researchers, such a disappointing result is not due to under-ambitious goals, but to a lack of willingness to meet them.

While those with proper tools and resources are not motivated enough to take necessary action to avoid full-scale climate catastrophe, the most vulnerable ones are already paying the price. Monsoons accompanied by extreme rains haunt Pakistan every year between June and September, but many experts agree that climate change is making the rains more intense and further contributing to the melting of glaciers in the north of the country. This deadly mix has led to tragic floods that have taken human lives and devastated homes and crops. The humanitarian catastrophe and food crisis will not only affect the people of Pakistan, but also the entire food market.

Higher temperatures resulting from a warming climate are making life more difficult for animals, which is having a negative impact on both meat production and other livestock products. Recently invented High Immune Response (HIR) technology helps disclose what level of immunity responses cows have. Cattle with higher immune responses are more tolerant to high temperatures. That knowledge could help with efficient selective breeding and creating a more robust herd.

Too expensive energy is crashing people and enterprises

Climate change problems are only one side of the coin. The other is energy systems based largely on coal, the combustion of which is highly harmful to the environment, but in the current situation necessary to provide electricity and heat for millions of people. The current tense geopolitical situation hand in hand with rampant inflation is leading to extremely high energy prices. Both individual consumers and large businesses are having difficulty coping with them. Rising energy prices are significantly affecting the dairy industry, among others. Lactalis and the Granarolo Group have decided to appeal to the Italian government for the authorities to act, to protect business and consumers. As representatives of the aforementioned companies point out, energy price hikes are forcing them to raise the prices of their products, leaving consumers to face both rising energy fees and rising dairy prices. 

The upcoming winter is set to be tough on everyone. Many experts point out that what we are facing now is only a prelude to the full-scale energy crisis that is expected to await us during the coming winter. Extremely harsh conditions, potentially involving power outages and unprecedentedly high prices, will no doubt severely affect individual consumers, as well as companies and the market as a whole. If the geopolitical situation does not normalize in the coming months, the next winter could prove to be even more challenging in energy terms.

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