Stress test for food chain due to war in Ukraine

After the scarcity of raw materials and rising costs during the pandemic, the food chain finally seemed to be recovering somewhat. But since the outbreak of the war in Ukraine, profitable production has again become very difficult for many food companies. The result of this crisis is a stress test for the entire food chain.

Production at risk

According to a survey by Fevia, more than half of the respondents are facing supply problems. Already (or very soon), 70% of the members are having to adapt their product compositions. Under these circumstances, 40% of the food companies will have to reduce or even stop their production in the coming weeks.

Profitability at rock bottom

Although the food industry recovered somewhat in 2021 from the disastrous year 2020 (turnover +13.1%, investments +9.2% and exports +11.7%), the profitability of Belgian food companies remained at a historic low of 2.8%. Since this is an average, it is clear that profitable production is not possible for many companies.

War as an accelerator

During the pandemic, raw materials were already in short supply and, together with energy, packaging and transport, they also became significantly more expensive. At the end of 2021, the situation looked better again, but only a few months later Russia invaded Ukraine. Once again, costs skyrocketed. The price of wheat rose by more than 50% and shortages of sunflower oil, flour and packaging are imminent.

If the food sector cannot pass on these costs, it is hardly profitable to continue production. And that is where the shoe pinches. Supermarket chains are hardly open to price increases, says Fevia.

Need for support

In a context where the global supply chain is disrupted, raw material scarcity is looming due to poor harvests and energy bills are unprecedentedly high, urgent measures are needed from the government. An adjustment to the energy bill, for example, or a temporary derogation from labelling legislation. In this way, producers can make up for shortages with alternative raw materials that are available. On the other hand, the food companies ask for understanding from the customers, by taking the cost increases into account and not imposing logistic fines when on-time deliveries are not possible.

"This support and flexibility is an absolute necessity to pass the stress test the entire food chain is currently facing," says Bart Buysse, CEO of Fevia.

Source: Fevia