For some food products, prices will have to go up by “dozens of percents”. Otherwise, manufacturers will have to reduce or stop production. “Supermarkets are hardly open to discussing inevitable price increases”, Belgian food producers’ federation Fevia complains.
New price negotiations
Half of the Belgian food companies currently have disrupted supplies, 70 % have to adjust the composition of products and 40 % will temporarily stop or reduce production in the coming weeks, according to a survey by Fevia. The war in Ukraine is causing unprecedented cost increases: wheat became 50 % more expensive, electricity bills doubled and gas prices even tripled. Not just sunflower oil, but also linseed oil, honey, egg products and even glass containers are threatened by looming shortages.
Higher prices in stores are therefore inevitable, Fevia says, and a rise by a few percent will not suffice. An anonymous sauce producer told Belgian newspaper De Tijd: “We need dozens of percents extra. We were able to raise our rates in January, but that increase has already been completely overtaken. We have just started to renegotiate existing contracts.”
“Mayonnaise 70 % more expensive”
Egg yolk is now twice as expensive as six months ago, the manufacturer says, but mustard seed, starch and glass jars also became significantly more expensive. Some supermarkets are going along with the demand for price increases – one chain accepted that mayonnaise will become as much as 70 % more expensive – but others are not (yet). However, this will not be without consequences: “If a supermarket does not accept our price increases now, we will have to stop deliveries. We cannot produce at a loss”. This echoes a sentiment that was also clearly expressed by the CEO of biscuit manufacturer Lotus.
The talks are proving very difficult: “Supermarket chains have disproportionate negotiating power. 33 % of the renegotiation requests were refused, 40 % were not yet answered, 28 % got a limited increase, Fevia claims. The federation is therefore asking for an extension of the regulations on unfair commercial practices. It asks supermarkets to be flexible and not to impose fines for late deliveries. It is also counting on measures to lower energy bills and wants to be able to temporarily derogate from labelling legislation, in order to be able to quickly use alternative raw materials and ingredients to make up for shortages.
Historic low point
In spite of this all, the food industry has made a good recovery in 2021, after the difficult Covid-ridden year of 2020: turnover rose by 13.1 %, investments increased by 9.2 %, exports grew by 11.7 % and there were also 2.4 % more jobs. On the other hand, the profitability of Belgian food companies fell to 2.8 %, which is a historic low, Fevia chairman Anthony Botelberge says.
“During the pandemic, many food companies were already facing shortages of raw materials and sharply increased costs for raw materials, energy, packaging and transport. At the beginning of this year, it looked like we were finally putting out that fire but unfortunately the war in Ukraine is a huge accelerant. If we cannot pass on those costs, it will hardly be profitable to continue production.”