Rapid production cost increase observed in Europe for specific foodstuffs

More and more European food producers mention rapidly growing production costs. This was caused by lasting drought and heat in summer and the follow-up drop in grains harvest across most of Europe, as well as fuel and packaging material price rise, as reported by Latvian Federation of Food Companies.

Unexpected heat and drought this year has decreased grains harvest in most of Europe and multiple other major grain-producing countries. This reduction has also caused a deficit in animal feed in the region. A major decline of grains has been observed in Scandinavia, Germany, Ireland, France, Poland and Baltics, as well as countries like Russia, USA and Australia, who are some of the largest grains suppliers to western European producers. Price rise for grains in Europe was observed in August 2018, when costs in Britain grew 20-37% and France by 20%, LFFC reports.

«The rapid price increase in Europe and elsewhere in the world will definitely affect Latvian producers. In a situation when grain harvests in some countries are lower than harvests in other countries, it is possible to pick suppliers from other countries. However, this year and the next there might not be any alternatives. This will cause a major production cost increase for our country’s food product manufacturers. We have already observed a 20-30% increase for raw material prices. We have also observed an increase for energy prices and problems with labour force. It is clear that in this situation we have to think about ways to be efficient and not lose competitiveness,» said chairperson of LFFC Ināra Šure.

LFFC also explains that price increase is also observed for packaging prices, especially for aluminium and plastic. Aluminium, which is the main material used to produce cans for sparkling beverages, has been experiencing price rise for the past several years. While in 2017 the increase was 20%, this year prices have grown by another 8%. In summer 2018 Germany experienced a shortage of beer bottles. Bavarian Brewers’ Association tried resolving this problem by inviting residents to hand over bottles for recycling. However, more active collection of bottles does affect management costs. Analysts of Berenberg investment bank predict a 16% production cost increase for the largest breweries in 2019.

Latvian producers will experience a number of challenges at the end of 2018 and in 2019. It should be said that the lasting drought experienced in Latvia this summer was considered a natural disaster. The drought has impacted Latvia’s livestock, grains, fruit and vegetable farms. Livestock farms lack quality grains for feed. This negatively affects milk producers. Macroeconomic experts have said that increase of prices of grains is also reflected in prices of other good product groups, including bread, confectioneries, meat and meat products, LFFC reports.

«We spoke of the lack of labour force last year. Currently the shortage is dramatic. The food product industry lacks on average 10% of employees of different qualifications. This means export increase is hard to realize even if there is a potential market. Additionally, the current situation also reduces the competitiveness of our country’s producers. Domestic market’s growth is insignificant. This is why growth is only possible on export markets,» said Šure.

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