Energy Crisis Threatens the EU Fruit and Vegetable Production

Chicory

United Kingdom

Fresh Cucumber

Published Nov 14, 2022

High electricity prices combined with other rising costs of production inputs, services, and logistics across northern and western Europe threaten the supply of fresh fruits and vegetables. Surging power and gas prices will impact crops grown through the winter in heated greenhouses, such as tomatoes, peppers, and cucumbers, and those which need to be placed in cold storage, such as apples, onions, and endives. Tridge's global market analysts and country representatives analyze the current threats to the fresh produce industry across the main European countries as the energy crisis develops.

According to the European Fresh Produce Association (Freshfel Europe), soaring electricity prices combined with other rising costs such as production inputs, services, and logistics can hardly be absorbed by the fresh produce supply chain anymore, owing to the industry’s short margins. Furthermore, across northern and western Europe, vegetable producers are considering suspending their activities due to the financial hit from Europe's energy crisis, further threatening fresh production supplies.

Farmers and food businesses are struggling to cope with soaring energy costs in all main European producing countries. In most markets, farmers are already cutting down on production and are projecting a YoY production decrease. Moreover, power and gas prices will directly impact highly consumed crops that are primarily produced in greenhouses, such as tomatoes, cucumbers, onions, and apples.

In England, the cost of heating vegetable greenhouses has caused severe crises in the horticulture sector. Cucumber greenhouses in the Lea Valley have closed operations over the last three months. More than a third of growers in the area have applied for planning permission to knock down 60 hectares of greenhouses to replace them with housing estates, warehouses, and small factories. In addition to the energy crises, farmers have reported having a prolonged labor shortage in the area. Farms are struggling to get seasonal European workers that used to work on farms prior to the Uk leaving the EU.

Energy bills in the UK have been reported to more than quadruple. Crops that require intensive heating in colder climates, such as cucumbers, tomatoes, and lettuce, are the most directly affected. The crisis is likely to push food prices higher at a time of historical inflation and threaten the availability of fresh products. Already fruits and vegetables on shelves in the UK have seen inflation. According to Prince Yawson a Senior Global Market Analyst at Tridge, “The average price of tomatoes per kilogram has shot up according to latest figures from the office of national statistics. To make a bowl of salad, for example, one may have to spend about 8-10% more than a year ago”, he explained.

In France, the energy crisis has negatively affected the fruit and vegetable sector as energy costs have skyrocketed. According to Francois Rotteleur, Tridge’s Origination Manager in France, the dramatic increase in energy cost is affecting all fruit and vegetable companies, especially those who rely heavily on cooling and ripening. In addition, French companies who renegotiated their electricity contracts recently or have to renegotiate their contracts with energy suppliers in the coming months are experiencing record-high tariffs, which risks the sustainability of the companies. “Nearly 1 out of 4 companies in the sector must renegotiate their contracts by the end of the year. As an example, the French apple sector has experienced electricity prices multiplied by 3, up to even 12 times for companies that have already had to renegotiate their contracts,” he reported. “Another example is an endive producer who renewed their contract and has seen their electricity bill increase from EUR 80 thousand in 2021 to EUR 800 thousand in 2022 for processing 3,000MT, a tenfold increase,” he added.

Operators in the fruit and vegetable sectors in France are already working to reduce their energy dependence as much as possible. But due to technical constraints, it is sometimes impossible for companies in the sector to reduce their energy consumption beyond a certain point.

In Germany, in order to mitigate the rise in energy prices for businesses and private households, the federal government has put together an electricity price brake, from which agricultural companies should also benefit. However, according to the German Farmers' Association (DVB), although the measure will dampen some of the cost increases, electricity will continue to become more expensive for agricultural businesses.

Germany's energy crisis is expected to affect producers and consumers severely. On the one hand, fruit and vegetable growers may need to decrease their production capacities to minimize energy bills, and some may ultimately be forced to file for bankruptcy.

In the Netherlands according to Freshfel Europe, 8% of greenhouse businesses in the Netherlands are forecast to declare bankruptcy this year. Dutch greenhouse operators are particularly vulnerable to higher electricity costs because of the large size of many greenhouses, which necessitates considerable lighting and heating. In addition, the Netherlands is one of Europe’s key agricultural producers, and this forecast demonstrates the potential of the energy crisis to jeopardize agribusiness across the entire union.

About 90% of European greenhouses are heated with natural gas, which has affected the production prices this season due to the increasing energy costs. Many greenhouses in the Netherlands, Germany, and Spain decided not to produce due to the rising costs. With growers cutting back output and going out of business, the supply of fresh produce may decrease dramatically in the EU, leaving space for the increase of Non-European imports.