Louis Hinzen is Senior Manager for Economic Affairs at FoodDrinkEurope, the organization of Europe’s food and drink industry. He is responsible for the monitoring and analysis of trade policies, bilateral and multilateral negotiations and agreements, and market access issues, and he represents European food and drink industry interests before EU institutions and other stakeholders. He also coordinates the work of FoodDrinkEurope’s Trade Expert Group and is in charge of the publication of a quarterly economic and trade bulletin. Louis holds a Master in Agricultural Economics from the Humboldt University (Berlin, Germany), and a Master in Development Economics from the University of Sussex (Brighton, United Kingdom).
The global economic situation remains uncertain as various issues threaten to undermine stability in parts of the world. Could you give us a quick temperature check of the situation in Europe as relates to the food and beverage industry?
These are indeed turbulent and uncertain times for the global economy, including Europe’s food and drink industry. Some of the major macro factors impacting the functioning of today’s agri-food ecosystem range from the COVID-19 pandemic shock to the repercussions of the devastating war in Ukraine, right at Europe’s doorstep, soaring energy prices and inflation, supply chain disruptions, and climate change, including extreme weather events. The current period is a real stress test for Europe’s economy and industrial base, whose competitiveness is under increasing pressure. Despite the overall resilience of the sector, it is increasingly challenging for manufacturers to sustain production with high and rising input costs. And the economic outlook does not look promising. According to the IMF global growth outlook for 2023, a third of the global economy will contract this year and the three largest economies —the United States, the EU and China— will see their economies slow. A further rise in geopolitical tensions and fragmentation of the world economy may even worsen this forecast.
How can the food and beverage industry overcome large hurdles throughout the supply chain, namely rising energy costs?
With food security and affordability now even more critical since the Russian invasion of Ukraine, the EU agri-food supply chain has already taken numerous steps to adapt to the energy crisis. For example, to avoid food spoilage in a context of high refrigeration costs, some EU farmers have turned to new ways to store, involving shorter, smarter cooling systems followed by quicker trade with buyers. Processors have been switching from natural gas to alternative energy sources, where possible, and, for some agricultural raw materials, are starting the production campaign earlier in order to reduce their energy use during the peak demand months of January and February.
In addition to short-term actions, the agri-food industry has already invested heavily in long-term resilience through renewable energies, energy efficiency (such as combined heat and power installations) and other decarbonisation technologies, and will continue doing so where feasible.
FoodDrinkEurope, together with agri-food chain associations Copa-Cogeca and Primary Food Processors (PFP), has called on EU Energy Ministers for immediate and effective solutions to secure the food chain’s economic sustainability and tackle soaring energy costs.[1] Besides the industry’s own efforts, targeted support including priority access to energy supply for the agri-food supply will be required to avoid serious market and supply chain disruption.
The European Union has high expectations for food imported into the bloc; what are the outcomes and consequences of this in terms of market access for goods coming from the Americas, Asia, the Middle East and Africa?
The total value of EU agri-food imports from the rest of the world reached €130 billion in 2021 (+7% compared to 2020; +2.7% p.a. since 2011).[2] Think of cocoa from West Africa, almonds from California, coffee from Brazil, spices from India —to name a few commodities and origins.
Strict import rules apply with respect to food and feed hygiene, consumer safety and animal health aimed at ensuring that all imports fulfill the same high standards as products from the EU itself. Discussions on market access relate to the reciprocity in standards and why some producers in and outside the EU are concerned about fair competition and trading conditions. And while nations and regions have their own food safety standards to protect public health, there is globally a common understanding of food safety principles underpinned by the Codex Alimentarius, which translates as the “food code.” For the food and drink industry, which operates a truly global food supply chain, predictable, science-based and harmonised rules are very important. The main hindrance to international trade comes when businesses have to comply with differing food safety standards across countries. The harmonisation of rules —like within the EU single market— helps ensure fair and thriving trade, which is good for farmers and consumers alike. The Codex needs to be given more resources and capacity to continue building a harmonised approach to food safety standards and to align different practices that exist around the world.
Food prices continue to rise alongside production costs. When do you think things will calm down and it might be possible to see a return to normal? Or is this the new normal?
EU food and drink producer prices, consumer prices and inflation started to take off in the first quarter of 2020, more or less in sync with soaring energy prices, according to the FoodDrinkEurope Economic Bulletin on Input Costs, September/October 2022.[3] Despite signals of certain input cost factors, such as the global container freight rate index slowing down, prices for energy and most agricultural raw materials and ingredients remain high and will most likely continue to drive inflation over the coming months. Worth noting is that consumer food price inflation typically lags behind any changes in production costs already paid for by operators upstream.
Sustainability is necessary, but implementing sustainable practices is often costly. How can the industry continue to ensure consumers will pay for sustainable products?
Sustainability is clearly a necessity, not an option —for industry and society to thrive. Shifting to more sustainable business practices could well mean additional costs and investments in innovative solutions or just a few little tweaks to your operations. However, put into perspective, the long-term cost of not acting may be far greater. Despite the current economic downturn, I am confident that consumers’ growing awareness of sustainability issues will drive future demand. It’s essentially a combination of telling the story —why you do what you do, why it matters— and finding ways to scale sustainable production to make today’s niche/premium products more accessible to a broader consumer base.
How is Europe maintaining and adapting bilateral and multilateral trade agreements to the current world situation?
The EU remains a leading force in world trade and follows an “open, sustainable and assertive trade policy.” Rules-based international trade and the EU’s network of 41 trade agreements with 72 countries provide EU food and drink companies with significant opportunities to internationalise and diversify, as well as the necessary legal certainty and predictability to take effective trade and investment decisions. Bilateral trade negotiations are currently underway with Australia, India and Indonesia. Strengthening ties with reliable and like-minded partners, making better use of existing agreements and concluding new ones is particularly important in these uncertain times.
The most noticeable development is probably the EU’s ambition to ensure trade contributes to more sustainable supply chains, namely through better enforcement of trade and sustainable development provisions and the inclusion of chapters on sustainable food systems in more recent bilateral agreements.
Nuts and dried fruits are an important product imported to and exported from Europe. How is the current economic situation affecting these valuable goods when it comes to trade?
Europe is a major destination for nuts and dried fruit. In value terms, the top 5 dried fruits that the EU imported in 2021 were raisins, dates, cranberries, prunes and apricots. The top 5 nut products imported were shelled almonds, shelled cashews, shelled hazelnuts, shelled peanuts and in-shell pistachios. In the 2021-2020 period, the trade performance was down across some key categories because of the COVID-19 supply chain disruptions. Whilst the growing popularity of plant-based diets and healthy snacking options are likely to drive demand in the future, price sensitivity of consumers will remain a decisive factor in the purchasing decision-making process. At current inflation levels, it is reasonable to assume that in particular lower-income shoppers will trade downwards, opt for promotions and private label products.