A Look at the European Union Food Industry

The food industry remained critical while battling the pandemic, the price movement and revival of this industry becomes crucial in the post-pandemic economy. Undoubtedly, the lockdown had disrupted the industry all over the globe. This article details the impact of COVID on the European Union’s food industry- the most important sector that drives the economy.

The spread of COVID-19 had most European countries implement a lockdown by mid-March as a result of which restaurants and foodservice providers had to close. Although many restaurants offered takeaway and delivery options, the restrictions which were put in place had a severe impact beyond the foodservice industry. During the spring lockdown, some areas, such as Milan in Italy, had more stringent restrictions. Nonetheless, the restrictions still had an effect on the food prices in European countries, overall food prices had already increased by 1 percent in March 2020 compared to January and February 2020. The food prices continued to rise, especially in countries with stricter restrictions, during April but stabilized in May when the European Union (EU) took action by introducing “green lanes” and offering so-called CAP payments to farmers. The price increases of some food categories were more significant: meat, fish and seafood, and vegetables witnessed the most significant surges in prices.

The food and drink industry is the EU’s biggest manufacturing sector in terms of jobs and value-added, with the industry processing about 70 percent of the EU’s agricultural output. Nevertheless, European food manufacturers also rely on the imports of some key ingredients which are not produced in sufficient quantities in the EU, with the main imports being fruit and vegetables.  The EU was the world’s second-largest importer and the world’s largest global exporter of agricultural food products in 2018. Exports of food and drink from the EU have doubled in the last 10 years, with the Netherlands being the largest exporter of food to non-EU countries and the United States being the main destination for exports.

 In 2016 the member states of the EU exported food worth USD 8 billion to the United States. However, there is also a lot of food trade amongst EU member countries, with intra-EU exports of food amounting to 250 million tonnes of food worth 283 billion Euros in 2016.

According to the European Food Safety Authority (EFSA), there is no evidence that food poses a risk to public health in lieu of COVID-19. The major issue was the guarantee of safety of the labour in the food industry. Governments around the world have introduced restrictions that affect the transportation of goods, including food, and the migration of the workforce, and the European Union is no exception. To address the delays in delivering supplies and products due to border controls between member countries where there previously were none, the Commission of the EU introduced so-called green lanes. These lanes are supposed to ensure the free and fast movement of vehicles transporting agricultural food products at the borders. Further, the EU also offered farmers income support known as CAP payments (Common Agricultural Policy) and also made it possible for seasonal workers to reach their workplace in other EU countries to ensure that enough food will be harvested. 

Previously, the shortage of temporary migrant workers and seasonally employed workers in EU member countries due to the travel restrictions between EU-member countries meant that there was a lack of workers in the food production industries. Agricultural food production was especially affected because of the intensive labour required during the harvest time, leading to a lower supply of food. 

Centralization, which had previously helped to drastically decrease costs, meant that if there was an outbreak at one of the very large production facilities, the whole site had to close. Additionally, the rigid and lengthy supply chains have also caused problems with the social-distance measures which were put in place. 

Reports show that the use of trucks for delivery decreased by 60 percent in France after restrictions were put in place. Some firms reacted by starting to implement so-called truck drone delivery systems where drones deliver packages. Other food-producing companies set up back-up warehouses, which in some cases increased the delivery reliability from 60 to 85 percent. Due to the decrease in travel, the demand for food from hotels and restaurants decreased, causing the prices of agricultural commodities to drop by 20 percent in some cases

Governments have reacted accordingly, and temporary state aid measures were approved to support farmers and agricultural-food businesses to ensure liquidity. Still, the cutback in supplies from agricultural producers has meant that companies operating in the food processing industry have had to compete for resources, which means that some companies did not only have a lack of labour, but also a lack of raw materials for their production. 

In the early months of the pandemic, there was a panic buying spree in European countries, a report shows that this resulted in an increase of food worth one billion pounds stored in UK homes. Consumers bought more products that have a long shelf life, e.g. canned foods. This resulted in 30,000 new jobs being created in the UK because of pressure to restock shelves quickly. However, the habits of consumers at home were also affected. Many people started cooking their foods as restaurants were closed. 

A survey showed that French consumers would only buy necessary foods, with 29 percent reported they now bought more local food and cooked their food instead. Besides cooking, many people also started baking more. Flour is a staple product in European countries and the demand for it increased, leading to a shortage of flour. As people started making their food, the consumption of fatty and sugary foods concurrently also increased, most likely due to stress and boredom. Home delivery services of food products and meals have also increased, and orders were made mainly online.

Nevertheless, increasing food prices always mean that people from low-income backgrounds have a disadvantage. On the other hand, European companies made plans for the future to be better prepared for another crisis. A survey of European food and agricultural companies showed that two-thirds of the firms which participated stated that they want to broaden their product, supplier, and customer base in the future to be better prepared for future crises. A third of the companies also plan to expand their research and development activities. Many European companies will need to restructure their supply chains in the future and focus on online models instead. It is also very likely that many firms will change from a labour-intensive to a capital intensive production method. Although prices stabilized around May and demand decreased after the surges of panic buying were over, some experts suggest that the impacts will be more noticeable next year, with lower harvests meaning that there may be a decrease in the variety of food available. One thing is for certain — the pandemic has impacted the European food industry, but the extent of the impact will only be known in a few years’ time. It will also depend on covid case resurgence and how responsive the measures are undertaken.

Key Takeaways

  1. The European Union food industry was affected in multiple different ways by the outbreak of COVID-19 and subsequent safety regulations
  2. The decreases in production and delivery delays caused food prices to increase in European Union
  3. The European Union responded by implementing green lanes and making CAP payments to farmers
  4. Companies have also responded, mostly by adapting their delivery systems

Further Readings

EconIR team
Lilly Mariam Salus, Dominika Sobal, Shivanshu Ohja, and Liam Brandt are from the EconIR team. They focus on creating research content on Economics and International Relations.