Dusseldorf Germany’s largest meat producer Tönnies is demanding an immediate upward price adjustment from retailers because of the extremely high costs. The family business refers to “force majeure” caused by the Ukraine war. The costs of energy, logistics and agricultural products have increased massively since the Russian attack. “There is currently no end in sight to the price rally,” said Tönnies.
In a fire letter to customers, which is available to the Handelsblatt, Tönnies Managing Director Frank Duffe writes of “massive disruptions to all business fundamentals”. The war in Ukraine with all its consequences and the parallel exploding pork price are leading to “scenarios that threaten the very existence of the meat industry,” argues the market leader.
Competitors are also forced to raise prices. The meat companies Westfleisch and Vion, number two and three in Germany, will raise a “crisis surcharge” of more than five cents per kilo of pork from Monday.
Tönnies justifies his plight as follows: “Electricity and gas suppliers have been making use of their special right of termination due to force majeure for weeks – many often with a direct connection to the war in Ukraine or associated with the sanctions against Russia.”
Top jobs of the day
Find the best jobs now and
be notified by email.
This not only affects the Tönnies Group, but also all suppliers and partners in the preliminary stages, who pass on the costs almost one-to-one to Tönnies.
“Price dictates of the pre-suppliers”
Managing Director Duffe speaks of “price dictates from the sub-suppliers”, which they justified with “force majeure”. As a result of the war, the price of natural gas is currently around ten times higher than it was a year ago. Some utilities have therefore terminated their contracts extraordinarily. The transport and logistics industry is also invoking force majeure due to the massive absence of Ukrainian drivers.
Industry expert Klaus Martin Fischer, partner of the Ebner Stolz consultancy, also considers the crisis to be a threat to the existence of the meat industry. “Farmers, butchers and sausage makers are currently making high losses with every pig.” The price for a kilogram of slaughter weight has risen from 1.20 to 1.75 euros in just one month. But according to Fischer, the farmers need at least two euros, soon even 2.20 euros per kilo, in order to operate profitably.
Pig farmers’ costs have risen significantly – not just for gas, electricity or diesel. Feed corn and wheat have also become extremely expensive since the war. “With the loss of Ukraine as an important feed supplier for German pig fattening, further significant increases in pig production are to be expected,” warns Tönnies Managing Director Duffe.
Pork prices have been at an extremely low level for many months. Because after the outbreak of African swine fever in Germany, the lucrative export to Asia stopped. As a result, many pig farmers shut down entire fattening facilities. “Whereas one million pigs were slaughtered a week in this country, it is currently less than 800,000 animals,” states Fischer. “More and more pig producers are getting out of the loss-making and hopeless business.” Accordingly, the slaughterhouse groups, which are designed for mass, lack the necessary capacity utilization.
Meat industry in the loss zone
The sausage manufacturer The Family Butchers, number two behind Tönnies, is also sounding the alarm. In a full-page advertisement in the “Lebensmittelzeitung”, the family business describes the dramatic cost crisis in the industry, which was threatening the existence of many companies even before the Ukraine war. Price adjustments are unavoidable. “A kilo of sausage should actually cost one euro more in retail because all the costs of energy, logistics, packaging and personnel and also for the raw material have risen so much,” says industry expert Fischer.
Many pig farmers have shut down stables because they lose money with every pig.
(Photo: imago images/Countrypixel)
According to Fischer, slaughterhouses and meat processors have slipped into the red, and the corona pandemic has already had a significant impact on the industry. “We are extremely under water, in deep red numbers – and not just Tönnies, but the entire slaughter and cutting industry,” co-owner Clemens Tönnies admitted a few months ago in an ARD documentary. He did not give specific numbers.
Competitor Westfleisch, for example, made an annual loss of twelve million euros in 2021, and sales fell by a good nine percent to 2.56 billion euros. According to Westfleisch, due to the unchecked increase in costs, “a consolidation of the industry is unavoidable”.
The cooperative will raise a crisis surcharge of 5.8 cents per kilo of pork from Monday, reports the “Westfalen-Blatt”. Vion also feels compelled to levy a surcharge of 5.2 cents because of rising energy and logistics costs.
>> Read also: Only 1.23 euros per kilo for the farmer – why pork is far too cheap
Consultant Fischer believes that no rescue can be expected from politics. “The meat industry has no advocates in politics, after the change of government anyway.”
He doubts that the trade will fully accept the demands for massive price increases for meat and sausages. The trade had recently shown itself to be tough on the price demands of many manufacturers. “The higher the general inflation, the more consumers look at the price,” says the consultant. “Good husbandry forms may then no longer be of interest.”
Fischer fears that the war will continue to increase costs throughout the supply chain. However, supply bottlenecks for meat are not to be feared in this country. “There is an oversupply of pork in Europe, especially from Spain.”
More: “I was wrong about him”: Clemens Tönnies breaks with Putin