Sequential crises put survival of 4 in 10 food companies at risk

For 2 out of 3 Belgian food companies, the financial blinkers went on in recent months and 4 out of 10 even risk going under in the event of a new economic blow. These are the worrying conclusions from a study of shock resistance that sector federation Fevia commissioned from Graydon. Fevia CEO Bart Buysse therefore calls on policy makers and chain partners to act now in response to the gravity of the situation: "The combination of historically expensive costs for raw materials, energy and wages is becoming unsustainable for our companies, especially if they cannot pass these on to their customers, mainly the supermarkets. Our companies have been providing jobs and investment in our country for years, but today they need concrete support and solutions. We have been signaling this for months. It's 5 to 12. Not acting now is tantamount to guilty omission!"

Healthy before COVID crisis, at risk today 

With the shock resistance score, Graydon calculates the extent to which a company can absorb one or more shocks. For the beverage and food sector, it shows that 87% of companies were very healthy before the COVID crisis. Today, 66% of Belgian food companies are insufficiently shockproof. For 40% of companies today, the situation is downright precarious. 

Of course, the impact of the war in Ukraine and the cumul of cost explosions for raw materials, energy and wages are no stranger to this. A lack of reserves - exhausted by successive crises - could leave those companies in respite in the event of another shock. Since 97% of Belgian food companies are SMEs (with less than 100 employees), they in particular appear to be most at risk.

Explosion in costs unsustainable for food companies

The Graydon study clearly shows that food companies had not yet fully digested the negative consequences of the COVID crisis. On the one hand, between April 2021 and April 2022, the proportion of Belgian food companies with alarming shock resistance scores fell, courtesy of the corona support measures. On the other hand, a lot of food companies remained in the danger zone, partly due to the impact of the Omikron variant.

Meanwhile, just about all cost items have continued to rise to unprecedented heights. Comparing the period from January to August 2022 with the same periods in 2021 and 2020 - during which our companies were already facing shortages and hefty price increases - shows that the situation threatens to become unsustainable for many food companies:

Moreover, a survey of Fevia members shows that barely half the food companies obtained a price increase from supermarkets in 2022. Moreover, in most cases this was less than half of the increased costs. Fevia members are therefore concerned about the wafer-thin margins that remain for them to invest and innovate. For many of them, it is even a pure matter of survival. 

Moreover, another wage indexation of more than 10% awaits food companies in January 2023. This threatens to make Belgian food companies less competitive since wage increases in our neighboring countries, to which our country traditionally exports a lot, are much lower. Together with the fiscal lasagna in Belgium, this also encourages more and more border purchases.

Urgent solutions needed now!

Fevia's president Anthony Botelberge therefore asks aloud the question whether policy makers and chain partners still want to maintain an agri-food chain in our country tomorrow: "Over the years, the Belgian food industry has become the largest industrial employer and investor in our country and is the central link in the essential agri-food chain. But today we need concrete support and solutions to cope with an exceptional crisis. We call on our policymakers and supply chain partners to act now so that affected businesses do not go under!"

Fevia therefore worked out concrete proposals in recent weeks that it shared with the government(s). 

1. The priority is to control and reduce energy costs now, both temporarily and structurally. Our businesses urgently need targeted support today to survive tomorrow!

• Thus, Fevia asks that Belgium maximize and urgently apply the possibilities foreseen in the European temporary crisis framework. Specifically, the sector asks the three regions to provide direct support to food companies whose energy bill increased by more than 100% compared to 2021. 
• The federal government may grant a tax credit to companies whose financial situation has deteriorated significantly due to higher production costs and their inability to pass this on in their selling prices. This would thus be a tax credit for safeguarding businesses and jobs.
• Fevia also asks that the essential nature of the food industry be taken into account, for example, in case of possible supply shortages. Cutting off food companies from water and energy is not an option now! 
• Fevia also calls for flexibility in permits and standards: food sector companies wishing to temporarily switch to alternative energy sources should be able to do so based on a simple notification. In addition, Fevia also calls for measures at the European level to control energy prices. 

2. Second, Fevia calls for giving companies oxygen to get through this crisis in one piece. This can be done, for example, by allowing deferral of payments (tax, parafiscal charges, etc.) and by not introducing additional or new legal obligations, administrative burdens or tax increases now. 

3. For companies where there is a decline in activity, Fevia calls for a flexible and simplified system of temporary unemployment for economic reasons.

 4. Fevia also stresses the importance of structurally restoring the competitiveness of our companies by controlling labor costs and eliminating fiscal handicaps. The latter should be one of the central objectives of fiscal reform. 

5. Looking to the future, we want better levers to protect our companies from the impact of crises on (production) prices and the possibility of passing them on: through consultation if possible, legally if necessary. In the event of unforeseen and huge cost increases, these levers must allow contracts and prices to be adjusted more quickly. And they should prevent supermarkets from imposing excessive supply penalties. 

fevia.be / food.be