High energy prices to start impacting Dutch food industry as Iran war continues

With the Iran war showing no signs of ending, companies in the Dutch food industry can expect to start feeling the impact of the higher energy prices, Financieele Dagblad and the Telegraaf reported, based on an analysis by ABN Amro. The Dutch food industry is heavily dependent on natural gas, so this will be a major blow.

Many food companies learned their lessons from the coronavirus pandemic and the energy crisis sparked by Russia's invasion of Ukraine and have entered into fixed energy contracts. But, “when the energy contracts expire later this year, the sector will still be confronted with higher energy prices,” ABN Amro expects.

Energy prices have skyrocketed since the United States and Israel started attacking Iran in February. Due to the war, transport through the Strait of Hormuz, a major shipping route for oil and natural gas transport, has been severely restricted. U.S. president Donald Trump recently said that the American counter-blockade of the Strait of Hormuz won’t end any time soon.

The Dutch food industry already has to absorb higher costs for road transport, container rates, and air freight. And even if the war ends today, fuel prices will remain high for an extended period because many production and transport facilities have been severely damaged.

It is, therefore, inevitable that the sector will face significantly more expensive energy prices when its contracts expire. This will be a major blow, given the sector’s energy dependency. Since the energy crisis of 2022, the food industry has managed to reduce its energy consumption by 3 percent, compared to an average reduction of 11 percent for the Dutch economy.

The Dutch food industry is most reliant on natural gas, which accounts for roughly 70 percent of the sector’s total energy mix. The oils and fats industry is most dependent on natural gas (97%), followed by flour (89%), and dairy (75%). Slaughterhouses have the lowest dependency at 42 percent.

Companies that have electrified will reap the benefits in the coming period. However, many processes in the food industry are difficult to electrify because they require high temperatures of over 100 degrees Celsius.

More sustainable alternatives are typically more expensive, and companies want to know that they will recoup the investment. “That is at odds with the reality in the food industry, where contracts are often concluded for only one or two years,” ABN Amro said.