Losers of inflation - The Germans are less and less on organic

Cem Özdemir has just had his major political goal confirmed by the federal cabinet: the key issues paper on the nutrition strategy of the Green Minister of Agriculture envisages a tripling to 30 percent organic content for the foreseeable future. However, the current market development is dampening the prospects of quickly approaching the ambitious target.

The reasons for this are complex. An exceptional year is coming to an end for German farmers - and is likely to leave its mark on 2023. On the one hand, farmers are currently earning splendidly on average. Your profit has increased by almost half.

On the other hand, there is a great deal of uncertainty about future developments, which means that farmers' willingness to invest is unusually low. This is shown by current reports from the farmers' association.

There is one reason for the particularly strong uncertainty among organic farmers: the rapid price increases for food, which rose by almost a fifth in 2022.

Because this price increase has two effects. On the one hand, consumers are looking for cheaper alternatives, so they spend less money on organic goods.

On the other hand, the direct financial incentive for farmers to switch to organic is decreasing. The figures from the farmers' association show that conventional farmers benefited significantly more from the record prices than organic farmers in the past marketing year.

“The bottom line is that the company result increased by 26,200 to 79,700 euros on average for full-time businesses. That is 49 percent more than the poor result of the previous year," says the situation report of the farmers' association. Around a third of the results in agriculture come from EU direct payments - i.e. from subsidies.

That's why farming is currently a good living: Each family member working on a farm earned an average of 56,700 euros in 2021/22. According to the farmers' association, this corresponds to a gross monthly income of around 4,700 euros.

It is true that the business is still more profitable for organic farmers. Their earnings average 63,300 euros. However, because the prices for organic products have recently risen less than general food prices, the profit gap has narrowed. Organic farms earned only nine percent more than in the previous year.

This should reduce the willingness of farmers to invest in the costly conversion to organic standards in these uncertain times. Because despite the high prices for mineral fertilizers and energy, their calculations worked out in conventional operation.

On average, farmers earned 13.8 percent more, but only had to spend 7.9 percent more. Since agricultural prices are determined by the world market, German farmers benefited from the global turbulence – at the expense of consumers.

Because in the supermarkets the prices are rising significantly. The demand for organic food has fallen for the first time, primarily because of this increase in food prices.

People in Germany have to save and are finding cheaper alternatives to conventional goods. In addition, since the end of the pandemic, people have been going to canteens and restaurants more often, which rarely serve organic goods.

This puts organic farmers in an unfamiliar situation. They can no longer stand out from the market as much as in previous years - and are increasingly finding their products in discount stores.

"The German organic market shrank in 2022 for the first time in its history," says a market report by the German Farmers' Association (DBV) at the turn of the year.

By the end of October, sales had fallen by 4.1 percent. Nevertheless, in 2022 it will probably be EUR 15 billion, still EUR 2.7 billion above the pre-corona level of 2019.

In the case of organic products, the discounters have become winners of a "trend towards cheap shopping", according to the report quoted by the dpa press agency. The head of Germany at Aldi Süd, Stefan Kopp, also confirmed to WELT AM SONNTAG in a recent interview: “People tend to buy more from us. For example, they forego visiting the organic market and instead do their weekly organic grocery shopping with us.”

In 2023, Aldi Süd will be launching products from the Naturland organic network for the first time. The retailer follows the example of Lidl, which already has Bioland products in its range.

The consequences are already visible: sales in the organic food trade and in direct sales are currently falling sharply. Although the DBV experts believe that this is happening unjustly, they cannot stop the development: "Many organic products are only slightly cheaper or the same price in discounters, but the price image obviously steers consumption more than real price knowledge."

This is having a significant impact on the organic markets – even chains: the chain store Basic recently filed for bankruptcy in the protective shield procedure. 520 employees in 20 stores are affected. Superbiomarkt with 30 branches and 700 employees is also in bankruptcy.

Little is likely to change for the industry in the new year. Overall, the short-term prospects for organic farming for 2023 are subdued, the farmers' association warns in its report. The experts are still hoping for a stronger economy or higher incomes.

The main cause of the turbulence in agriculture is the war in the globally important grain producing country Ukraine. The Russian attack has sent fertilizer and grain prices skyrocketing.

Farmers are affected in different ways: Whoever harvests grain has often been able to use the interim record prices for unexpectedly good returns. However, anyone who had to use grain as animal feed ran into difficulties.

The state-owned Thünen Institute had already forecast in the summer that farmers who mainly grow wheat and rapeseed could probably double their profits before labor costs. According to conservative estimates, this gross yield will be around 1,000 euros per hectare.

According to the DBV, arable farms actually earned around 26,900 euros more on average in 2021/22 than in the previous year. The fluctuating grain price makes the calculation difficult for 2023: After peaking in the summer, the world market price has fallen as a result of a grain export agreement with Ukraine and Russia.

The situation for pig farmers is difficult. The number of animals kept decreases by ten percent every year. According to the market report, pig farmers have more than eaten up the decent prices for slaughter pigs due to enormous cost increases.

Calculations from the industry also show that many farmers make a loss with every animal. Farmers' representatives warn that there is reason to fear that the current dramatic decline in pig farming in Germany will intensify. However, thanks to Corona aid, pig farmers also earned more money on average than in the previous year.

According to the DBV report, 2022 was exceptional for dairy farmers – economically exceptionally good. Costs for feed and energy, for example, are currently significantly higher than usual, but so are the proceeds: by the end of November, the average producer price for conventional cow's milk was 51.6 cents per kilogram - after 36.3 cents in 2021.

This has an impact on profits: in cattle and dairy farming, profit growth in the 2021/22 financial year was well above average at EUR 38,800.

There was turbulence on the market in 2022 because some retailers sold organic milk at a significantly higher price than conventional milk - although organic farmers only received a minimal surcharge from their dairies.

Agriculture Minister Özdemir wants the organic sector to generate more sales in canteens, canteens and homes. Part of its nutrition strategy is to oblige community catering providers to offer healthier and more ecologically beneficial food options.

For this purpose, the requirements of the German Society for Nutrition (DGE) are to become binding by 2030 – supplemented by additional ecological aspects. However, this is not met with approval everywhere: Critics warn against mixing nutritional goals and ecological aspects.

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