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Inflation: Cheap meat is booming, many are switching to vegetarian substitutes

D.Germans are buying more and more meat on the cheap or giving up schnitzel, steak and bratwurst altogether. According to a recent study, rising food prices are at the expense of animal welfare and environmental protection: issues such as better farming or sustainable packaging are becoming less important to consumers.

Regionality alone continues to be very important to consumers. The meat industry is already preparing for a further decline in sales, especially for more expensive products. “Inflation is causing a change in consumer behavior,” said Klaus Martin Fischer of management consulting firm Ebner Stolz WELT.

In April, food in Germany cost on average 8.6% more than the previous year. This is the highest value that the Federal Statistical Office has determined since March 2008. Meat and meat products are still 11.8% higher. Inflation is likely to increase further in the coming weeks and months.

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Purchases are becoming more expensive and there is also the risk of further inflation for the industry, which in turn will push consumer prices up again.

The meat industry is already clearly suffering the consequences, Fischer said. Discounters would make money on their cheap offers, full-range retailers and butchers would lose. “There was a huge number of copies of high-priced products there recently,” Fischer said. Put simply: the shops had to dispose of the unsaleable goods. Clear consequences are expected: in the near future, part-time jobs and site closures can no longer be ruled out in the meat sector.

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Fischer and his team interviewed the 100 largest meat companies in Germany for the first survey of the “Industrial Eco of the Meat Industry” by the consultancy and media group dfv. And at least 79 percent of attendees report an increase in demand for cheap meat and sausages.

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However, companies see consumption as a whole on the decline. 84% of producers expect a decline in demand for the next few weeks and months, one in five even on the order of ten percent or more. Especially since currently two things are coming together: the sharply rising prices and the already existing trend towards vegan and vegetarian meat substitutes.

Their sales have increased dramatically for years. For 2021, the Federal Statistical Office reports a 17 percent increase in sales to nearly 100,000 tons, with sales increasing by more than 22 percent to 458 million euros. And in the first quarter of 2022, this development continued seamlessly, as reported by market researchers from the GfK Group.

Only 55 kilograms of meat per person in 2021

The bottom line for 2021 is meat consumption of just 55 kilograms per person, according to the Federal Office of Agriculture and Food. That is 7.8 kilograms less than ten years ago. The biggest loser is the pig. And expert Fischer predicts that the numbers will continue to fall, even rapidly due to the high rate of inflation.

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One way out for the meat and sausage industry in recent years has been export. But according to the study, overseas sales are now also difficult. This should particularly mean the serious collapse of the business in China.

Big business losers

This has consequences: According to the survey, almost 60% of butchers and producers are dissatisfied with the capacity utilization of their plants. Above all, the big players in the industry, which in the past have always been cost leaders due to high capacity utilization, now have too little to do.

The result is notable changes in the industry, even during the Corona crisis. “The winners of the last two years are medium-sized companies, the losers in the development of the market are mainly large companies with concentrated locations,” says Ebner-Stolz-Partner Fischer: “Previously leading companies in the sector are now suffering from the decline Where they previously had important competitive advantages in terms of cost efficiency, companies with highly concentrated locations are now suffering significant competitive disadvantages. “

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In addition, smaller suppliers have adapted much better to the theme of regionality, which is what customers and, consequently, retailers want. “Supermarkets and discounters have been changing their purchasing volumes for some time and are positioning themselves in a broader and more diversified way,” says Fischer.

The expert expects only a consolidation in the sector and refers to the survey results. As a result, two out of three top 100 companies in the German meat and sausage industry are now seeking alliances and cooperation with companies in the upstream and downstream value-added stages. “The echo of the sector shows structural ruptures in the entire value chain”, confirms Christian Schnücke of the dfv media group.

The economist asks: reduce VAT

Meanwhile, economists are urging the federal government to take action on food inflation. “Politicians shouldn’t wait any longer, but act now to avoid social difficulties at an early stage,” said Marcel Fratzscher, president of the German Institute for Economic Research (DIW). It should, for example, increase the benefits for basic security beneficiaries while at the same time implementing a flat-rate food allowance, similar to the energy flat rate, for low-income people.

“If this proves too bureaucratic and difficult, politicians should temporarily abolish the reduced 7% VAT rate for basic services,” suggests Fratzscher. “This would not only help low-income people, but it would have the great advantage that it could be implemented very quickly.” However, Federal Finance Minister Christian Lindner (FDP) has already said he views the proposals “with great skepticism”.

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