Worst is yet to come? EU agrees to gas rationing starting next month

26 Jul 2022 --- EU energy ministers have agreed to an emergency plan which will see member states voluntarily cut gas use by 15% starting this August until March 2023. The move comes as Russian state-controlled energy company Gazprom announced it was cutting supplies to 20% capacity.

“The production in our company should not be affected by this emergency measure in the near future, but we are monitoring the situation closely and we hope to have a good outcome out of all this,” Fredy Silva Fuentes, scientific communications and marketing, of Spain-based Euromed tells NutritionInsight.

European Commission president Ursula von der Leyen welcomed the move, explaining “the EU has taken a decisive step to face down the threat of a full gas disruption by Russian President Vladimir Putin.” As part of the agreement, the steps to reduce gas consumption are voluntary. However, there is a trigger for a mandatory move if there are insufficient savings. 

The EU Council specified some exemptions and possibilities to request a derogation from the mandatory reduction target, in order to reflect the particular situations of member states and ensure that the gas reductions are effective in increasing security of supply in the EU. Hungary was the only country that opposed the deal.

“I know the decision was not easy, but I think in the end, everyone understands this was necessary. We have to share the pain,” says Jozef Síkela, Deputy Prime Minister and Minister of Industry and Trade of the Czech Republic.

Winter is comingThe impact of the voluntary gas rations remains to be seen. 
The agreement is based on the Commission’s proposal Save Gas for a Safe Winter which specifies that “all consumers, public administrations, households, owners of public buildings, power suppliers and industry can and should take measures to save gas.” 

Where industry is concerned, member states are encouraged to launch auction or tender systems to incentivize energy reduction.

“Euromed is now suffering the consequences of the continuous gas price increase and we know this could continue and of course, affect the whole production chain in many aspects,” Fuentes adds.

“Regarding the 15% reduction, Spain due to its special geographical situation, will only reduce 7% but we do not know exactly how it´s going to affect companies directly because this is very recent news.” 

EU energy ministers also agreed to renew sanctions against Russia for a further six months, until the end of January 2023. Saving energy over the following months will ensure a safe winter. Síkela adds. “The EU will not harm its economy.” 

Industry eyeing the impact
Though companies were observing negotiations and events unfold, the industry is expected to take the steps necessary to contribute as much as possible to the energy-reduction effort, Richard Clarke, managing director, Ingredient Communications, tells NutritionInsight.

“Just as in the pandemic, we expect to see governments prioritizing manufacturing of nutrition products as an essential sector, so that even if energy supplies get especially tight, production can continue. In this sense, COVID-19 has acted as a useful precedent.” 

“It was a different crisis, but it was a crisis all the same. The nutrition industry showed it can respond quickly to fast-changing world events, and it will step up again during this current crisis.”

According to Fuentes, Euromed is operationalizing its own industrial biomass boiler to help the company deal with the energy cut and gas consumption in general. 

Kadri Simson, European Commissioner for Energy, explains a number of factors will need to be taken into consideration where gas reduction targets are concerned. These include the availability of alternative energy sources, how cold the winter will be and the gas supply flow. 

Product elasticityThe nutrition industry has shown rapid response to environmental shocks previously.
Denis Ðalapa, technical director at PharmaLinea explains this is not the first time industry has been faced with a crisis. Reflecting on the financial crisis in 2008, he says companies managed to be resilient and weather the storm. 

“Dietary supplements are known to have a low-income elasticity. This is a number that measures how sensitive a category is to rises and declines in income. Vitamins and dietary supplements have an income elasticity of 0.8, while sports nutrition is at 1.6.” Elasticities under one represent necessity goods, and elasticities over one represent luxury goods. 

“It appears that in 2008, consumers deemed vitamins and dietary supplements a necessity and did not exclude them from their shopping lists. To be fair, it is highly likely that part of the industry’s resilience in 2008 was the fact that the industry was in an earlier growth stage, a high-growth stage, with around 10% growth in pre-crisis years.” 

In 2008 growth dipped, but it was still growth, he underscores. “Now, the industry is more mature and not growing as much by default, but in fact, we are again just coming out of a high-growth local peak caused by the pandemic.”

“It is very hard to estimate what the end net outcome will be this time because the factors at play are now multiple and much more varied but there is hope that consumers will once again consider supplements a necessity.” 

Dapala previously explained companies are vying for alternatives, opting for solar panels to be self-sufficient and to be able to sustain basic operations in times of power cuts.

 By Andria Kades