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How the war in Ukraine affects Danish food production and prices

Global inflation, soaring energy prices and shattered supply chains following the coronavirus pandemic led to an increase in food costs. Now Russia’s invasion of Ukraine is compounding supply and demand pressure. How is this affecting Danish food production?

How the war in Ukraine affects Danish food production and prices
Several knock-on effects of the Russian invasion of Ukraine are increasing the cost of food production - and store prices - in Denmark. Photo: Henning Bagger/Ritzau Scanpix

According to Statistics Denmark, the price of food products has increased by 7.7 percent during the last year. Increases of over 15 percent were recorded for several products including milk, beef and pasta products.

The reasons for the food price increase are twofold, according to the sector director for food with the Confederation of Danish Industry (Dansk Industri, DI), Leif Nielsen.

Firstly, there is a global food shortage due to droughts and extreme weather in several parts of the world; secondly, the war in Ukraine is causing an energy crisis around Europe.

“Producing food is a very energy-intensive operation. Even at home, the most electricity used is in your kitchen. You’ve got heating up and cooling down, for the food to be safe.

“That’s why food prices are more crazy than other goods because you have two things affecting it; global food production shortage and the energy crisis,” Nielsen told The Local.

What is the energy crisis?

Russia currently provides 40 percent of the EU’s gas and 27 percent of its oil. European governments are trying to wean their countries off supplies from Russia, which has pushed up global prices by creating more demand for supplies from elsewhere.

High gas prices also mean high electricity prices because part of the electricity supply is generated by burning natural gas. Companies also use more electricity when gas is in short supply, which pushes prices up.

The agricultural industry is particularly affected because of the rise in raw materials and fertiliser, the energy needed to produce food and packaging and an increase in transportation costs.

Global trade sanctions mean that some cargo containers, ships, and trucks carrying necessary materials have ended up blocked or diverted.  

Russia and Ukraine are also significant exporters of agricultural fertilisers and natural gas is a key ingredient in processing fertilisers.

Nielsen says that Denmark has had the money to pay for fertilisers so far, so it hasn’t been affected by this yet, despite the fact the price is four to five times higher than usual.

When can we expect to see food prices go back down?

“We will have to see what happens this winter,” Nielsen told The Local.

“If you’d have asked me half a year ago, I would have said that every time we have a food crisis, which can happen every 10-15 years, it takes about two years to recover. But this time, we have the war in Ukraine and the fact Ukraine and Russia are huge producers of fertilisers. So the world will be affected next year as well.

“Unfortunately I haven’t seen any positive affects yet, so I’m not that optimistic it will take two years to recover. It’s probably longer, ” Nielsen said. 

Will there be a food shortage in Denmark?

“We haven’t got empty shelves – for now. But we are concerned,” Nielsen told The Local.

“If there’s any breakdown in the energy supply system, you’ll see it in food stores very quickly. 

“When I look at the energy prices all around Europe, I’m a little worried we could have a problem with the gas supply when it comes to winter. If we have a very cold winter, it could be a problem. We don’t like to depend on nature, we like to be in control so there is lot of nervousness. I think we will survive this winter but it will be tough.”

READ ALSO: Why this week could be crucial for Danish heating this winter

What happens if Russia shuts down gas exports to Europe?

Russia’s main gas pipeline to Germany was completely shut down on Tuesday for supposed maintenance.

The Russian state-owned energy giant, Gazprom, said the restrictions on the Nord Stream 1 pipeline would last for the next three days. But there are concerns that the supply may not resume once repairs are finished. 

The pipeline was shut down for 10 days in July – again for repairs, according to Russia – and has recently been operating at just 20 percent capacity because of what Russia describes as faulty equipment. Russia denies accusations it is using energy supplies as a weapon of war against Western countries.

The Danish Energy Agency declared an “Early Warning” on June 20th when the pipeline was operating at 60 percent capacity. This is the first level of Denmark’s emergency response plan to secure gas in the event of a serious supply crisis.

If the pipeline doesn’t reopen, there are some levers Denmark can pull – like activating emergency measures and reducing gas supplies to large businesses. But it may find itself competing with other countries for scarce supplies, sending prices even higher.

Denmark does continue to use a growing percentage of renewable energy, however. 50 per cent of electricity in Denmark is supplied by wind and solar power. With the country’s ambitious plans like the world’s first  ‘Energy Island’ in the North Sea, the role of renewables will substantially increase. 

What can people do to help the situation?

“Don’t produce food waste so don’t buy more than you can eat and try to eat everything. If people just buy what they’re going to eat, then we can reduce the demand for food and prices go down a bit”, Nielsen told The Local.

“We are already seeing there isn’t as much waste in the supermarkets as before, when prices were lower. The cheaper end-of-shelf-life products are also being sold.

“Energy-wise, if you have spare fridge or freezer don’t use them. Be careful how to heat up the home and wear more clothes to keep warm,” Nielsen added.

The Danish government is paying out relief to around 400,000 households affected by high heating bills, but individuals are also adapting daily habits to reduce bills.

This includes not making meals that require long oven time; using slower but more efficient washing programmes on dishwashers and washing machines, and running them at night; and avoiding the tumble dryer.

Energy prices as high as 7.7 kroner per kilowatt hour can fall to as much as 3 kroner per kilowatt hour at night. This can be checked using tracking apps, which monitor the kWh price by the hour. Popular apps to monitor electricity prices include ‘Min strøm’, ‘Elpriser’ and ‘Andel Energi’.

READ ALSO: How people in Denmark are changing their energy use to keep bills down

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Gas still leaking from Nord Stream 2: Swedish Coast Guard

Sweden's coast guard said on Monday it could no longer see any leaks from the Nord Stream 1 pipeline in the Baltic Sea, but a smaller leak from Nord Stream 2 was still visible.

Gas still leaking from Nord Stream 2: Swedish Coast Guard

“The larger leak is now no longer visible on the surface while the smaller one instead has increased slightly,” the coast guard said in a statement.

The observations were made during an overflight on Monday at around 8am of the two pipelines suspected to have been damaged in an act of sabotage, it added.

“At that time, the smaller leak was approximately 30 metres in diameter,” the coast guard said.

A spokesman for the operator of the Nord Stream pipelines, Nord Stream AG, said on Saturday that the leaking from the Nord Stream 2 pipeline had stopped because an equilibrium had been reached between the gas and water pressure.

Gazprom, which owns 51 percent of the pipeline project, said Monday “it was working to lower the pressure in the B line of the Nord Stream 2 pipeline” by pumping out the natural gas of the pipe, so that the pipeline could be examined safely.

Both Nord Stream 1 and 2 are made up of two lines and both leaks on Nord Stream 2 were on the A line.

The Russian energy giant added that it did not rule out the possibility that the Nord Stream 2 B pipeline could still be used to deliver gas.

“If the decision is taken to start deliveries via the Nord Stream 2 B-line, natural gas will be pumped into the pipeline after the integrity of the system has been checked and the supervisory authorities have confirmed such a possibility,” Gazprom said in a statement on its Telegram channel.

Built in parallel to the Nord Stream 1 pipeline, Nord Stream 2 was intended to double the capacity for Russian gas imports to Germany. But Berlin blocked the opening of the newly-completed Nord Stream 2 in the days before the Russian invasion of Ukraine.

All of the leaks, which were discovered on Monday last week, are in the Baltic Sea off the Danish island of Bornholm. Both Washington and Moscow have denied responsibility.

Danish authorities had estimated that all the gas trapped in the pipelines would have escaped by Sunday. Two of the leaks are located in the Swedish exclusive economic zone, and the two others in the Danish one.

The Nord Stream 1 and 2 pipelines, which connect Russia to Germany, have been at the centre of geopolitical tensions as Russia cut gas supplies to Europe in suspected retaliation against Western sanctions following Moscow’s invasion of Ukraine.

While the pipelines are not currently in operation, they both still contained gas before they fell victim to apparent sabotage.