The Impact of the COVID-19 Crisis on Palm Oil Trade and Consumption in Germany

Germany reported its first COVID-19 cases during January 2020. As of April 22, 2020, the Robert Koch Institute, an independent federal authority under the German Federal Ministry of Health, counted a total of 141,672 COVID-19 cases and 4,404 deaths due to COVID-19.

Almost 70 percent of the cases are between 15 and 59 years old. Men and women are almost equally affected. Eighty-six percent of deaths occurred in persons aged 70 years or older. Approximately 91,500 persons have recovered from their COVID-19 infection.

The incidence (cases per 100,000) of COVID-19 is highest in the southern states Bavaria and Baden-Wuerttemberg. Overall, 29,215 intensive care beds were registered, of which 16,955 are occupied, and 12,260 beds are available as of April 22. By now, Germany is conducting around 350,000 coronavirus tests a week, far more than any other European country.

Germany has initiated a series of measures to slow down the spread of the virus and alleviate its effects on the economy. Current restrictions (as of April 22) include the ban on large events like sports and music until August 31. Hotels, restaurants, and bars, as well as daycare facilities, remain closed. Religious gatherings are strictly limited. Border controls stay in place until mid-May. Schools will gradually open from May 4. Shops with up to 800 sqm retail space may open from April 24.

Bavaria’s state premier announced a few days ago that the famous annual beer festival Oktoberfest, which was due to last from September 19 until October 4, will not take place this year.

Impact of the pandemic on the German economy

The Corona crisis is hitting the economy hard. The German economy entered a recession in March, and the slowdown is likely to continue until the middle of the year. Collapsing global demand, interruption of supply chains, changes in consumer behavior, and uncertainty among investors are having a massive impact on Germany.

The expectation is that economic activity continues to be very subdued and pick up only gradually. According to economists, business closures and falling production could increase unemployment by up to 1.8 million people. Another six million workers might be affected by short-time working. Retail trade representatives are warning of a wave of bankruptcies, especially of smaller shops.

The German Federal and Länder governments have initiated a large package of emergency actions to help smaller businesses as well as medium-sized and large companies. In total, the Federal Government is currently planning to take on about 150 billion euros of additional new debt for direct aid and tax relief. The aim is to make all assistance available quickly and unbureaucratically.

For example, the emergency aid for small businesses and the solo self-employed consists of a direct, non-repayable grant of between 9,000 and 15,000 euros for three months. Also, companies can apply for quick loans to maintain liquidity. Both small and large companies can defer tax payments and social security contributions. Companies will also be helped by the government, making it easier for employees to access benefits for short-time working.

Several hundred billion euros are channeled into the Economic Stabilization Fund (WSF). That includes state guarantees for debts up to 400 billion euros. Furthermore, a programme of unlimited loans is provided by the KfW banking group.

The London based think tank Deep Knowledge Group (DKG) places Germany second after Israel and ahead of South Korea in its safety ranking under the circumstances of COVID-19. Other countries, such as the UK, the US, Italy, Spain, or Russia, are not among the first 40 countries listed.

Impact on the use and consumption of palm oil

The current crisis has led to severe drops in the demand for palm oil in the energy sector (to a lesser extent, biodiesel) and in the food sector. The demand for palm oil and palm oil products suffers heavily from the closure of restaurants, hotels, and catering services.

A certain ambiguity concerning the supply of vegetable oils is observable. One aspect is the low stock in both exporting and importing countries. On the other hand, it is not clear how far the corona crisis may impact production, transport, and processing of palm oil.

So far, the crisis has mainly led to pressure on the prices for palm oil and palm kernel oil because of the decreased demand.

Generally speaking, it is most likely that the palm oil consumption will lag far behind the level expected for this year prior to the crisis. That despite the necessity to fill up gaps caused by the slow imports in the last weeks.

The German importers, dealers, and processors follow with great interest and concern the developments in the producing countries. Palm oil is an essential ingredient in many food products. Therefore, the Federal Federation of the German Food Industry has asked German authorities to alert producers in the exporting countries Malaysia and Indonesia to ensure a constant supply despite the pandemic.

Other sources expect that in reaction to the EU-Commission´s “Farm-to-Fork“- strategy, more emphasis may be put in the future on the regionally produced food as well as short supply chains. Also, final consumers may demand even more transparency on the origin of food products, and the circumstances of their production.

The current crisis may also provide additional arguments to those who demand a faster implementation in Germany of the EU 2019/807 directive, which says that the use of palm oil for biofuel must stop by 2030 at the latest. As a blueprint serves the French government’s decision to stop granting tax benefits for biofuels containing palm oil.

Since just roughly eight percent of the overall palm oil imported by Germany is used for animal feed, the consequences of the current situation on this segment are rather small. The same applies to the German combined heat and power stations where palm oil is mainly used in older stations.

Outlook

It is currently too early to provide a final assessment of the impact of the Corona pandemic on the use and consumption of palm oil in Germany.

One prediction is that the crisis may lead to an even bigger awareness of the people for environmental issues. Some argue that the destruction of the rainforests fosters the transmission of dangerous pathogens. That may result in an increased demand for sustainable and certified products. In 2018 the share of sustainable palm oil in the overall consumption in Germany amounted to 60 percent. New figures will only be announced at the end of the year. Still, they will most likely reveal an 80 percent share of palm oil in overall consumption. This trend may offer the Malaysian producers a few competitive advantages in the medium and long term.

Prepared by Uthaya Kumar

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