The Corona crisis and the effects on the agricultural sector in Germany

Current situation & challenges

After the agricultural sector had suffered from extreme drought and extreme rain showers over the past three years, the current Covid 19 pandemic and the associated restrictions on the German agricultural sector are now emerging.

The German Federal Ministry of the Interior has ordered an entry ban for seasonal workers from Wednesday, March 25th, 2020 at 5 p.m. in order to further slow the spread of the corona virus. This regulation applies to entries from Great Britain, third countries, countries to which internal border controls have been temporarily reintroduced as well as to EU countries that do not fully apply the Schengen acquis, e.g. Romania and Bulgaria. According to the employers’ associations, Poland is currently the only exception, as the ban does not yet include people entering via the Polish border. Whether and under what conditions this is still possible has to be clarified. According to the German Farmers’ Association, around 300,000 seasonal workers are active in Germany. The entry ban hits especially farms hard, as around 30% of the workforce in the agricultural sector consists of seasonal workers. In particular fruit, vegetable and wine-growing businesses are inevitably dependent on seasonal workers. A main focus here lies on the asparagus harvest that has already started and on the upcoming strawberry harvest. The harvest and spring sowing of grain and oilseeds are less dependent on seasonal workers, as most of the processes are automated and machine-based. Out of necessity, innovative online forums such as www.erntehelfer.net were established in order to replace as many of the missing seasonal workers as possible. However, according to the current figures, it will be difficult replace all of the seasonal workers as according to the Agriculture Minister Julia Klöckner, only approx. 16,000 people have signed up to help out in agriculture.

The other measures implemented by the government, such as the existing ban on contact, the restrictions on freedom of assembly or the forced closure of certain shops and businesses, led to a significant decline in communal catering, hitting both the catering and hotel sectors.

There are still uncertainties in dealing with China and the other countries severely affected by the pandemic as well as the associated export and import channels. The spread of the coronavirus has long been expressed in declining futures market prices for globally traded oil seeds and grains. This effect was intensified by the significantly lower crude oil prices for rapeseed. Producer prices have also suffered as a result of the lower prices. In the past few days, however, there has been a significant increase in consumer demand for products such as flour, bread and pasta, which has short-term positive effects on the processing industry and its demand for raw materials.

Due to the uncertainty caused by the coronavirus, the marketing of the 2020 harvest has taken a lower priotiy. Farmers are currently focusing on spring work such as sowing summer cereals, laying corn, sugar beets and transplanting potatoes. The seeds and plants for important spring crops such as maize, potatoes and sugar beet are usually bought and stored by the farmers well before the beginning of spring sowing. The same applies to fertilizers and pesticides, as these resources are not designed for just-in-time deliveries due to their storability and are therefore not very vulnerable to delays in transport.

The coronavirus is also affecting the demand for milk, cream, quark, yogurt, butter and semi-hard cheese. Products with a long shelf life are particularly high in demand. The declining demand from the catering and hotel industries is partially offset by this development, which represents a logistical challenge for many dairies. The logistics problem is also reflected in the shortage of personnel, especially among truck drivers. Despite the free movement of goods in the EU internal market, there are considerable delays at German and other international borders due to border controls. Italy is an important buyer of German raw milk, but has partially stopped or significantly reduced milk processing. As a result, the raw materials that have not been processed are a particular burden on the spot markets.

Domestic meat sales are currently experiencing increased demand. The processing industry and food retailing are signaling a strong demand for fresh meat and processing meat for the sausage industry. However, it can be assumed that this is a short-term effect that will be reduced or reversed as soon as the German households are replenished with a safety reserve and thus demand falls again. Contrary to this trend, the demand for slaughter pigs has decreased, which is why fattening farms have increased the sale of slaughter pigs. The VEZG price recommendation is approx. 7 cents decreased to 1.89 euros per kilogram. The uncertainty regarding further sales opportunities and the associated risks for the companies is assumed to be too great. There is also a clearly noticeable uncertainty in the trade of beef cattle, as the flow of beef goods from Germany to Italy, Spain and France is stalling, and thus exerting pressure on price stability. Across the entire slaughter and processing industry, there is also the concern that due to the entry ban for seasonal workers issued by the German Federal Ministry of the Interior, workers from other EU member states will not be as available as usual. In addition, the companies must provide risk protection against the loss of workers, managers or other personnel due to a potential 14-day (domestic) quarantine, which ensures operational security, particularly in the case of animal husbandry.

There is currently also great uncertainty among fruit and vegetable producers due to the Corona crisis. A comprehensive shift in supply to food retailers and away from restaurants and canteens can be observed here. Furthermore, there is a fundamental uncertainty among domestic companies due to a lack of seasonal workers, especially from Romania and Poland. This leads to problems with the current or upcoming harvests such as salads, cabbage, asparagus, rhubarb and strawberries as well as other early vegetables and fruits. The longer the entry of seasonal workers stagnates, the greater the impact on domestic supplies will be.

In order to combat these problems and to preserve the existing agricultural industry, the following measures and resolutions have been adopted by the federal government:

• The German agriculture and food industry has been recognized by the federal government as being systemically relevant. This means that with regard to quarantine measures and / or company closures, taking into account health protection, the infrastructure of the agricultural and food industry companies is maintained.
• The 70-day rule for seasonal work has been increased to 115 days. This means that seasonal workers can work in Germany for up to 115 days without social security contributions. This also applies to seasonal workers who are already helping with the spring tillage and harvest in Germany. The criterion of professionalism for seasonal workers in the loading industry continues to apply.
• In the Corona crisis, it is possible to lease employees without a permit. This regulation is essential in order to be able to react in an agile manner to the current crisis and the associated shifts in personnel between different economic sectors.
• Seasonal employment is not counted towards the short-term work allowance. Income from secondary employment is initially not offset against the short-term work allowance until October 31, 2020 up to the maximum amount of the net wage from the actual employment relationship. This is primarily intended to increase the financial incentive to take up part-time employment as a seasonal worker.
• The additional earnings limit has been adjusted for early retirees. In the old-age insurance of farmers, the additional income limit is even completely abolished, and for early retirees the limit in the statutory pension insurance is raised significantly. This change applies to 2020 and is intended to create further incentives for temporary employment in agriculture.
• The working time requirements have been expanded. The labor law had previously provided for a working time exemption of (10 hours / 6 days a week), which in normal years already represented a critical limit within the harvest and sowing time.
• Protection against dismissal for leases. Farmers who are unable to service their leases due to the Corona crisis may not be terminated unilaterally until June 30, 2020. This should serve the existing infrastructure and create a legal protective shield over the tenants.
• Support for innovative plate shapes to mediate between farms and potential workers to compensate for the lack of seasonal workers. Examples are here: erntehelfer.net or https://daslandhilft.maschinenring.de/

Update: 31.03.2020

According to Federal Minister of Economics Altmeier, the emergency aid in the amount of 50 billion euros for small businesses also applies for farmers. To receive emergency aid, agricultural businesses are not allowed to employ more than 10 people, the place of business must be in Germany and the applicant is responsible for providing evidence of the economic difficulties caused by the corona virus and its consequences. The amount of emergency aid depends on the country and can be found on the website of the Ministry of Food and Agriculture or on the website of the German Farmers’ Association.

Update: 03.04.2020

In order to prevent the threatened crop failures, 40,000 seasonal workers from Eastern Europe should be allowed to come to Germany in April and May. Federal Interior Minister Horst Seehofer (CSU) and Federal Agriculture Minister Julia Klöckner (CDU) agreed on this on Thursday. The seasonal workers are only allowed to travel in groups by plane and must be picked up by the employer directly at the airport. After arriving in their work area, the newly arrived workers are separated from the other employees 14 days after their arrival and are not allowed to leave the company.

GUARANTEE PROGRAM FOR LIQUIDITY SECURITY LOANS OF RENTENBANK

From April 16, 2020, the Rentenbank, with the support of the Federal Ministry of Food and Agriculture, will be offering liquidity security loans combined with a guarantee for companies affected by the corona pandemic.

Cornerstones:

• Companies in the agricultural sector, including viticulture, horticulture, forestry, fisheries and aquaculture, are eligible to apply.
• The Rentenbank offers installment loans with a term of 4 or 6 years.
• The loans are guaranteed at 90% for small and medium-sized companies and 80% for large companies. The guaranteed liquidity security loans amount to a minimum of EUR 10,000 and a maximum of EUR 3 million.
• Applicants must explain to their house bank to what extent the liquidity requirement was triggered by the corona pandemic.
• The guaranteed loans are granted through a house bank of your choice and must also be applied for there.

What can get funded?

Resources, labor costs and other necessary operational expenses. The scheduled debt service for existing loans can also be serviced from these funds.

What can‘t get funded?

The rescheduling or unscheduled (partial) repayment of loans that were approved before March 12th, 2020. This also applies to (partial) repayments of these loans on future interest rate adjustment dates. Fishing and aquaculture companies are also not funded with regard to:

• Investments to increase fishing capacity, expressed in tonnage or engine power, as well as expenses for the construction, purchase or modernization of fishing vessels.
• Investing in experimental fisheries.
• The cost of transferring ownership of a business.
• Costs for direct restocking measures, unless an EU legal act expressly provides for such restocking as a conservation measure or it is an experimental restocking measure.

The Rentenbank can grant a subsidy in addition to the low-interest loan to borrowers who are considered to be “small and medium-sized enterprises” (SMEs) as defined by the EU Commission. In this case, the amount of the loan serves as the assessment basis for the amount of the subsidy. Whether and in what amount a subsidy is granted, can be found in the current Rentenbank circular on applying terms and conditions. Taking into account any small grants already received or applied for, the following maximum amounts according to § 1 of the “Federal Regulation Small Aid” 2020 will be observed:

• EUR 100,000 for primary agricultural production companies, including viticulture and horticulture.
• EUR 120,000 for fisheries and aquaculture companies.
• EUR 800,000 for forestry companies.

Source: Rentenbank.de

References:

1) Deutscher Bauernverband

2) Bundesministerium für Ernährung und Landwirtschaft.

3) Agrarheute.com

4) TopAgrar.de

5) rbb24.de