Struggling German Meat Industry Threatened by Tax-Hike Proposal

(Bloomberg) -- Already grappling with waning domestic appetite for their products, German livestock farmers and meat producers were confronted this week with the specter of a hike in sales tax that could further crimp demand.

A national debate was triggered in the home of the Bratwurst when animal-rights activists urged lawmakers to raise the levy on meat products to 19%, from the current discounted rate of 7%, to fund improvements to the living conditions of livestock.

A poll for the Funke media group showed a majority of Germans, or 56.4%, backed the measure, with more than a third calling it “very positive” and some 82% of voters for the environmentalist Greens in favor.

Struggling German Meat Industry Threatened by Tax-Hike Proposal

Concern about animal welfare is increasing in Germany, along with a desire for healthier diets and climate-friendly, sustainable food production that could all have an impact on the meat industry. German meat output has already dropped 5.2% over the last five years, with pork production slumping by 6.4%, according to official data.

The German farmers’ association immediately pushed back against the tax hike proposal, arguing that an increase would drive consumers to buy cheaper products imported from European countries with less-stringent animal welfare laws.

Swine Fever

Alois Gerig, chairman of the lower house of parliament’s food and agriculture committee and a member of Chancellor Angela Merkel’s Christian Democrats, poured cold water on the idea, saying Thursday that it would be consumers who foot the bill, not producers.

“I don’t think that’s the best way,” Gerig told DLF radio . “What’s more, the ruling coalition has agreed that we don’t want any tax increases.”

While demand at home may be waning, Europe’s pig farmers are currently benefiting from the hog crisis in Asia, as top pork consumer China and its neighbors suck in supplies from abroad.

The African swine fever virus has ravaged Asian herds and caused millions of pigs to be culled. That has pushed prices in the European Union, which supplies more than half of China’s imports, to a five-year high.

Struggling German Meat Industry Threatened by Tax-Hike Proposal

Health concerns are one reason some Germans shy away from meat, but worries about the impact on the environment are also increasingly a factor and another challenge for the industry. They are helping foster an expanding menu of meat alternatives, with so-called “flexitarianism” -- a plant-based diet with the occasional inclusion of meat -- on the rise.

Catering to these changing tastes, German supermarkets have been quick to fill their shelves with soy riffs on traditional German dishes. In the year through June 2018, Germany was the global leader of vegan and vegetarian product launches, accounting for 15% of new products launched worldwide, according to market research agency Mintel. Blocks of tofu now share shelf space with schnitzel, sausage, and sandwich meat made from soy.

“The vegan sector is one of the fastest-growing segments in the German food and drink industry,” Mintel analyst Katya Witham said by email. “Vegan products attract attention from a much wider, health and ethically driven, flexi-vegan consumer base.”

Second Wave

Raphael Moreau, a senior analyst at Euromonitor International, said the sale of meat alternatives is taking off again after the initial surge tailed off around the end of 2017.

“That’s because there are new products coming and quality has improved,” Moreau said by phone. “So we’re seeing a second wave of interest and a lot of publicity.”

There are also demographic changes to consider. Official data shows that, as pork production fell over the last five years, output of lamb and mutton jumped 14.6%. Germany is home to a growing Muslim population, which traditionally eschews pork in favor of sheep and goat.

©2019 Bloomberg L.P.

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