The EU is in the grip of an energy crisis with the core of the problem stemming from a growing reliance on imported energy.

A transition from fossil fuel-based energy production has coincided with a decrease in primary EU production and an increased reliance on imports.

Over the last decade, Eurostat figures show EU energy production to have declined by 10%, resulting in 61% of EU energy needs now being met from outside of the EU – the majority of which continues to be fossil fuel-based in the form of coal, crude oil and natural gas. In the decade to 2019, natural gas imports into the EU increased by 20%. In the same year, renewable energy sources accounted for less than 20% of total EU energy consumption.

The policy decision to wind down domestic energy production with an increased reliance on imports has now left the EU energy market heavily exposed to geopolitical tension.

Nowhere is this more evident than the ongoing conflict in Ukraine and fears of a Russian invasion in the new year.

In response, France, Germany and Italy – along with the US – have moved to apply political pressure on Russia, threatening severe sanctions that would hit the Russian economy.

Russia’s Nord Stream 2 gas pipeline has now become mired in the standoff with the US putting pressure on Germany to block the pipeline as part of sanctions.

Where does the power lie?

In the context of the EU, who really holds the balance of power in this standoff? Russia clearly has access to major economic levers it can use to apply pressure to the EU economy. Eurostat figures highlight the extent to which the EU energy market is now utterly dependent on the Putin regime.

In 2019, 41% of natural gas, 26% of crude oil and 46.7% of coal imports into the EU were sourced from Russia – almost 40% of total energy imports.

As the relationship between Russia and the EU has deteriorated, the price of natural gas within the EU has soared over the past 12 months, from the equivalent of €20 per megawatt hour to a peak of €120, more recently stabilising at €100.

Throughout this period of soaring prices in the EU, the price of natural gas in Russia has remained stable

However, with it now unlikely that the Nord Stream 2 gas pipeline will be approved any time soon, EU gas prices have once against jumped to record highs, touching €180 per megawatt hour last week.

Throughout this period of soaring prices in the EU, the price of natural gas in Russia has remained stable, currently trading at around 10% of the EU price. In a recent article, The New York Times reported the gas futures in Europe to be priced at more than 10 times what gas is selling for in the US and comparable to about $230 a barrel for oil. The US of course has protected it domestic energy market.

The Nord Stream 2 pipeline.

In the context of the EU economy, the impact has been immediate with households and businesses facing sharp spikes in heat, energy and transport costs. Latest figures from the Central Statics Office show inflation running at 5.3% in November, its highest rate in 20 years – fuelled largely by a 29% increase in energy prices.

Alongside these challenges, the agriculture sector is also having to deal with the impact of fertiliser prices.

With natural gas accounting for 80% of the variable costs associated with the essential nitrogen fertiliser components, mainly ammonia, EU farmers and the wider agri-food sector are facing into a future where the price of this key input has soared by over 100% in just 12 months. With access to lower energy prices, the fertiliser price increase in the US has been less severe with urea prices in Russia less than 50% of those currently being charged to Irish farmers. Ultimately, inflated fertiliser prices is a problem that will quickly spread into wider society with the price and availability of nitrogen affecting the price and availability of food within the EU.

While yet to be recognised within the EU, Russia and China are more alert. Both have moved to ban/suspend the export of fertilisers, with China also ramping up imports of liquefied natural gas (LNG) – moves clearly aligned to protecting domestic food production capacity and insulating consumers from rapidly rising food prices. FAO figures show the global food price index to have increased by 31% in the past year.

The extent to which the European energy market, both in terms of supply security and price, is now exposed to foreign policies and international trends exposes a major failure by EU policymakers.

The move to achieving territorial emission reduction targets by transitioning internal energy production from fossil fuel-based systems in advance of developing green energy solutions has failed consumers and the environment.

The outcome being to simply offshore emissions from energy production to other countries while undermining energy security and exposing consumers to the type of geopolitical driven price spikes we see in the market at present.

Lessons not being learned

Unfortunately, if we look to EU policy in relation to food production, there is little evidence to suggest that lessons have been learned from a failed energy policy. In fact, an identical policy blueprint is being rolled out.

One where the focus is on reducing domestic food production to achieve territorial emission reduction targets without any consideration as to the impact on EU food security. The risks associated with exposing EU food prices to international and geopolitical forces and the lack of environmental gain due to offshoring of production to higher emission territories are also being ignored.

An analysis of the EU Farm to Fork strategy by the European Commission’s Joint Research Centre showed that greenhouse gas emissions and ammonia emissions within the EU would fall by 24-26%.

However, similar to the energy sector, much of the environmental benefit would be offset by the fact that the product would be imported into the EU from more carbon-intensive production models.

Meanwhile, dependence on food imports would increase and EU cost competiveness would be reduced.

This increased reliance on food imports will coincide with increased competition internationally for land use. It will be driven mainly by new demand forces from the bio-energy sector and afforestation. Already we are seeing a move in this direction. The rapid growth in demand for renewable diesel is estimated to require an extra 30m acres of soya beans to be produced in the US by 2024.

Aligned to this, Oxfam warns of a very real risk that net zero commitments will fuel a surge in demand for land that will create mass displacement and hunger. It calculates the total amount of land planned for carbon removal, mainly through afforestation, to meet the net zero commitments of large companies, is the equivalent to all of the crop land on the planet.

Clearly real similarities are emerging between a failed EU energy policy and the direction of travel in relation to the EU’s food policy. Energy policy has failed because of singular focus on transitioning from domestic fossil fuel-based energy production in a bid to reduce territorial emissions. The fact that the outcome of such a policy was to simply offshore production and drastically reduce energy security is conveniently ignored. The end result has been to deliver little in the way of environmental gain while exposing EU consumers and businesses to tactical manoeuvres of foreign governments.

It is therefore clear that if the current direction of travel in relation to food policy continues, one where food security within the CAP is being sacrificed in favour of flawed territorial-based environmental agendas, it will be a case of when and not if we see a major shock to both the price and availability of food within the EU – similar to what is currently playing out in the energy market.

The recent spike in the FAO food price index suggests that this may already be starting to emerge. The question EU leaders should be considering is how consumers will react politically if we see the same five- to ten-fold increase in various food products, as evident in natural gas prices, over the past year.

Hungry and cold citizens tend to be unforgiving of governments.

This week’s cartoon

Best wishes for 2022

On behalf of all the team in the Irish Farmers Journal, thank you for your continued support over what has been another challenging year. Your feedback and encouragement are greatly appreciated. Happy and safe new year to you and your family.