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Food prices fell sharply in July — but the respite may not last

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Farmers harvest a wheat field near Melitopol in Ukraine. Wheat, soybean, sugar, and corn futures have fallen from their March highs back to prices seen at the start of 2022.

Olga Maltseva | Afp | Getty Images

Food prices dropped significantly in July from the previous month, particularly the costs of wheat and vegetable oil, according to the latest figures from the United Nations’ Food and Agriculture Organization.

But the FAO said that while the drop in food prices “from very high levels” is “welcome,” there are doubts over whether the good news will last.

“Many uncertainties remain, including high fertilizer prices that can impact future production prospects and farmers’ livelihoods, a bleak global economic outlook, and currency movements, all of which pose serious strains for global food security,” FAO chief economist Maximo Torero said in a press release.

The FAO food price index, which tracks the monthly change in the global prices of a basket of food commodities, fell 8.6% in July from the month before. In June, the index fell just 2.3% month on month.

However, the index in July was still 13.1% higher than July 2021.

Prices in the short term may fall further, if futures are anything to go by. Wheat, soybean, sugar, and corn futures have fallen from their March highs back to prices seen at the start of 2022.

For example, the wheat contracts closed at $775.75 per bushel on Friday, down from a 12-year high of $1,294 in March, and around the $758 price set in January.

Why prices fell

Analysts cited a mix of both demand and supply reasons for the slide in food prices: Ukraine and Russia’s closely watched agreement to resume exports of grain through the Black Sea after months of blockade; better-than-expected crop harvests; a global economic slowdown; and the strong U.S. dollar.

Rob Vos, the director of markets, trade and institutions at the International Food Policy Research Institute, pointed to the news that the United States and Australia are set to deliver bumper wheat harvests this year, which will improve supply since shipment from Ukraine and Russia have been curtailed.

The higher U.S. dollar also lowers the price of staples, since commodities are priced in U.S. dollars, Vos said. Traders tend to ask for lower nominal dollar prices of commodities when the greenback is expensive.

The widely heralded U.N.-backed deal between Ukraine and Russia also helped to cool the market. Ukraine was the world’s sixth-biggest wheat exporter in 2021, accounting for 10% of global wheat market share, according to the United Nations.

The first shipment of Ukrainian grain — 26,000 tons of maize — since the invasion left the country’s southwestern port of Odesa last Monday.

Skepticism over Ukraine-Russia deal

Global skepticism over whether Russia will keep its end of the bargain hangs in the air.

Russia fired a missile onto Odesa just hours after the U.N.-brokered deal in late-July.

And freight and insurance companies may still think it’s too risky to ship grain out of a war zone, Vos said, adding that food prices remain volatile and any new shock can cause more price surges.

“To make a difference it will not be enough to get a few shipments out, but at least 30 or 40 per month to get the existing grains stored in Ukraine out, as well as the produce of the upcoming harvest,” said Vos.

“To help stabilize markets, the deal will need to hold in full also during the second half of the year since that is the period where Ukraine does most of its exports.”

Even with the existing agreement, arable Ukrainian land may continue to be destroyed “for as long as the war continues,” which will result in even less crop yield next year, Carlos Mera, the head of agri commodities market research at Rabobank, told CNBC’s “Street Signs Europe” last week.

“Once this [grain] corridor is over, we might see even more price increases going forward,” Mera said. Consumers could also see further price increases as there is normally a lag of three to nine months before a movement in commodity prices is reflected on supermarket shelves.

Then there is the pressure of exporting enough grain as quickly as possible from a war zone.

“It’s time that we’re working again. I don’t see us exporting two [to] five million tons per month out of these Black Sea ports,” John Rich, the executive chairman of Ukrainian poultry giant Myronivsky Hliboproduct (MHP), told CNBC’s “Capital Connection” on Monday.

“Hungry people, at the end of the day, get hungry very quickly after a week.”

In a note published earlier this month, credit rating agency Fitch Ratings’ analysts wrote that a possible increase in fertilizer prices, which fell recently — but which are still double that of 2020 — could cause grain prices to jump again.

Russia’s restriction of gas supply has led European natural gas prices to spike. Natural gas is a key ingredient in nitrogen-based fertilizers. La Nina weather patterns could disrupt grain harvests later this year as well, they added.

And the fall in food prices is not all good news. Part of the reason why staples have become cheaper is that traders and investors are pricing in recessionary fears, the analysts said.

The global manufacturing purchasing managers’ index has been in decline, while the U.S. Federal Reserve seems bent on raising interest rates to curb inflation even if it triggers a recession, the Fitch team wrote.

Food staples

Cereal prices, under which wheat falls, fell by 11.5% month on month, the FAO index showed. Prices of wheat specifically fell by 14.5%, partly because of the reaction to the Russia-Ukraine grain deal, and better harvests in the Northern Hemisphere, the FAO said.

Vegetable oil prices fell by 19.2% month on month — a 10-month low — in part because of ample palm oil exports from Indonesia, lower crude oil prices, and lack of demand for sunflower oil.

Sugar prices dipped by 3.8% to a five-month low in light of shrinking demand, a weaker Brazilian real against the greenback, and increased supply from Brazil and India.

Dairy and meat prices dropped by 2.5% and 0.5% respectively.

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Is Boris really the emissary that blockchain needs right now?

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With FTX in tatters, bitcoin in abeyance and the entire fundament of crypto finance in doubt, the technology of blockchain was badly in want of an image boost. What the distributed ledger technology needed, Singapore decided, was the rhetorical skills of former UK prime minister Boris Johnson to burnish its battered image, and here he was at a glittering gathering of the blockchain industry in a five-star hotel last week.

Blockchain in particular and innovation in general, Johnson explained, is always scary at first. “Humanity has been paranoid about this since the Titan Prometheus gave us the first flame,” he said, mixing classical reference and technological detail.

Johnson was giving the keynote speech for the International Symposium on Blockchain Advancements to 80 or so crypto enthusiasts who had braved Singapore’s tropical thundery showers to hear his insights. It felt a fitting location for the event in the same week that Singapore’s state-owned fund Temasek was facing scrutiny for ploughing $275mn into the collapsed crypto exchange FTX after eight-months of due diligence failed to flag up any big concerns. It is clear there was never enough paranoia or fear, one nonplussed conference-goer said after an hour of Johnson’s musings on Brexit, Australian submarines and his time at the Telegraph.

Beyond the free canapés and macarons, the event was hard to read as anything other than a plea from the blockchain industry to be taken seriously. Every sector is entitled to seek the endorsement of disgraced former leaders at times, but Johnson’s paeans of praise for Singapore Slings and his room at the famously expensive Raffles Hotel, delivered alongside his lauding of the potential of blockchain to a half-filled ballroom of men in suits, unsurprisingly was not the panacea for its woes.

One delegate, who gave his name as Kai and said he worked at a local crypto custodian start-up, was excited that someone “so famous” was speaking. What about Johnson’s position on digital currencies and the potential of blockchain? “Oh I don’t know about that,” Kai said with a nervous laugh.

A rare female attendee admitted that she was actually a journalist mainly trying to find out how much Johnson was being paid to headline the conference.

Against this backdrop, Britain’s former prime minister jovially assured the room of “blockchain pioneers” that they were in the right place, going on to remind his audience that technology is “morally neutral”. He dwelt at length on how doctors erroneously claimed in the early days of the railways that the rattling and jolting of trains was likely to cause sexual excitement, why the City of London is “the most productive place on Earth”, and something unclear about nuclear-powered vacuum cleaners. But it was not obvious how these digressions would bolster his case for blockchain.

He did eventually circle back to the technology and cryptocurrencies. He said he has “seen some pretty shocking headlines about this whole venture and we need some way of holding people to account”. But no sooner had he raised the subject of recent events in the cryptosphere than he moved swiftly on to topics closer to his heart: Brexit, the Ukraine war and green technology.

Then came his finale. “I will make a strong argument that the UK will become even more attractive as a place to invest once we deliver on all that Brexit stuff.” On blockchain, he added, he could not comment further without more details.

The blockchain enthusiasts seemed less than enthused. Someone showed enough interest to snap a photo only to be admonished by a man who rushed over hissing there was to be no photography.

The interviewer tried valiantly to bring Johnson back to blockchain. What was his overall message for innovators in the industry? “Apart from Singapore, which is a fantastic place for innovation, come to London. Come to the UK . . . It’s a fantastic country . . . it rains more in Rome by the way,” he replied. “I look forward to watching the progress of the blockchain industry with fascination,” he added to bemused applause.

mercedes.ruehl@ft.com

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If There Is a ‘Male Malaise’ With Work, Could One Answer Be at Sea?

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Before dawn on a recent day in the port of Seattle, dense autumn fog hugged Puget Sound and ship-to-shore container cranes hovered over the docks like industrial sentinels. Under the dim glimmer of orange floodlights, the crew of the tugboat Millennium Falcon fired up her engines for a long day of towing oil barges and refueling a variety of large vessels, like container ships.

The first thing to know about barges is that they don’t move themselves. They are propelled and guided by tugs like the Falcon, which is owned by Centerline Logistics, one of the largest U.S. transporters of marine petroleum. Such companies may not be household names, but the nation’s energy supply chain would have broken under the pandemic’s pressure without the steady presence of their fleets — and their crews.

“We’re a floating gas station,” said Bowman Harvey, a director of operations at Centerline, as he stood aboard the Falcon, his neck tattoo of the Statue of Liberty pivoting from the base of his flannel whenever he gestured at a machine or busy colleague nearby. Demand is solid, he said, and the enterprise is profitable. The company’s client list, which includes Exxon Mobil and Maersk, the global shipping giant, is robust. But manning the fleet has become a struggle.

Multiyear charter contracts for key lines of business — refueling ships, transporting fuel for refineries and general towing jobs — are locked in across all three coasts, plus Hawaii, Alaska and Puerto Rico, Mr. Harvey said. Yet as pandemic-related staffing shortages have eased in other industries, Centerline is still short on staff. “Hands down,” Mr. Harvey said, “our biggest challenge right now is finding crew.”

Safely moving, loading and unloading oil at sea requires both simple and high-skill jobs that cannot be automated. And the labor supply issues in merchant marine transportation are emblematic of the conundrum seen in a variety of decently paying, male-heavy jobs in the trades.

Over the past 50 years, male labor force participation, the share of men working or actively looking for work, has steadily fallen as female participation has climbed.

Some scholars have a grim explanation for the trend. Nicholas Eberstadt, the conservative-leaning author of “Men Without Work,” argues that there has been a swell in men who are “inert, written off or discounted by society and, perhaps, all too often, even by themselves.” Others, like the Brookings Institution senior fellow Richard V. Reeves, put less emphasis on potential social pathologies but say a “male malaise” is hampering households and the economy.

Centerline employees are among about 75,000 categorized by the Department of Labor as water transportation workers, a group in which men outnumber women five to one.

Though the gender split in the industry is more even for onshore office roles, workers and applicants for jobs on the water are predominantly male. Centerline says it has roughly 220 offshore crew members and about 35 openings. Captains and company managers agree that changing attitudes toward work among young men play a part in the labor shortage. But the strongest consensus opinion is that structural demographic shifts are against them. “We’re seeing a gray wave of retirement,” said Mr. Harvey, who is 38.

Even though replacements are needed and, on the whole, lacking, there are new young recruits who are thriving, such as Noah Herrera Johnson, 19, who has joined Centerline as a cadet deckhand, an entry-level role.

On a Thursday morning out in the harbor, Mr. Herrera Johnson deftly unknotted, flipped and refastened a series of sailing knots as the crew unmoored from a sister boat that was aiding the refueling of a Norwegian Cruise Line ship. A small crowd of curious cruise passengers peeked down as he bopped through the sequences and the sun’s glare began to pierce the fog, bouncing off the undulating waves.

“I enjoy it a lot,” Mr. Herrera Johnson said of his work, as he sliced some meat in the galley later on. (Some kitchen work and cleaning are part of the gig and the fraternal ritual of paying dues.) “I get along with everyone — everyone has stories to tell,” he said. “And I was never good at school.”

Mr. Herrera Johnson, who is Mexican American and whose mother is from Seattle, spent most of his life in Cabo San Lucas, in Baja California, until he moved back to the United States shortly after turning 18.

Though entry-level roles aboard don’t require college credentials, new regulations have made at least briefly attending a vocational maritime academy a necessity for those who want to rise quickly up the crew ladder. Because he is interested in becoming a captain by his late 20s, he began a two-year program at the nearby Pacific Maritime Institute in March, and he earns course credits for work at Centerline between classes.

He got his “first tug” in May: an escapade from New Orleans through the Panama Canal to San Francisco, patched with some bad weather. “Two months, two long months — it was fun,” he said. “We had a few things going on. We lost steering a few times. But it was cool.”

In short, the industry needs far more Noahs. Many Centerline employees have informally become part-time recruiters — handing out cards, encouraging seemingly capable young men who may be between jobs, undecided about college or disillusioned with the standard 9-to-5 existence to consider being a mariner instead.

“When I’m trying to get friends or family members to come into the business,” Mr. Harvey said, “I make sure to remind them: Don’t think of this as a job, think of it as a lifestyle.”

Internet connections aboard are common these days, and there is plenty of downtime for movies, TV, reading, cooking and joking around with sea mates. (On slow days, captains will sometimes do doughnuts in the water like victorious racecar drivers, turning the whole vessel into a Tilt-a-Whirl ride for the crew: sea legs required.)

Of course, those leisurely moments punctuate days and nights of heaving lines, tying knots, making repairs, executing multiple refueling jobs and helping to navigate the tugboat: rain or shine, heat or heavy seas.

It’s “an adventurous life,” Mr. Harvey said, one that he and others acknowledge has its pros and cons. Mariners in this sector — whether they are entry-level deckhands, midtier mates and engineers, or crew-leading tankermen and captains — are usually on duty at sea in tight quarters and bunk beds for a month or more.

On the bright side, however, because of an “equal time” policy, full-time crew members are given roughly just as much time off for the same annual pay.

“When I go home, you know, I’m taking essentially 35 days off,” said Capt. Ryan Buckhalter, 48, who’s been a mariner for 20 years. For many, it’s a refreshing work-life balance, he said: None of the nettlesome emails or nagging office politics in between shifts often faced by the average modern office worker trying to get ahead.

Still, Captain Buckhalter, who has a wife and a young daughter, echoed other crew members when he admitted that the setup could also be “tough at times” for families, including his own.

Crew members say they value knowing that their work, unlike more abstract service jobs, is essential to world trade. And average starting salaries for deckhand jobs are $55,000 a year (or about $26 an hour) and as high as $75,000 in places like the San Francisco area, with higher living costs.

The company also offers low-cost health, vision and dental care for employees, and a 401(k) plan with a company match. So the chief executive, Matt Godden, said in an interview that he didn’t feel that wages or benefits were a central reason that his company and competitors with similar offerings had struggled to hire.

“Right now a lot of companies are really hurting,” Captain Buckhalter said. “You kind of got a little gap here with the younger generation not really showing up.”

If the labor market, like any other, operates by supply and demand, managers within the maritime industry say the supply side of the nation’s education and training system is also at fault: It has given priority to the digital over the physical economy, putting what are often called “the jobs of the future” over those society still needs.

Mr. Harvey adds that his industry is also grappling with increased Coast Guard licensing requirements for skilled roles, like boat engineers or tankermen, who lead the loading and discharging of oil barges. The regulations help ensure physical and environmental safety standards, Mr. Harvey said, but reduce the already limited pool of adequately credentialed candidates.

Women remain a rare sight aboard. Some captains make the case that this stems from hesitance toward a life of bunking and sharing a bathroom with a crop of guys at sea — a self-reinforcing dynamic that company officials say they are working to alleviate.

“We actually do have women that work on the vessels!” said Kimberly Cartagena, the senior manager for marketing and public relations at Centerline. “Definitely not as much as men, but we do have a handful.”

Several economists and industry analysts suggested in interviews that another way for companies like Centerline to add crew members would be to expand their digital presence and do social media outreach. Mr. Godden, Centerline’s chief executive, said he remained wary.

“If you did something very simple, like you set up a TikTok account, and you sent somebody out every day to create varied little snippets, and you get viral videos of strong men pulling lines and big waves and big pieces of machinery,” Mr. Godden said, then a company would risk introducing an inefficient churn of young recruits who would “like the idea of being on a boat” but not be a fan of the unsexy “calluses” that come with the job.

But in the long term, he said, there is reason for optimism. He pointed to the recent establishment of the Maritime High School, which opened a year ago just south of the Seattle-Tacoma airport with its first ninth-grade class.

“I think their first class is looking to graduate a hundred people, and then they got goals of getting up to 300, 400 graduates a year,” Mr. Godden said. He has been meeting with the school’s leaders this fall and is convinced they will help create the next pipeline in the profession.

“Yes, labor shortages may increase or decrease depending upon how the market works — but I always have this sense that there’s always going to be this sort of built-in group of folks who cannot — just cannot — stand seeing themselves sitting at a desk for 30, 40, 50 years,” he said. “It’s this hands-on business almost like, you know, when you’re a kid and you’re playing with trucks or toys, and then you get to do it in the life-size version.”

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Germany confronts a broken business model

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Hives of activity don’t get bigger — and busier — than BASF’s headquarters in Ludwigshafen. The size of a small town, it’s the largest integrated chemical complex in the world, with one of Europe’s biggest wastewater treatment plants, its own hospital and fire brigade.

The lifeblood of Ludwigshafen is natural gas. It is the substance that courses through its dense network of pipes, the fuel for its power plants, the feedstock for its chemical processes. And Russia’s war in Ukraine has knocked out its main supplier.

BASF first responded to the soaring price of gas by shutting down its ammonia plant and reducing the run rate of its acetylene facility, hobbling production of two chemical building blocks used to make a host of different products that are vital to modern industrial value chains.

“High natural gas prices have created a situation where importing ammonia from overseas was cheaper than manufacturing it ourselves,” says Uwe Liebelt, head of BASF’s European sites.

By October, the company had gone much further, concluding that higher energy costs had so badly undermined Europe’s competitiveness that it would have to transform its entire business.

Chief executive Martin Brudermüller announced that BASF would downsize in Europe “as quickly as possible, and also permanently”. Most of the cuts are expected to be made at the Ludwigshafen site.

BASF has severely curtailed its European operations due to the high price of gas and says it will downsize further © BASF SE

BASF is not alone. Since the summer, companies across Germany have been scrambling to adjust to the near disappearance of Russian gas. They have dimmed the lights, switched to oil — and, as a last resort cut production. Some are even thinking about moving operations to countries where energy is cheaper.

That is triggering deep concern about the future of German industry and the sustainability of the country’s business model, which has long been predicated on the cheap energy guaranteed by a plentiful supply of Russian gas.

Constanze Stelzenmüller, director of the Center on the US and Europe at the Brookings Institution, has said Germany is a case study of a western state that made a “strategic bet” on globalisation and interdependence — and was now suffering the consequences.

“It outsourced its security to the US, its export-led growth to China, and its energy needs to Russia,” she wrote in June. “It is now finding itself excruciatingly vulnerable in an early 21st century characterised by great power competition and an increasing weaponisation of interdependence by allies and adversaries alike.”

In many ways, BASF epitomises Stelzenmüller’s point. Over the years, it became highly dependent on piped Russian gas: Brudermüller said in April it formed the “basis for our industry’s competitiveness”.

And it has become increasingly intertwined with China, which now accounts for €12bn of its annual revenues. BASF is currently building a €10bn chemical complex in Guangdong, south-eastern China, which is the largest foreign investment in its history.

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Some in Berlin eye the new China plant with suspicion. “They’re basically building another version of Ludwigshafen there,” says one German official. “The fear is they might one day shut down the German site altogether and transact all their business in the Chinese factory instead. Their shareholders couldn’t care less, as long as the money keeps flowing.” 

BASF has largely dismissed concerns that it’s repeating the same mistakes German business made in Russia — becoming too dependent on an authoritarian state with potentially aggressive intentions towards its neighbours. Brudermüller, who spent ten years living in Hong Kong, says BASF can’t afford not to be in China, which accounts for 50 per cent of the global chemicals market and is growing much more strongly than Europe.

There were risks, Brudermüller told reporters in October, but “we’ve come to the conclusion that China is an opportunity . . . and it makes sense to expand our position [there].” Germans should “stop this China-bashing and look at ourselves a bit more self-critically”.

Some Germans are doing just that — and calling for a major rethink of the country’s economic paradigm, on everything from deregulation to immigration. “The German business model has to change,” Christian Lindner, the country’s finance minister, tells the Financial Times. “It was based on low energy prices . . . on an abundance of skilled workers, and open markets for Germany’s high-tech products.” But “this model doesn’t really work any more because many of the core elements have changed.”

‘We’re living hand to mouth’

Companies across Germany are finding themselves burdened by exorbitant short-term energy costs. KPM, one of Europe’s oldest porcelain producers, founded by King Frederick the Great of Prussia in 1763, fires its vases, cups and plates in kilns that are heated to 1,600C and has no alternative to gas.

“It’s the company’s biggest crisis since the second world war,” says chief executive Jörg Woltmann. “We’re living hand to mouth.”

KPM has been able to cut its energy use by 10-15 per cent, he says, by switching off the lights and heating at weekends and packing its kilns more tightly “so we can do with one less fire”. The company has not reduced production: but its costs have soared, not just for energy but for all its raw materials and inputs like packaging. Woltmann says KPM will have to start raising prices for its products by the middle of next year.

Government statistics released last month said production in energy intensive industries, which account for 23 per cent of all industrial jobs in Germany, had declined by 10 per cent since the start of the year. Sectors like metals, glass, ceramics, paper and textiles have taken the biggest hit. “That means there are 1.5mn workers in Germany whose industries are currently under pressure,” says Clemens Fuest, head of the Ifo Institute.

Heinz-Glas, a 400-year-old glass manufacturer based in the southern state of Bavaria which makes bottles and jars for the perfume and cosmetics industry, is also suffering.

A KPM employee works on the edge of a vase on a potters wheel with rows of pottery on shelves behind him
KPM, one of Europe’s oldest porcelain producers, has cut its energy use by 10-15 per cent but costs for all its inputs have soared © Clemens Bilan/EPA-EFE

“In 2019 we paid about €11mn for energy — this year it will be €32mn,” says Carletta Heinz, the company’s chief executive.

Unlike KPM, Heinz-Glas has struggled to curb its gas consumption. “There’s little scope for energy efficiency measures,” says Heinz. “We’ve always been very careful about our energy use and so we can’t do much more to reduce it.”

Her hope is that the government will intervene to help. There are precedents: Heinz-Glas suffered a crisis in the 19th century when the price of wood, its main energy source, went through the roof. “The government financed the construction of a railway so coal could be delivered straight to our factory, and we were able to switch,” she says.

Some help is already on its way. In September, chancellor Olaf Scholz announced the creation of a €200bn “protective shield” to cushion the impact of higher energy costs on companies and households, including a “brake” on the price of gas. Heinz hopes this is just the start. “The government will do what’s needed to keep industry in Germany alive,” she says. “Because without industry our country is worth nothing.”

Germany’s glass and ceramics manufacturers may be struggling — but they are relatively small. Not so the chemical industry, which employs more than 450,000 people in Germany. “If it were to halve in size that would have a direct impact on the country’s prosperity,” says Henrik Ahlers, country manager for EY Germany.

A woman in yellow work coat and hairnet and gloves works on a production line full of glass bottles
Heinz-Glas, which makes bottles and jars for the perfume and cosmetics industry, has seen it’s energy costs rise from €11mn in 2019 to €32mn this year © Ronny Hartmann/AFP/Getty

Germany has Europe’s largest chemicals industry by far — yet it is almost entirely reliant on imported energy and raw materials. For decades, BASF, Europe’s largest industrial consumer of gas, derived most of those imports from Russia.

Now the cost of that dependence is becoming clear. The company says it had to pay €2.2bn more for gas between January and September than it did in the same period of 2021 and ended up making a €130mn loss in its German business in the third quarter. It now plans to shave €1bn in costs over the next two years, partly in response to the surge in energy prices.

BASF’s Liebelt sees little relief ahead. “The gas price has come down but it’s not even close to what it was before,” he says. “[And] it will stay significantly above what we have in the US, for example.”

The spectre of deindustrialisation

The concern now is that industrial production could shift away from Germany altogether in the long term. A poll over the summer by the BDI, Germany’s main business lobby, found that nearly one in four Mittelstand companies — the small and medium-sized enterprises that form the backbone of the German economy — were considering moving production abroad. It was principally energy costs that were triggering the shift.

But they’re not the only factor. The business environment in Germany — and Europe more broadly — has “deteriorated”, BASF’s Brudermüller said in October. Growth in the European market has been sluggish for a decade. EU regulation is creating “great uncertainty”, he said.

Industry leaders cite measures such as the EU’s industrial emissions directive and its chemicals strategy for sustainability, designed to ban the most harmful chemicals in consumer products.

“The regulatory burden that’s building up might be manageable for global players but I don’t know how a midsized company of 100-200 people is supposed to digest it,” says Liebelt.

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The investment climate elsewhere is beginning to look more attractive. The Biden administration’s Inflation Reduction Act (IRA), which includes $369bn of subsidies for green technologies, has the potential to seduce dozens of German businesses away from their domestic base.

Under the IRA, subsidies for purchases of electric vehicles would be restricted to those made with parts from North America and assembled there, a regime the EU says would damage Europe’s industrial base and breach World Trade Organization rules.

Speaking on a recent TV talk show, Siegfried Russwurm, head of the BDI, said he was struck by “how many Mittelstand companies are saying that with . . . the advantages I have in the US with ‘Buy American’ I should seriously consider making my next investment [there] rather than in Germany”.

Some are going so far as to predict that Germany will become denuded of its industrial base. A recent note by Deutsche Bank analyst Eric Heymann predicted the share of manufacturing in Germany’s gross value added — 20 per cent in 2021 — will decline in the coming years.

“If we look back at the current energy crisis in about ten years, we could see this time as the starting point for an accelerated deindustrialisation of Germany,” he wrote.

Big multinationals will survive. But “it’s going to be a bigger challenge for the German Mittelstand, especially in energy intensive industries, to adjust to the new energy world,” he went on. “Many companies will fail to do so.”

Building on strengths

The government is less pessimistic. Robert Habeck, economy minister, told a conference in November that some were taking an “almost sensual pleasure” in predicting Germany’s decline, defining problems “just so they can wallow in them”.

“Whoever thinks we’ll let Germany as an industrial power go bust hasn’t reckoned . . . with the ingenuity of German industry, and hasn’t reckoned with the resolve of the German government and of my ministry,” he said. “It won’t happen.”

Some economists share his optimism. Jens Südekum, professor of international economics at Düsseldorf’s Heinrich Heine University, points to the government measures such as the gas price brake. “With that, the risk of deindustrialisation has been more or less eliminated,” he says.

He also stresses the long-term strengths of German industry — deep value chains, high productivity and product quality, and Mittelstand companies that are global leaders in their field.

Germany’s industrial success “is the result of long-term investments, deep knowhow and a high degree of automation”, he says. “These are advantages that have built up over decades and aren’t going to suddenly disappear.”

Bar chart of Share of manufacturing in gross value added, 2021 (%) showing Manufacturing forms a larger share of the economy in Germany than in most industrial countries

Germany has also shown in the past that it can successfully change its business model when its back is to the wall. “Agenda 2010”, the sweeping liberalisation of the social security system and labour market pushed through by chancellor Gerhard Schröder in 2003, is the prime example. The reforms were credited with encouraging tens of thousands back into work and reducing long-term unemployment.

“We succeeded then in sorting ourselves” says Ahlers. “It wasn’t easy, but when you really go for it, you can get things done.”

Many in Berlin say the current crisis could provide just the same spur to reform as the high unemployment and economic stagnation of the early 2000s which led to Agenda 2010.

But it will take work, Lindner acknowledges. “We have to reform immigration to allow more skilled workers into Germany, speed up planning procedures so infrastructure projects can move forward faster, unchain our capital markets so they can finance start-ups . . . and digitise our economy and public administration,” he says.

“We have to pick up the pace and work on overcoming our weaknesses.”

However, ministers, company bosses and economists all agree that the future of German industry may hinge on how quickly it can find new ways to power itself. The country has made valiant efforts to find alternatives to Russian energy imports, building import terminals for liquefied natural gas, bringing its mothballed coal-fired power stations back online and extending the life of its nuclear reactors.

Markus Steilemann, wearing blue high vis jacket over his suit and hard hat and protective glasses
Markus Steilemann, head of Germany’s chemicals trade body VCI, says the challenges risk ‘turning the country from an industrial country into an industrial museum’ © picture alliance/Rolf Vennenbernd/dpa

It is also speeding up the rollout of wind and solar power, a key part of its plan to derive 80 per cent of its electricity from renewables by 2030 — up from 50 per cent now — and go carbon neutral by 2045.

But BASF worries that the renewables push is happening far too slowly. “If we want to achieve our 2030 target for wind and solar, we’ll have to build almost 30 gigawatts every single year, but in the past few years we’ve built just 6.5GW on average every year,” says Lars Kissau, head of BASF’s Net Zero Accelerator. “So every year the gap grows.”

The scale of the challenge is indeed gargantuan. The wind industry says Germany must put up 6 wind turbines a day to meet the 2030 goal, requiring as much as 3,300 tonnes of steel per day — or nearly half an Eiffel Tower. Yet between January and June of this year, it managed a rate of less than one turbine a day.

Markus Steilemann, head of the VCI, the German chemicals trade body, says that faced with such hurdles, Germany risks “turning from an industrial country into an industrial museum”.

Asked about Steilemann’s comments, Habeck, the economy minister, tells the FT the situation the chemicals industry finds itself in is “undeniably challenging”. But he implies it only has itself to blame.

“They didn’t diversify their energy supply but relied on Russian gas,” he says. “And that has now turned out to have been a mistake.”

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