Managing labor migration: challenges for food companies

After extreme price increases, calm seems to have returned to the food sector, but growth remains elusive. The sector is grappling with reduced demand, erratic raw material supplies, and labor shortages. These structural issues significantly affect its growth potential.

Economic signals improve, but consumers cut back

In the second half of 2024, macroeconomic indicators show positive trends. The Dutch economy is expected to grow by 0.9% this year. Rising wages increase disposable income, and consumer confidence is on the rise. However, consumers remain cautious in supermarkets, opting for cheaper alternatives—a trend known as "downtrading." Food prices have risen sharply, partly due to higher taxes on tobacco and beverages. As a result, volumes in food retail, foodservice, and many specialty stores are declining. Additionally, exports are stagnating, which business owners in the Dutch Economic Survey (COEN) cite as a significant barrier.

Raw materials and labor remain key challenges

Access to raw materials is increasingly difficult due to environmental measures, climate change, and regulations like the European Deforestation Regulation (EUDR). Labor shortages also persist. ABN AMRO forecasts no growth for the sector in 2024 and only 1% growth in 2025.

Legislation and labor migrants critical for flexibility

Labor migrants play a vital role as a flexible workforce in the food sector. To better protect this group, the previous government proposed the Labor Provision Admission Act (WTTA). This law restricts the use of temporary workers to certified agencies and aims to curb malpractice in labor migration. For food companies, this means they will only be able to work with certified staffing agencies if the law is enacted. This is significant, as temporary workers often comprise a third of the flexible workforce, particularly for physically demanding production tasks. In 2023, nearly one million labor migrants were active in the Netherlands, with one in five working in the food industry.

Reduced availability of labor migrants

The attractiveness of work also influences access to labor migrants. Rising wages in Poland have narrowed the wage gap with the Netherlands, prompting Polish workers to stay in their home country more often. This raises questions about how long Dutch companies can remain appealing to foreign workers.

Outlook: automation and robotics increasingly necessary

With a persistent labor shortage, companies must consider the impact of reduced availability of labor migrants. Aging within the sector exacerbates the issue, with more than a quarter of employees aged over 55. Automation and robotics can partially address this challenge. Simple tasks are increasingly automated, but more complex work involving natural products, such as cutting vegetables or meat, remains difficult. Artificial intelligence could eventually help by better managing the diversity of such tasks.

For more information, visit ABN AMRO Insights.