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Refugees lack COVID shots because drugmakers fear lawsuits – documents

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BRUSSELS/BANGKOK, Dec 16 (Reuters) – Tens of millions of migrants may be denied COVID-19 vaccines from a global programme because some major manufacturers are worried about legal risks from harmful side effects, according to officials and internal documents from Gavi, the charity operating the programme, reviewed by Reuters.

Nearly two years into a pandemic that has already killed more than 5 million people, only about 7% of people in low-income countries have received a dose. Vaccine deliveries worldwide have been delayed by production problems, hoarding by rich countries, export restrictions and red tape. Many programmes have also been hampered by hesitancy among the public read more .

The legal concerns are an additional hurdle for public health officials tackling the coronavirus – even as officials say unvaccinated people offer an ideal environment for it to mutate into new variants that threaten hard-won immunity around the world. Many COVID-19 vaccine manufacturers have required that countries indemnify them for any adverse events suffered by individuals as a result of the vaccines, the United Nations says.

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Where governments are not in control, that is not possible.

The concerns affect people, such as those displaced by the Myanmar, Afghanistan and Ethiopian crises, who are beyond the reach of national governments’ vaccination schemes.

For refugees, migrants and asylum-seekers, as well as people afflicted by natural disasters or other events that put them out of reach of government help, the global programme known as COVAX created a Humanitarian Buffer – a last-resort reserve of shots to be administered by humanitarian groups. Gavi, the vaccine alliance, is a public-private partnership set up in 2000 to promote vaccination around the world.

But that buffer does not have any mechanism to offer compensation. Gavi, which operates COVAX with the World Health Organization (WHO), says that where those applying for doses, mainly NGOs, can’t bear legal risks, deliveries from that stockpile can only be made if vaccine-makers accept liability.

The companies that are willing to do so under these circumstances provide only a minority of the programme’s vaccines, according to people familiar with the matter and the documents, written by Gavi staff for a board meeting starting at the end of November.

More than two-thirds of COVAX doses have come from Pfizer Inc. (PFE.N) and its partner BioNTech SE (22UAy.DE), AstraZeneca PLC (AZN.L) and Moderna Inc. (MRNA.O), Gavi says. Moderna declined to comment. AstraZeneca and Pfizer said they were in talks with Gavi but declined to comment further. All three said they are committed to making doses available to poorer nations at relatively low prices. Pfizer said it was collaborating directly with governments in Jordan and Lebanon to donate doses for refugees.

Mainly because of the legal concerns, less than 2 million doses have so far been sent from the buffer, Gavi says. About 167 million people risk being excluded from national programmes, according to United Nations data cited in the documents.

Unless all the firms accept legal liability, “access to vaccines for some populations will remain a challenge,” the Gavi documents say, adding that new crises will generate additional demand to cover displaced populations.

The vaccine makers’ reluctance to take on the legal risks is “a major hurdle” in attempts to provide vaccines for the buffer, a spokesperson for Gavi told Reuters. Gavi did not comment on the details in the documents, but said applications for vaccines are confidential until the doses are delivered. In September, Gavi’s CEO, Seth Berkley, tweeted an appeal to drugmakers to waive their requirements for legal indemnity.

Three Chinese drugmakers have agreed to shoulder legal risks when their shots are delivered through the buffer: SinoVac Biotech Ltd (SVA.O), Sinopharm Group Co. Ltd (1099.HK), and Clover Biopharmaceuticals Co. Ltd, according to the Gavi document. The drugmakers did not respond to requests for comment.

Johnson & Johnson (JNJ.N) of the United States confirmed it would waive a requirement for indemnity for deliveries from the buffer: “We are proud to be part of this effort to protect the world’s most vulnerable people,” said Paul Stoffels, Vice Chairman of the Executive Committee and Chief Scientific Officer. He did not elaborate.

However, less than one-third of COVAX supplies have come from these four firms, COVAX data shows: Clover’s shot has not yet been approved so is not in use.

The global industry association, the International Federation of Pharmaceutical Manufacturers and Associations (IFPMA), said “no company has refused to consider” taking on the legal risk. However, in the case of shots delivered from the buffer, it said some firms felt they could not do so without full knowledge of where and how vaccines would be used.

It would be hard to continuously monitor vaccines for safety in refugee camps, and delivery is logistically very challenging and not suitable for all types, said the European Federation of Pharmaceutical Industries and Associations (EFPIA), which represents large pharmaceutical companies in Europe.

People may blame vaccines for problems that emerge afterwards even if they are unrelated, it said.

“This could then lead to an increased number of litigation cases … during which the safety and efficacy of the vaccine would be publicly questioned,” it said in a statement to Reuters. That might lead to increased vaccine hesitancy and a slower recovery from the pandemic, it said.

So far there is scant information on COVID vaccine litigation, but claims made to out-of-court compensation programmes are one measure of the risk. A programme in the United States has so far not paid out anything, public data show; neither has one set up by the WHO for lower income countries, the WHO said. In Europe, a handful of compensation awards have been granted for undisclosed amounts of money, official data from Denmark, Germany, Norway and Switzerland show read more .

Globally there have been few reported COVID infections among refugees, migrants and asylum-seekers – testing is not always systematic and infections can generate only mild symptoms especially in younger people.

But cramped conditions and weak healthcare expose them to high infection risk. This, combined with low levels of vaccination in a mobile population could favour the emergence of new variants and be a vector for infection, said Mireille Lembwadio, Global Vaccination Coordinator at the International Organization of Migration (IOM), a U.N.-related body that advises governments and migrants.

“Leaving them unvaccinated could help spread the virus and its variants across the world,” she said.

WAITING FOR DOSES

Francois Nosten, a French professor who helps coordinate healthcare for people from Myanmar living on the border with Thailand, is one of those waiting for vaccines. In June, he put in a request from the Humanitarian Buffer for 70,000 doses – some for some of the 90,000 or so who are sheltering in camps along the border, but most for unregistered migrants in the border town of Mae Sot and nearby villages.

Nosten, whose main work is researching malaria, is expecting the doses – a fraction of the more than 8 billion administered worldwide – this month. He has been told they will come from Sinopharm, and he hopes they can help inoculate key at-risk groups in Thailand’s Tak province. Gavi said delivery arrangements are still being finalised.

About 20,000 doses will be given to people in the camps by the International Rescue Committee (IRC), a humanitarian group working with Nosten.

“At this point whatever vaccine we can secure we are grateful for,” said its Thailand Director, Darren Hertz. He added that the IRC believed the likelihood that a member of the refugee population would attempt to take legal action in case of side-effects was “extremely low.”

Hertz said the IRC has received a handful of ad hoc vaccine donations from the Thai government and is currently tackling significant outbreaks in five of nine camps on the border, where about 3,000 cases have been confirmed, including at least 26 deaths. A Thai foreign ministry spokesperson confirmed the government was working with the IRC on providing vaccinations in shelters along the border.

Nosten’s charity, Border Health Foundation (BHF), is one of eight organisations worldwide that have applied to distribute the shots from the Humanitarian Buffer and one of three to be approved, Gavi said.

Ann Burton, Chief of Public Health at the U.N. refugee agency UNHCR, said the liability issue was one reason agencies have been slow to apply. The programme has also been delayed by the general shortage of vaccines and administrative hurdles read more .

Organisations applying for supplies from the buffer may not choose which vaccines they receive. Working with displaced people, Nosten said it would be more convenient to give them Johnson & Johnson’s vaccine, which offers protection after a single dose instead of the two doses needed for Sinopharm’s.

But the Sinopharm version will be “better than nothing,” he said.

More than 100 national governments have promised to offer vaccines where possible to all the displaced people on their soil, according to the IOM. However, the U.N. group says migrants and refugees are often effectively excluded from such schemes because of administrative or cultural hurdles.

In cases where governments aren’t in charge or have not agreed to vaccinate migrants, COVAX’s Humanitarian Buffer is the only option. At least 40 countries have yet to include unauthorised migrants in their vaccination programmes, according to the IOM – it and the UNHCR declined to name the countries.

Gavi set up the buffer in March 2021, planning to reserve up to 5% of vaccine doses as they become available to COVAX, which would amount to roughly 70 million doses so far.

The only shots delivered from the buffer so far – just over 1.6 million Sinopharm doses – landed in Iran in November, where high numbers of displaced Afghans have arrived, UNICEF Iran said. That’s enough to inoculate about 800,000 people; more will likely be needed, UNICEF said.

NEED FOR SPEED

The vaccine makers’ legal concern is rooted in the unprecedented speed of the effort to develop the COVID shots, the EFPIA said.

In normal circumstances, drugmakers buy insurance to cover liability for vaccines’ potential adverse effects. But COVID forced them to develop drugs so quickly that some side effects – for instance, a rare blood-clotting condition in some of those who took the AstraZeneca vaccine – are emerging as shots go into people’s arms.

Many governments and international agencies have set up compensation schemes to reimburse victims and avoid lengthy litigation. An emergency law invoked by the U.S. government provides legal immunity for drug companies for side effects from their COVID-19 vaccines used in the country. The only exception is for instances of “wilful misconduct.”

For drug companies, accepting potential liability runs counter to standard practice.

“Vaccine manufacturers try to minimize legal risks in almost every setting,” said John T. Monahan, Professor at Georgetown University. “The gold standard is full immunity from lawsuits. If they accept carve-outs, it may become more difficult to reach that goal.”

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Edited by Josephine Mason and Sara Ledwith

Our Standards: The Thomson Reuters Trust Principles.



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Saudi Arabia’s race to attract investment dogged by scepticism

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  • Saudi minister says FDI up 33% in first six months of 2021
  • Investment remains below earlier targets
  • Riyadh raises stakes with more ambitious investment goals
  • Lack of major FDI announcements could dent credibility

DUBAI, Nov 16 (Reuters) – Saudi Arabia could have a credibility problem if it keeps shifting the goal posts for the amount of foreign investment it wants to turn its vision of a future beyond oil into a reality, financial sources and analysts said.

Five years since Crown Prince Mohammed bin Salman launched Vision 2030 to end the kingdom’s dependence on fossil fuels, foreign direct investment (FDI) remains well short of targets.

When Riyadh unveiled the plan in 2016, it aimed to boost annual FDI to nearly $19 billion by 2020 from $8 billion in 2015, but last year it was just $5.5 billion. The longer-term goal was for FDI to hit 5.7% of gross domestic product (GDP) by 2030, though Riyadh did not give a dollar target.

Now the kingdom has raised the stakes again, saying it wants $100 billion in annual FDI by 2030, a new goal that many analysts consider overambitious.

“(It) does raise eyebrows as to how it looks quite unattainable, particularly that over the past four quarters FDI has totalled $18.6 billion and the total FDI inflow since the start of 2011 is only equal to $92.2 billion,” said Capital Economics economist James Swanston.

To be consistent with its GDP target, the $100 billion goal means the economy would have to expand by 150% to reach $1.75 trillion by 2030 – a level that would have made Saudi Arabia the world’s ninth biggest economy last year, behind Italy and ahead of Canada, South Korea and Russia.

To be sure, the years following Vision 2030’s launch have not been helpful for FDI. A purge of the Saudi business elite in 2017 and the murder of Jamal Khashoggi in 2018 deterred private investment. Then the pandemic struck.

But analysts say the kingdom, and its grand reform plan, may soon start to lose credibility in the eyes of investors.

“Low year-on-year inward FDI levels will eventually stop being perceived optimistically as room for Saudi Arabia to improve and instead beg the question: what’s going on here?” said Robert Mogielnicki, senior resident scholar at the Arab Gulf States Institute in Washington.

‘FIXING THE SYSTEM’

Saudi authorities say much of the plan is still in its initial phases, which consist mostly of regulations and planning, and money will increasingly start pouring into the kingdom over the next few years.

Saudi Investment Minister Khalid al-Falih said the FDI numbers were already improving.

“We are fixing the system, we are preparing the deals, we are engaging companies,” he told Reuters. “A lot of our transactions are being prepared.”

In the first half of 2021 – excluding the leasing of Saudi Aramco’s (2222.SE) oil pipelines – FDI rose 33% from the same period in 2020 and was already above targets for this year as a whole, he said.

At Saudi Arabia’s annual “Davos in the Desert” Future Investment Initiative last month, several memoranda of understanding were signed but hopes of a major investment announcement were dashed.

Electric carmaker Lucid (LCID.O), for example, which is majority owned by the Saudi sovereign Public Investment Fund (PIF) and headquartered in Silicon Valley, did not announce a much-anticipated plan to build a factory in the kingdom.

Saudi Arabia did launch a national infrastructure fund, touting it as a strategic partnership with the world’s biggest asset manager, BlackRock (BLK.N), but the U.S. firm is advising Riyadh rather than committing capital.

“Saudi wealth remains attractive to foreign asset managers. Wall Street titans praised the local economy on stage, signed lucrative deals and walked away without committing any of their own capital. Speaks volumes,” said a senior banker in the Gulf.

A BlackRock spokesperson said it had a consulting assignment with the fund, which would be entirely financed by the National Development Fund, a government body, and would then aim to attract capital from other investors.

“It is certainly possible that BlackRock could be amongst these providers of external capital,” the spokesperson said.

‘NOTORIOUSLY DIFFICULT’

In a sign of its desire to attract more investors, Saudi Arabia issued an ultimatum this year that foreign firms must set up their regional headquarters in the country by the end of 2023, or risk losing out on government contracts.

Saudi Arabia has a much larger consumer base than regional neighbours and international firms operating in the Gulf may not want to miss out on lucrative opportunities arising from its plans for economic transformation.

Saudi authorities announced at the investment forum that they had licensed 44 international companies to set up regional headquarters in the capital Riyadh.

But ultimatums, combined with abrupt changes in trade deals and taxation regimes, are perceived as another sign of the kingdom’s unpredictable policies. Many Gulf executives believe firms will find workarounds to stay in Dubai, which has a more developed market and a less conservative society.

Forum attendees speaking on condition of anonymity said there were lingering worries about regulations and taxes as well as high operating costs and a lack of skilled local workers.

The Saudi investment ministry did not respond to requests for comment about the criticisms.

“The Saudi business environment is still notoriously difficult to navigate as a foreign investor”, said Swanston.

“In terms of trying to attain some credibility to the investment goals of Vision 2030 it would be fairly crucial for Saudi to get some real commitments from firms and foreign investors,” he said.

‘COUNTRY WITHIN A COUNTRY’

Progress on NEOM, Vision 2030’s $500 billion signature project, also remains difficult to assess, adding to concerns about the kingdom’s financial transparency.

The planned megacity in the desert, announced in 2017 and backed by PIF, is studying its economic and legislative framework, NEOM Chief Executive Nadhmi al-Nasr told Reuters.

Asked how many contracts had been awarded, or how much had been spent, he declined to give detailed answers.

“Honestly, we don’t pay much attention at this time of the progress on how much we awarded, because this is just the start of a long journey. When your ambition is to create almost a country within a country, you’re talking big … we’re not ready to start talking about how much we spent,” he said.

However, giving details of project spending, investments achieved and foreign commitments might help Riyadh gain more credibility, particularly given the size of its targets, analysts said.

Pushing net FDI to $100 billion a year is part of a larger plan envisaging more than $3 trillion in investment in the domestic economy by 2030 and economists fear even local targets will be tough to meet.

“At this stage, moving economic goal posts within the 2030 ballpark is still feasible. Yet there will come a day when the final scorecard needs to be tallied and progress can no longer be measured by the ambition of project announcements,” said Mogielnicki.

Editing by David Clarke

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The cost of coal in South Africa: dirty skies, sick kids

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EMALAHLENI, South Africa, Nov 4 (Reuters) – In 2019, scientists working for South Africa’s government completed a study on the health impacts of pollution from the country’s sprawling coal industry.

The researchers for the state-owned Council for Scientific and Industrial Research had been assured by government authorities that their years-long study would be published, according to three people familiar with the matter.

So far, it has not seen the light of day.

The study, a copy of which was reviewed by Reuters, showed more than 5,000 South Africans die annually in the nation’s coal belt because the government has failed to fully enforce its own air quality standards. It also revealed that nearly a quarter of households in the region, where 3.6 million people live, have children with persistent asthma. That’s double the national rate.

South Africa’s government has since 2015 granted waivers from emissions limits to its indebted state power and fuel companies, Eskom and Sasol, allowing them to save money.

That kind of continuing government support highlights an issue in many coal-dependent nations, from Australia to Indonesia, that is hobbling the transition to cleaner energy. In producing countries, governments, businesses and local residents often see coal as an economic lifeline.

South Africa’s coal industry, the world’s fifth largest, employs 90,000 miners, generates 80% of the country’s electricity, and supplies the feedstock for about a quarter of the country’s liquid fuel for vehicles, all at a time of soaring unemployment and frequent blackouts.

The costs of a mammoth coal industry are also high, and not just for the climate. South Africa’s coal belt is blanketed in smog and coal ash; the stink of sulfur pervades. The area east of Johannesburg is among the world’s most polluted, experts say, rivaling Beijing and New Delhi.

In 2017, British air pollution expert Mike Holland calculated that the health impacts from Eskom’s emissions alone cost South Africa $2.37 billion every year.

Environment Minister Barbara Creecy, whose department commissioned the 2019 coal health study, declined to say why it remains unpublished. She said the government still intends to release it at some point.

“We understand that there are serious health challenges facing communities,” she said, adding that the government considers improving air quality “absolutely imperative.”

But Creecy’s agency – the Department of Fisheries, Forestry and the Environment – has publicly defended its lax enforcement of pollution regulations as an economic necessity in court battles with activists. In a recent filing, it said its main challenge is addressing pollution without hurting “the poor, who are desperate for job opportunities.”

COAL IN THE CROSSHAIRS

As the United Nations’ climate conference, COP26, in Glasgow gets underway this month, coal is in the crosshairs of a global push to replace it with cleaner fuels. read more

South Africa is the world’s 12th largest greenhouse gas emitter, according to the non-profit Global Carbon Atlas. This water-stressed country also stands to be one of the big losers from climate change. Temperatures in southern Africa are rising twice as fast as the global average, according to the International Panel on Climate Change, pushing the region’s northwestern deserts south.

In an effort to secure foreign investment, Eskom is pitching a $10 billion plan to shut most of its coal-fired plants by 2050 and embrace renewables like wind and solar, with financing from wealthy nations. The United States, Britain, France, Germany and the European Union on Tuesday provided that effort a big boost, offering $8.5 billion to help South Africa transition off coal.

Eskom’s green push, however, has put the company in conflict with Energy Minister Gwede Mantashe, who has called ditching coal “economic suicide.” read more

Mantashe represents a powerful constituency within the ruling ANC that includes workers’ unions on whose support the party depends to win elections. Those unions, like Mantashe, are concerned about job losses.

“We should not collapse our economy because they are greedy for green funding,” Matashe told a South Africa mining conference in October. He has previously said switching off the nation’s coal plants would allow South Africans to “breathe fresh air in the darkness.”

Mantashe declined to comment for this story.

Darkness is already a familiar experience in the coal belt. Power cuts are a daily reality for the shanties threaded between the mine shafts and cooling towers of towns like Emalahleni — “The Place of Coal” in the Zulu language.

If people stay, it is for the chance of a job.

‘HER CHEST WAS RASPING’

Mbali Matabule, poses for a photograph while her daughter Asemahle looks on at their home in Emalahleni, in Mpumalanga province, South Africa, June 2, 2021. REUTERS/Siphiwe Sibeko

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Mbali Matabule and her partner were senior high school students when they swapped phone numbers on a dirt track in Vosman, a township outside Emalahleni. After graduation, her partner found work in Sasol’s Secunda plant, which transforms coal into liquid fuel for cars. The following year, Matabule bore their first child, Princess.

His salary allowed them to feed and clothe their daughter and buy trappings of middle-class life: a TV, microwave, fridge and electric cooker to put in their shack at her parents’ compound.

Then, in May 2018, as she approached her fourth birthday, Princess started struggling to breathe. They rushed her to the hospital, where a doctor put a mask on Princess’s face attached to a nebuliser.

“They said she had asthma,” Matabule said. “I was thinking: why? She was not born with asthma.”

Toward the end of that year, they had a second child, Asemahle, who soon also developed breathing problems.

“Her chest was rasping,” Matabule said.

Hospital visits became routine, and the medical costs started to mount. Without health insurance, the couple was spending 2,500 rand ($184.03) a month on medical bills for their kids, nearly half Mbali’s partner’s salary.

AMONG THE WORLD’S WORST

Smog released from burning coal is laced with chemicals like sulphur and nitrogen oxides, mercury and lead, and radioactive elements like uranium and thorium.

“We know air pollution from coal causes lung problems, cardiac diseases. It impairs cognitive development of children,” said Mohammed Tayob, a doctor in Middleberg, one of the worst affected towns in the coal belt.

The 2019 CSIR study obtained by Reuters concluded that 5,125 lives could be saved every year in the coal belt by enforcing national air quality standards on soot, otherwise known as particulate matter.

The air in Emalahleni, it said, contains around 20% more particulate matter than the nation’s limit of 40 micrograms per cubic meter, and more than three times more than recommended by the World Health Organization.

The region’s sulphur dioxide levels, meanwhile, are off the charts. The non-profit Centre for Research on Energy and Clean Air this month found Eskom alone emits more SO2 than the entire power sector of the United States and China combined.

Clearing up the air would require a crackdown on polluting industries.

Eskom environmental manager Deidre Herbst told Reuters the government waivers allowing his company to exceed pollution limits were an economic necessity: it would cost 300 billion rand ($20 billion) and take 10-15 years to fully meet national SO2 standards, leading to prolonged outages in the meantime.

“It’s impossible for us to become immediately compliant,” she said, and South Africa can’t simply switch off all its coal plants.

Sasol spokesperson Matebelo Motloung said the company’s emissions were permitted under its operating licenses and that the company hoped to embrace cleaner technologies in the future.

‘PEOPLE WERE SICK AND DYING’

Matabule had not imagined the haze in her neighborhood was behind her childrens’ illness until she attended a local meeting about air pollution and heard the stories of neighbors.

“I became so angry because nobody was doing anything, and people were sick and dying,” Matabule said.

But, like her husband who relies on coal for a paycheck, many in her community are wary of a transition to cleaner energy.

Vosman resident Valentia Msiza, 33, said her family has done well since her husband got his job in the coal mines. They worry a transition could leave them behind.

They, too, have a child with respiratory problems – and they can’t pay for his care without the husband’s salary and health insurance. The family is seeking a medical specialist to treat their toddler’s lung disease.

“That’s our last hope now,” Valentia said.

Editing by Richard Valdmanis and Brian Thevenot

Our Standards: The Thomson Reuters Trust Principles.

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For Britain’s chicken farmers, Brexit and COVID brew a perfect storm

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DRIFFIELD, England, Oct 18 (Reuters) – When Nigel Upson checks the plucked chicken carcasses dangling from a rotating line at his poultry plant in England, he sees cash haemorrhaging out of his business from a collision of events that has distressed every part of the farm-to-fork supply chain.

Like food manufacturers across Britain, Upson was hit this year by an exodus of eastern European workers who, deterred by Brexit paperwork, left en masse when COVID restrictions lifted, compounding his already soaring cost of feed and fuel.

Such is the scale of the hit, he cut output by 10% and hiked wages by 11%, a rise that was immediately matched or bettered by neighbouring employers in the northeast of England.

Increases in the cost of food will surely follow.

“We’re being hit from all sides,” Upson told Reuters in front of four vast, spotless sheds that house 33,000 chickens apiece. “It is, to use the phrase, a perfect storm. Something will have to give.”

The deepening problems at Upson’s Soanes Poultry plant in east Yorkshire are a microcosm of the pressures building on businesses across the world’s fifth largest economy as they emerge from COVID to confront the post-Brexit trade barriers erected with Europe.

In the broader food sector, operators have increased wages by as much as 30% in some cases just to retain staff, likely forcing an end to an economic model that led supermarkets such as Tesco (TSCO.L) to offer some of the lowest prices in Europe.

Following the departure of European workers who often did the jobs that British workers didn’t want, retailers may have to import more.

While all major economies have been hit by supply chain problems and a labour shortage after the pandemic, Britain’s tough new immigration rules have made it harder to recover, businesses say.

Already a driver shortage has led to a lack of fuel at gas stations and gaps on supermarket shelves, while chicken restaurant chain Nandos ran out of chicken.

The Bank of England is weighing up how much of a recent jump in inflation will prove long-lasting, requiring it to push up interest rates from their all-time low.

MOUNTING PRESSURE

For the rural businesses situated near the flat, open fields of Yorkshire, Upson says the situation is dire.

Although he says he needs 138 workers for his plant, he recently had to operate with under 100. Staff turnover is high.

Richard Griffiths, head of the British Poultry Council, says that with Europeans making up about 60% of the sector, the industry has lost more than 15% of its staff.

When numbers are particularly tight Upson gets his sales, marketing and finance staff to don the long white coats and hairnets that are needed on the processing line.

“Three weeks ago the offices were empty, everyone was in the factory,” he said, of a business that supplies high-end birds for butchers, farm shops and restaurants. For the run-up to Christmas, he may look to students.

On difficult days Soanes can only deliver the absolute basics – chickens piled into boxes. They do not have time to truss the birds for retail or put them into separate, Soanes-labelled packaging that commands a higher selling price.

Around 3 tonnes of offal that is normally sold each week is going in the skip due to the lack of staff to process it.

The sudden rise in wages and the drop in output also come on top of spikes in the cost of animal feed, energy and fuel, carbon dioxide, cardboard and plastic packaging.

A worker processes chickens on the production line at the Soanes Poultry factory near Driffield, Britain, October 12, 2021. REUTERS/Phil Noble

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“We’ve just had to say to our customers, sorry, the price is going up,” Upson said, shaking his head. “We’re losing money, big style.” The poorest consumers would be hardest hit, he said.

Business owners have urged the government to temporarily ease visa rules while they do the staff training and automation of processes needed to help close Britain’s 20-year, 20% productivity gap with the United States, Germany and France.

But far from changing course, Prime Minister Boris Johnson says businesses need to cut their addiction to cheap foreign labour now, invest in technology and offer well-paid jobs to some of the 1.5 million unemployed people in Britain.

Upson says there is a shortage of workers in rural communities and with some 1.1 million job vacancies in the country, people can be choosy about which they pick. “Working in a chicken factory isn’t everybody’s idea of a career,” he said.

While 5,500 foreign poultry workers will be allowed to work in Britain before Christmas, and the UK will offer emergency visas to 800 foreign butchers to avoid a mass pig cull sparked by a shortage in abattoirs, the industry says it needs more.

As for automation, the production of whole birds is already highly mechanised, and while it could be used more for boneless meat and convenience cuts, the cost is prohibitive for a small operator.

The National Farmers’ Union and other food bodies said in a recent report that parts of the UK’s food and drink supply chain were “precariously close to market failure”, limiting the ability to invest in automation.

Soanes has an annual turnover of around 25 million pounds ($34 million). In the last three years its owners have spent 5 million on expansion. Now output must fit the size of the workforce.

TOO CHEAP

According to “Chicken King” Ranjit Singh Boparan, founder of the UK’s biggest producer, 2 Sisters, food prices must now rise.

“Food is too cheap,” he said. “In relative terms, a chicken today is cheaper to buy than it was 20 years ago. How can it be right that a whole chicken costs less than a pint of beer?”

Upson says he can get a higher price selling bones for pet food than he can for a leg of chicken.

For major producers, the main barrier to higher prices is often the purchasing power of the biggest supermarkets, which have since the 2008 financial crash battled to keep prices down for key items such as fruit, vegetables, bread, meat, fish and poultry.

Sentinel Management Consultants’ CEO David Sables, who coaches suppliers on how to negotiate with British supermarkets, said desperate food producers had already pushed through some price rises, and he expects another round to come in early next year.

With chicken a so-called “known value item”, of which shoppers instinctively know the cost, he said supermarkets would likely push the price rises on to other goods. He described the chicken sector as an “absolute horror show”.

One senior executive at a major supermarket group, who asked not to be named, said retailers were under pressure to “hold the line” on key prices, and that they all watch each other.

“If you see one of the big six move (on price), you can bet your damnedest others will take about 12 hours to follow,” he said.

Back in Yorkshire, Upson and others are praying they do. While he acknowledges Johnson’s desire to move to a “high-wage, high-skills” economy, he said not all jobs fit that bill.

“What skill do you need to put chicken in a box?” he asks. “We can put wages up, but prices will go up.” He is starting to despair. “Normally you can just be pragmatic and say, it will sort itself out. But I’m not sure where this one ends.”

($1 = 0.7277 pounds)

Writing by Kate Holton; Editing by Guy Faulconbridge and Jan Harvey

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How green champion Sweden could end up exporting its carbon sins

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  • Court ruling threatens Sweden’s biggest cement factory
  • Any closure could lead to imports with higher carbon costs
  • ‘Carbon leakage’ an issue for leaders at COP26 in Glasgow
  • Local green goals may be at odds with global targets

STOCKHOLM, Oct 18 (Reuters) – When a Swedish court ordered the country’s biggest cement maker to stop mining limestone by its huge factory on the windswept island of Gotland to prevent pollution, ecologists cheered.

Besides protecting wildlife and water supplies, the ruling could force the plant that makes 75% of Sweden’s cement and is the country’s second biggest carbon emitter to slash output while it finds raw materials elsewhere, or even shut altogether.

That might be good for Sweden’s emissions targets, but not such good news for the rest of the planet.

A government-commissioned report seen by Reuters said it could force Sweden to import cement from countries that pump out more emissions in the overall manufacturing process – or risk massive job losses in the construction industry at home.

“Imports from countries outside the EU would probably lead to larger environmental impacts as a result of lower standards related to CO2 emissions and lower standards in land use,” the report, obtained via a freedom of information request, said.

Sweden’s dilemma encapsulates one the challenges facing nations meeting in Glasgow for the U.N. COP26 climate talks: how to show they are not cutting emissions by simply exporting the problem elsewhere – a phenomenon known as “carbon leakage”.

A rich, stable Nordic democracy, Sweden has long topped international environmental rankings and has managed to cut back on greenhouse gases for years while preserving economic growth on a path towards its target of net zero emissions by 2045.

It has the world’s highest carbon tax at $137 per tonne and is a leader in the use of renewable energy. In 2018, its carbon emissions per head stood at 3.5 tonnes, well below the European Union average of 6.4 tonnes, according to World Bank data.

But the stand-off over the Slite cement plant epitomises the growing tension between local environment goals and the 2015 Paris Agreement signed by nearly 200 countries to try to limit global warming to 1.5 Celsius.

“We have to weigh up the global focus – doing the most for the climate – but also maintain our high ambitions when it comes to our local environmental problems,” Sweden’s Minster for Environment and Climate Per Bolund told Reuters. “These two things can be balanced.”

ALTERNATIVE FUELS

Much of Europe’s imported cement comes from Turkey, Russia, Belarus and countries in North Africa.

They don’t have anything like the EU’s Emissions Trading System (ETS), the world’s largest carbon market and one that sets the price of carbon permits for energy-intensive sectors, including cement, within the 27-nation bloc.

The World Bank says only 22% of global emissions were covered by pricing mechanisms last year and the International Monetary Fund put the average global price of carbon at $3 a tonne – a tiny fraction of Sweden’s carbon tax. read more

While the Swedish court’s decision was not linked to Slite’s carbon footprint, but rather the risks its quarry poses to local groundwater, the impact from an emissions point of view depends on the efficiency and energy mix of the producers likely to supply Sweden with cement to plug any shortfalls.

Slite’s owner, Germany’s HeidelbergCement (HEIG.DE), also plans to make it the world’s first carbon neutral cement factory by 2030, but the uncertainty over its future following the court ruling may delay or even scupper the project.

“We need a decision soon on the long-term basis for these operations if that is not to be delayed,” Magnus Ohlsson, chief executive of HeidelbergCement’s Swedish subsidiary Cementa, said last month.

Koen Coppenholle, head of European cement lobby group Cembureau, said he was confident European plants were “cleaner” overall because high EU carbon charges on producers had encouraged them to invest in reducing their emissions.

“In Europe, right now, we are replacing 50% of our primary fuel needs by alternative fuels,” he said

Reuters Graphics

According to Cembureau data, however, imports of cement from outside the EU have jumped by about 160% in the last five years, even though total volumes remain relatively small.

But carbon leakage, where emissions are shifted from countries with tight environmental rules to ones with laxer and cheaper regimes, is an issue for dozens of industries and policymakers are trying to tackle it.

In July, the EU unveiled plans for the world’s first carbon border tax to protect European industries, including cement, from competitors abroad whose manufacturers produce at lower cost because they are not charged for their carbon output.

Europe’s cement industry supports the move, but warns it is fraught with difficulties, such as how to measure emissions in different countries given varying processes and fuels.

“If you impose strict requirements on CO2 and emissions, you have to make sure you do that in a way that you don’t push companies outside the EU,” said Coppenholle. “That’s the whole discussion on carbon leakage.”

For a country such as Sweden, which has cut its emissions by 29% over the last three decades, the issue of domestic action versus global impact goes beyond cement.

The country’s already low, and declining, emissions from domestic production dropped to just under 60 million tonnes of carbon equivalent in 2018.

But if you measure what Swedes consume, including goods and services produced abroad, the figure is about a third higher, according to Statistics Sweden, which put so-called consumption-based emissions at 82 million tonnes that year.

CLIMATE IS GLOBAL

The local versus global perspective also raises questions about which type of industrial policy is ultimately greener.

Sweden’s leading steel firm SSAB (SSABa.ST), state-owned miner LKAB and utility Vattenfall, for example, have invested heavily in developing a process to produce steel without using fossil fuels. read more

They say switching to so-called green hydrogen power would reduce Sweden’s emissions by about 10%, a big step towards reaching the country’s 2045 net zero emission goal.

But for researchers Magnus Henrekson at the Research Institute for Industrial Economics, Christian Sandstrom at Jonkoping International Business School and Carl Alm at the Ratio Institute, this is an example of the “environmental nationalism” that benefits one country, but not the world.

They estimate that if Sweden exported the renewable energy it would use to make hydrogen to Poland and Germany instead – so they could cut back on coal-fired power – overall CO2 emissions would fall by 10 to 12 times more than by making “green” steel.

The EU’s carbon border levy, meanwhile, is only due to be phased in from 2026, potentially too late to have a bearing on the fate of Cementa’s Slite limestone quarry.

Sweden’s parliament has agreed to a government proposal to tweak the country’s environmental laws to give Cementa a stay of execution, but no long-term solution is in sight.

Environmentalists such as David Kihlberg, climate head at the Swedish Society for Nature Conservation, say easing regulations gives industries an excuse to put off changes that need to happen now.

“It would be incredibly destructive for climate diplomacy if Sweden came to the top climate meeting in Glasgow and said our climate policy is to increase emissions and the local environmental impact in order to pull the rug from under Chinese cement producers,” he said, referring to a hypothetical scenario that is not Swedish policy.

“The climate question is global and has to be solved by cooperation between countries.”

Editing by Mark John and David Clarke

Our Standards: The Thomson Reuters Trust Principles.

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Business

After the ‘bazooka’, Bank of Japan dismantles the work of its radical chief

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Bank of Japan Governor Haruhiko Kuroda attends a news conference in Tokyo, Japan, January 21, 2020. REUTERS/Kim Kyung-Hoon/File Photo

TOKYO, Sept 13 (Reuters) – After years of shock-and-awe stimulus, the Bank of Japan is quietly rolling back radical policies introduced by its bold chief Haruhiko Kuroda and pioneering controversial new measures that blur the lines between central banking and politics.

The unwinding of Japan’s complex policy is driven by Deputy Governor Masayoshi Amamiya, insiders say, a career central banker considered the top contender to replace Governor Kuroda whose term ends in 2023.

Amamiya and his top lieutenant Shinichi Uchida have worked behind the scenes to make Kuroda’s complicated policy framework–a product of years of unsuccessful attempts to revive stagnant consumer prices–more manageable, and eventually return Japan to more normal interest rate settings, even as the economy struggles with the pandemic. read more

The BOJ’s dwindling monetary options mean the two ambitious technocrats are instead pushing the bank into schemes bordering on industrial policy, such as those designed to encourage bank sector consolidation and green finance. read more

The most decisive and latest swing in policy direction, though not formally communicated, came in the BOJ’s March meeting when it announced it would no longer commit to a fixed programme of risky asset purchases, an inconspicuous sign it was slowing its monetary support. read more

“With the March move, the BOJ laid the groundwork for an eventual policy normalisation,” said a close associate of Kuroda with knowledge on the central bank’s policy deliberations.

This account of events around the March meeting is based on interviews with more than two dozen incumbent and former central bank and government officials, ruling and opposition lawmakers and academics with direct or indirect knowledge of monetary policy decisions. The BOJ declined to comment for the story and declined a request by Reuters for interviews with Amamiya and Uchida.

“The current stimulus can’t stay forever and must be rolled back at some point,” said a former BOJ policymaker who was involved in the March decision. “That’s always in the mind of career central bankers.”

Officially, the change in March was aimed at extending the lifespan of stimulus policies championed by Kuroda, the man once seen as a bold visionary who could shock the economy out of deflation with his “bazooka” asset-buying programme.

However, insiders say there was another motive: to pave the way for an eventual retreat from these very policies.

While that intention was hidden from markets, it would mark a symbolic end to Kuroda’s bold experiment based on the text-book theory that forceful monetary action and communication can influence public price expectations and drive inflation higher.

“It’s as if the BOJ is trying to prove itself by doing something new all the time,” said former BOJ deputy governor Hirohide Yamaguchi. “What’s become clear is that the BOJ can’t affect and mould public mindset like jelly.”

Prime Minister Yoshihide Suga’s decision to step down this month could make questions around BOJ communication, ultra-loose policy and Kuroda’s eventual successor hot issues for Japan’s next leader.

Once seen as a symbol of decisive monetary easing, Kuroda appears to be taking a back seat with recent BOJ forecasts predicting inflation will miss the bank’s elusive 2% target well beyond his term ending in 2023. read more

He has also acknowledged the need to address the strains ultra-low interest rates have on financial institutions.

Only half of his six speeches so far this year were about monetary policy, in contrast to his first year as governor in 2013, when all but two of his 15 speeches focused on monetary policy.

With his emphatic advocacy for 2% inflation fading, Kuroda is writing a memoir touching on topics ranging from encounters with various overseas policymakers, to pizza he ate during a business trip to Naples, according to his associates. read more

“He probably enjoys reading books on philosophy more than chairing board meetings,” one said jokingly of the bookish governor.

UNSCRAMBLING EGGS

The planning for an eventual exit from Kuroda-era stimulus remains closely held and has not been part of the bank’s official communication.

But a gradual retreat has been under way since 2016, when the BOJ replaced a pledge to pump money at a set pace with a policy controlling interest rates.

A fan of classical music known as “Mr. BOJ” for drafting numerous monetary easing schemes, Amamiya has since early last year been orchestrating a more concerted rollback of the very stimulus he helped Kuroda create. read more

Details would be worked out by Uchida, who, like Amamiya, has been groomed to move up the BOJ ranks armed with “a wealth of ideas and an extremely sharp mind,” say people who have worked with or under him.

The challenge was to mitigate the rising cost of prolonged easing to financial institutions, without giving markets the impression the BOJ was headed for a sharp exit from easy policy.

Amamiya gave the go-ahead to a controversial scheme unveiled in November, under which the BOJ pays 0.1% interest to regional lenders that boost profits or consolidate.

It was a nod to complaints from regional banks the BOJ’s negative rate policy was narrowing already thin margins, and reflected concern among policymakers that chronically low rates could destabilise the banking sector.

“It’s essentially a scheme to compensate regional banks for the blow from negative rates,” one source said.

By mid-2020, the bureaucrats were also debating ways to address what has been their biggest headache: the BOJ’s huge holdings of exchange-traded funds (ETF) that exposed its balance sheet to potential losses from market swings.

For years, the government relied on the BOJ to set a price floor for Japan’s stock market, discouraging central bankers from ditching a pledge to purchase ETFs at a set pace.

But as stocks kept rising, the political mood shifted. Lawmakers began to complain about the distortion the BOJ’s huge presence was causing in the share market.

Last year, an opportunity arose: after ramping up buying to ease market turbulence caused by the pandemic, the BOJ began to scale back purchases and found markets taking the tapering in stride.

That convinced BOJ officials the bank could terminate buying without upending markets, as long as it gave assurances that it would still intervene in times of crisis.

“The BOJ made an absolutely right decision by starting with an ETF taper in heading toward an exit from easy policy,” said former trade minister and opposition heavyweight Banri Kaieda, who was once a vocal proponent of aggressive monetary easing.

BLURRED LINES

The next step would be to raise interest rates–the first hike since 2007–and mop up excess cash from the market.

The March move laid the groundwork for that step. But a rate hike could take years due to subdued inflation and will likely be left to Kuroda’s successor, sources say.

“If the BOJ is lucky, the debate (on raising rates) could begin from around 2023,” former BOJ executive Eiji Maeda told Reuters.

“But this won’t be policy normalisation. It will merely be a shift away from an extraordinary stimulus towards a more sustainable monetary easing,” said Maeda, who was involved in the drafting of the current stimulus.

Selling the BOJ’s huge ETF holdings will be even tougher. While bureaucrats have internally brainstormed ideas, there is no consensus on when and how this could be done, sources say.

To be sure, policymakers both inside and outside the BOJ say stimulus of some kind is still needed to support the struggling economy, and that is unlikely to change when Suga steps down.

That would leave the central bank in a holding pattern, even as its global peers eye exits from crisis-mode stimulus, and force the BOJ to use unconventional initiatives outside the monetary toolbox to juice the economy.

Those include a scheme unveiled in July, which offers cheap funds to banks that lend to activities aimed at battling climate change. read more

That plan meshes with Suga’s pledge to make Japan carbon-neutral by 2050, a sign the BOJ is controversially aligning its policy with government priorities.

Such a proposal is typical of Amamiya, who knows which way the political wind is blowing and can adapt flexibly to shifts in popular opinion, say people who have worked with him.

“We ought to avoid intervening in asset allocation as much as possible. But there’s no simple, ever-lasting line you can draw on what’s acceptable or not,” Amamiya said in July.

“As economies become more sophisticated…the requirements of economic policy become more complex and difficult too.”

Such forays into quasi-government policy highlight the BOJ’s current lack of conventional policy ammunition and take it into uncharted waters politically.

Miyako Suda, a former BOJ board member, said many of the bank’s new programmes leave it with less autonomy over when to withdraw stimulus than they have with conventional policy tools.

“It’s no longer a decision the BOJ alone can make,” she said. “When the government and the BOJ are working side by side heading for the same direction, things go fine – the problem is when the two part ways.”

Reporting by Leika Kihara; Additional reporting by Tetsushi Kajimoto, Takaya Yamaguchi, Kaori Kaneko, Kentaro Sugiyama and Takahiko Wada; Editing by Sam Holmes

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World

The day the music died: Afghanistan’s all-female orchestra falls silent

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  • All-female orchestra was a symbol of change in Afghanistan
  • Members fled or went into hiding after Taliban victory
  • Some broke up instruments, burned documents
  • Taliban have said women will have rights, no vendettas
  • But movement’s past actions mean people remain fearful

Sept 3 (Reuters) – Negin Khpalwak was sitting at her home in Kabul when she got word that the Taliban had reached the outskirts of the capital.

The 24-year old conductor, once the face of Afghanistan’s renowned all-female orchestra, immediately began to panic.

The last time the Islamist militants were in power, they banned music and women were not allowed to work. In the final months of their insurgency, they carried out targeted attacks on those they said had betrayed their vision of Islamic rule.

Dashing around the room, Khpalwak grabbed a robe to cover her bare arms and hid away a small set of decorative drums. Then she gathered up photographs and press clippings of her famed musical performances, put them in a pile and burnt them.

“I felt so awful, it felt like that whole memory of my life was turned into ashes,” said Khpalwak, who fled to the United States – one of tens of thousands who escaped abroad after the Taliban’s lightning conquest of Afghanistan.

The story of the orchestra in the days following the Taliban’s victory, which Reuters has pieced together through interviews with members of Khpalwak’s music school, encapsulates the sense of shock felt by young Afghans like Khpalwak, particularly women.

The orchestra, called Zohra after the Persian goddess of music, was mainly made up of girls and women from a Kabul orphanage aged between 13 and 20.

Formed in 2014, it became a global symbol of the freedom many Afghans began to enjoy in the 20 years since the Taliban last ruled, despite the hostility and threats it continued to face from some in the deeply conservative Muslim country.

Wearing bright red hijabs, and playing a mix of traditional Afghan music and Western classics with local instruments like the guitar-like rabab, the group entertained audiences from the Sydney Opera House to the World Economic Forum in Davos.

Today, armed Taliban guard the shuttered Afghanistan National Institute of Music (ANIM) where the group once practised, while in some parts of the country the movement has ordered radio stations to stop playing music.

“We never expected that Afghanistan will be returning to the stone age,” said ANIM’s founder Ahmad Sarmast, adding that Zohra orchestra represented freedom and female empowerment in Afghanistan and its members served as “cultural diplomats”.

Sarmast, who was speaking from Australia, told Reuters the Taliban had barred staff from entering the institute.

“The girls of Zohra orchestra, and other orchestras and ensembles of the school, are fearful about their life and they are in hiding,” he said.

A Taliban spokesman did not immediately respond to questions about the status of the institute.

Since returning to power as the final Western soldiers withdrew from the country, the Taliban have sought to reassure Afghans and the outside world about the rights they would allow.

The group has said cultural activities as well as jobs and education for women would be permitted, within the confines of sharia and Afghanistan’s Islamic and cultural practices.

INSTRUMENTS LEFT BEHIND

While Khpalwak frantically burned her musical memories on Aug. 15, the day the Taliban marched into Kabul without a fight, some of her peers were attending a practice at ANIM, preparing for a big international tour in October.

At 10 a.m., the school’s security guards rushed into the rehearsal room to tell the musicians that the Taliban were closing in. In their haste to escape, many left behind instruments too heavy and conspicuous to carry on the streets of the capital, according to Sarmast.

Members of the Zohra orchestra, an ensemble of 35 women, practises during a session, at Afghanistan’s National Institute of Music, in Kabul, Afghanistan April 4, 2016. REUTERS/Ahmad Masood

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Sarmast, who was in Australia at the time, said he received many messages from students worried about their safety and asking for help. His staff told him not to return to the country because the Taliban were looking for him and his home had been raided several times.

The dangers facing performers in Afghanistan were brutally highlighted in 2014, when a suicide bomber blew himself up during a show at a French-run school in Kabul, wounding Sarmast who was in the audience.

At the time, Taliban insurgents claimed the attack and said the play, a condemnation of suicide bombings, was an insult to “Islamic values”.

Even during 20 years of a Western-backed government in Kabul, which tolerated greater civil liberties than the Taliban, there was resistance to the idea of an all-female orchestra.

Zohra orchestra members have previously spoken about having to hide their music from conservative families and being verbally abused and threatened with beatings. There were even objections among young Afghans.

Khpalwak recalled one incident in Kabul when a group of boys stood attentively watching one of their performances.

As she was packing up, she overheard them talking amongst themselves. “What a shame these girls are playing music”, “how have their families allowed them?”, “girls should be at home”, she recalled them saying.

‘TREMBLING IN FEAR’

Life under the Taliban could be much worse than whispered jibes, said Nazira Wali, a 21-year-old former Zohra cellist.

Wali, who was studying in the United States when the Taliban retook Kabul, said she was in touch with orchestra members back home who were so fearful of being found that they had smashed their instruments and were deleting social media profiles.

“My heart is trembling in fear for them, because now that the Taliban are there we can’t predict what will happen to them within the next moment,” she said.

“If things continue as they are, there will be no music in Afghanistan.”

Reuters reached out to several orchestra members left in Kabul for this story. None responded.

Khpalwak managed to escape from Kabul a few days after the Taliban arrived, boarding an evacuation flight alongside a group of female Afghan journalists.

Tens of thousands of people flocked to Kabul’s airport to try and flee the country, storming the runway and in some cases clutching on to the outside of departing planes. Several died in the chaos.

Khpalwak is too young to fully remember life under the Taliban’s previous rule, but arriving in the capital as a young girl to attend school sticks in her memory.

“All I saw was ruins, downed houses, holes in bullet-ridden walls. That’s what I remember. And that’s the image that comes to mind now when I hear the name of the Taliban,” she said.

In the music school she found solace, and among her Zohra orchestra bandmates “girls closer than family”.

“There wasn’t a single day that was a bad day there, because there was always music, it was full of colour and beautiful voices. But now there is silence. Nothing is happening there.”

Editing by Mike Collett-White

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Business

Wolfsburg, we have a problem: How Volkswagen stalled in China

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BEIJING, Aug 9 (Reuters) – In late December 2019, managers at Volkswagen (VOWG_p.DE) headquarters in Wolfsburg realised they might have a serious problem in China, the company’s biggest market and ticket to its electric future.

Its flagship Passat sedan had fared badly in an unofficial safety test carried out by an insurance industry body which simulated a front-on driver’s side collision, a test that’s been widely used in the United States for around a decade.

The car was mangled. The crash-test video went viral, attracting millions of views and triggering a social media furore across China, where the German auto king’s success is built on its reputation for superior quality and engineering.

Volkswagen was not obliged to do anything – the Passat had passed the Chinese regulator’s frontal collision test, the same test that’s used in much of Europe, and one that the carmaker and many industry experts believe better reflects driving conditions in China.

Nonetheless, Wolfsburg acted swiftly, according to two people with direct knowledge of the matter. Days after the test results were announced, it assembled a team of dozens of engineers and managers to work with SAIC-Volkswagen, the 50/50 joint venture that makes Passats in China, they said.

In early 2020, that team decided that strengthening metal components should be added to the front of all new Passats and a variety of other models made at the Shanghai-based venture, at a cost of about 400 yuan ($62) per vehicle, according to the sources.

That structural modification, details of which have not been previously reported, would amount to tens of millions of dollars for the hundreds of thousands of vehicles that would be affected at the venture a year, the sources said. It was a significant cost for a company that had said it was trying to trim manufacturing costs in China and globally.

The intervention in the face of online consumer activism underlines the importance of China, the world’s biggest car market, and one which Volkswagen is relying on to fund its 35-billion-euro ($42 billion) transition to electric vehicles and make good on its pledge to overtake Tesla Inc (TSLA.O) to become global EV leader by 2025.

Global automakers’ expensive renunciation of oil comes at a time when they can no longer count on the dominance they have enjoyed in decades gone by in China, where they’re feeling the heat from local gasoline and electric players challenging them on technology and design.

A Volkswagen spokesperson said it developed products specifically for the Chinese market and that the test failed by the Passat had simulated a head-on collision between two cars, a scenario it said was less likely in China than the United States.

“In China there are central barriers on the highways,” Volkswagen added. “In China there aren’t normally as many trucks or pickup trucks compared to U.S. traffic scenarios.”

Asked about the 400-yuan modification, the spokesperson said Volkswagen was constantly improving its products according to customer feedback, and to make them safer.

‘UTMOST IMPORTANCE FOR VW’S HEALTH’

It’s difficult to compare designs of Passats across Volkswagen’s markets as they are often fundamentally different vehicles built on different production platforms.

The new Passat in China was the first model to have such a structural modification when it was rolled out in mid-2020, according to the sources. It passed the insurance industry test that its predecessor had failed.

But the reputational and financial damage has proved more persistent for Volkswagen, which has been the top-selling foreign carmaker in China and has made largely healthy profits during its over three decades there, the longest of any overseas player.

Volkswagen’s profit per vehicle in the country has fallen from levels of 1,400-1,500 euros around 2015 to around 1,000 euros and even closer to 800 euros in most recent quarters, according to Bernstein analysts who described China as “of utmost importance for VW’s financial health”.

Sales of the Passat, and more broadly at the venture with SAIC Motor (600104.SS), have slumped – something Volkswagen has attributed mainly to the backlash over the failed crash test, as well as product lineup issues and a global chip shortage.

In a sign of the financial pressures facing the industry, one internal memo, seen by Reuters, showed SAIC-Volkswagen’s finance team ordered managers to cut costs at workshops by 30% in 2019, versus the year before, when China’s car sales dropped for the first time since 1990s.

Volkswagen declined to comment on the Bernstein profitability figures or the internal memo.

SAIC-Volkswagen’s revenue dropped 26% to 174.5 billion yuan last year versus 2019, while profit fell 23% to 31 billion yuan. Sales of the Passat, once one of the best-sellers in its sedan class before the insurance body’s test, fell 32% to 145,805 vehicles, according to consultancy LMC Automotive.

While the COVID-19 pandemic clearly played a big role, the decline at the venture was far steeper than the overall 6.8% fall in Chinese passenger vehicle sales in the same period, according to data from the China Passenger Car Association.

Moreover Volkswagen’s other main venture in the country, with local automaker FAW – whose products were not involved in the crash test controversy – saw sales rise 1.5%, though VW officials say it gained momentum by introducing SUVs and premium Audi models to the market.

The two joint ventures make up the bulk of Volkswagen’s Chinese business, accounting for all its local production. They have historically been close in numbers of vehicles sold, though FAW has taken the lead in recent years.

There’s been no respite for SAIC-Volkswagen in 2021, with sales falling 7.8% in the first six months compared with a year earlier when the pandemic raged. FAW-Volkswagen saw sales grow 23% while overall Chinese passenger car sales jumped about 29%.

CRASH TEST FRACTURED ‘A-PILLAR’

The C-IASI test that the Passat initially failed in 2019 was developed by a Chinese insurance industry body, the CIRI Auto Technology Institute, which was unsatisfied with the standard C-NCAP test conducted by CATARC, a government-backed vehicle testing agency.

It said many insurers felt that C-NCAP failed to distinguish in enough detail between vehicles in terms of collision safety, and started publishing test results in 2018.

Most foreign car brands received positive results in the C-IASI test, though even those that fared poorly did not receive the online backlash that was aimed at the Passat.

The C-IASI test subjects 25% of the car’s front to a head-on impact. It fractured the Passat driver’s side front roof support, known as the A-pillar.

The standard C-NCAP test hits 40% of the car front, which allows the impact to be better absorbed.

The CIRI and CATARC did not respond to requests for comment.

In the United States, a 25% frontal impact test is used by the Insurance Institute for Highway Safety (IIHS), a nonprofit group funded by auto insurers. IIHS tests are widely publicized, and automakers design vehicles to pass them as well as federal crash tests.

Volkswagen’s China chief Stephan Woellenstein acknowledged in January that the failed crash test and subsequent online backlash had triggered the decline in Passat and SAIC venture sales.

Last month, though, he said Volkswagen had fixed the problems revealed by the test, that the ructions of the episode had subsided and the carmaker’s Chinese business was recovering.

“We have once again clearly one of the safest cars on the market in this segment,” Woellenstein told reporters in July. “We will once again take up the old leadership of the Passat.”

But there is quite some ground to regain in the large family car segment.

A total of 47,480 Passats were sold in the first six months of this year in China, some way behind the 91,110 Toyota Camrys (7203.T) and 89,157 Honda Accords (7267.T), according to LMC.

The figures from the same period of 2019, before the pandemic struck, show how steeply the Volkswagen model has fallen away of late: 91,400 Passats were sold versus 111,968 Accords and 85,396 Camrys.

($1 = 6.4610 Chinese yuan renminbi; $1 = 0.8423 euros)

Reporting by Yilei Sun and Tony Munroe; Additional reporting by Jan Schwartz and Christoph Steitz; Editing by Joe White and Pravin Char

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Business

Global supply chains buckle as virus variant and disasters strike

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LONDON/BEIJING, July 23 (Reuters) – A new worldwide wave of COVID-19. Natural disasters in China and Germany. A cyber attack targeting key South African ports.

Events have conspired to drive global supply chains towards breaking point, threatening the fragile flow of raw materials, parts and consumer goods, according to companies, economists and shipping specialists.

The Delta variant of the coronavirus has devastated parts of Asia and prompted many nations to cut off land access for sailors. That’s left captains unable to rotate weary crews and about 100,000 seafarers stranded at sea beyond their stints in a flashback to 2020 and the height of lockdowns.

“We’re no longer on the cusp of a second crew change crisis, we’re in one,” Guy Platten, secretary general of the International Chamber of Shipping, told Reuters.

“This is a perilous moment for global supply chains.”

Given ships transport around 90% of the world’s trade, the crew crisis is disrupting the supply of everything from oil and iron ore to food and electronics.

German container line Hapag Lloyd (HLAG.DE) described the situation as “extremely challenging”.

“Vessel capacity is very tight, empty containers are scarce and the operational situation at certain ports and terminals is not really improving,” it said. “We expect this to last probably into the fourth quarter – but it is very difficult to predict.”

Meanwhile, deadly floods in economic giants China and Germany have further ruptured global supply lines that had yet to recover from the first wave of the pandemic, compromising trillions of dollars of economic activity that rely on them.

The Chinese flooding is curtailing the transport of coal from mining regions such as Inner Mongolia and Shanxi, the state planner says, just as power plants need fuel to meet peak summer demand.

In Germany, road transportation of goods has slowed significantly. In the week of July 11, as the disaster unfolded, the volume of late shipments rose by 15% from the week before, according to data from supply-chain tracking platform FourKites.

Nick Klein, VP for sales and marketing in the Midwest with Taiwan freight and logistics company OEC Group, said companies were scrambling to free goods stacked up in Asia and in U.S. ports due to a confluence of crises.

“It’s not going to clear up until March,” Klein said.

MORE PAIN FOR AUTOMAKERS

Manufacturing industries are reeling.

Automakers, for example, are again being forced to stop production because of disruptions caused by COVID-19 outbreaks. Toyota Motor Corp said this week it had to halt operations at plants in Thailand and Japan because they couldn’t get parts.

Stellantis temporarily suspended production at a factory in the U.K. because a large number of workers had to isolate to halt the spread of the virus.

The industry has already been hit hard by a global shortage of semiconductors this year, mainly from Asian suppliers. Earlier this year, the auto industry consensus was that the chip supply crunch would ease in the second half of 2021 – but now some senior executives say it will continue into 2022.

An executive at a South Korea auto parts maker, which supplies Ford, Chrysler and Rivian, said raw materials costs for steel which was used in all their products had surged partly due to higher freight costs.

“When factoring in rising steel and shipping prices, it is costing about 10% more for us to make our products,” the executive told Reuters, declining to be named due to the sensitivity of the matter.

“Although we are trying to keep our costs low, it has been very challenging. It’s just not rising raw materials costs, but also container shipping prices have skyrocketed.”

Europe’s biggest home appliances maker, Electrolux (ELUXb.ST), warned this week of worsening component supply problems, which have hampered production. Domino’s Pizza (DPZ.N) said the supply-chain disruptions were affecting the delivery of equipment needed to build stores.

U.S. AND CHINA STRUGGLE

Buckling supply chains are hitting the United States and China, the world’s economic motors that together account for more 40% of global economic output. This could lead to a slowdown in the global economy, along with rising prices for all manner of goods and raw materials.

U.S. data out Friday dovetailed with a growing view that growth will slow in the last half of the year after a booming second quarter fueled by early success in vaccination efforts.

“Short-term capacity issues remain a concern, constraining output in many manufacturing and service sector companies while simultaneously pushing prices higher as demand exceeds supply,” said Chris Williamson, chief business economist at IHS Markit.

The firm’s “flash” reading of U.S. activity slid to a four-month low this month as businesses battle shortages of raw materials and labor, which are fanning inflation. read more

It’s an unwelcome conundrum for the U.S. Federal Reserve, which meets next week just six weeks after dropping its reference to the coronavirus as a weight on the economy. read more

The Delta variant, already forcing other central banks to consider retooling their policies, is fanning a new rise in U.S. cases, and inflation is running well above expectations.

‘WE NEED TO SUPPLY STORES’

Ports across the globe are suffering the kinds of logjams not seen in decades, according to industry players.

The China Port and Harbour Association said on Wednesday that freight capacity continued to be tight.

“Southeast Asia, India and other regions’ manufacturing industry are impacted by a rebound of the epidemic, prompting some orders to flow to China,” it added.

Union Pacific (UNP.N), one of two major railroad operators that carry freight from U.S. West Coast ports inland, imposed a seven-day suspension of cargo shipments last weekend, including consumer goods, to a Chicago hub where trucks pick up the goods.

The effort, which aims to ease “significant congestion” in Chicago, will put pressure on ports in Los Angeles, Long Beach, Oakland and Tacoma, specialists said.

A cyber attack hit South African container ports in Cape Town and Durban this week, adding further disruptions at the terminals. read more

If all that were not enough, in Britain the official health app has told hundreds of thousands of workers to isolate following contact with someone with COVID-19 – leading to supermarkets warning of a short supply and some petrol stations closing.

Richard Walker, managing director of supermarket group Iceland Foods, turned to Twitter to urge people not to panic buy.

“We need to be able to supply stores, stock shelves and deliver food,” he wrote.

Additional reporting by Anna Ringstrom in Stockholm, Lisa Baertlein in Los Angeles, Hilary Russ in New York, Joe White in Detroit, Lucia Mutikani and Howard Schneider in Washington and Heekyong Yang in Seoul;
Editing by Simon Webb, Dan Burns and Pravin Char

Our Standards: The Thomson Reuters Trust Principles.

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