The cost crisis shrinks the margins and complicates the drop in food


Food prices continue to be at the center of the concerns of the vast majority of Spaniards. He agreement reached this Monday between the French government and large retailers (the seven largest supermarkets accumulate a market share of 93% compared to 56.2% in Spain, according to Kantar) to create a list of products at reduced prices, to be chosen by each establishment and valid until June, the debate has revived on how to stop the escalation of the shopping cart in Spain. Especially in view of the modest results of the VAT reduction approved at the end of last year, which studies such as Fedea’s estimated at less than 40 euros on average in the first half of the year. The different actors in the agri-food chain (producers, industry, distribution) share the same diagnosis. The origin of this situation lies in the increase in production costs, which reduces business margins and which, in the end, turns it into an impossible mission? government efforts to tame inflation.

However, what happened in France this Monday includes another interesting derivative for the Spanish case. The French Minister of Economy, Bruno Le Maire, made the solemn promise that his department will publish all the figures of margins of farmers, industry and distribution. That is, to put white on black what each one earns. Is that possible in the case of our agri-food chain? Before answering this question, it is convenient to know what the aforementioned consists of. ‘cost inflation’.

Is someone making a living out of this?

In a conference in defense of the Spanish food system, organized in the Congress of Deputies by the Popular Party on March 3, the partner in Ernest & Young (EY) – Parthenon Retail and Consumption, José Antonio Latre, pointed to the lower cost and price growth within the agri-food chain. Especially in the last two links, industry and distribution. Specifically, based on statistics from the Ministry of Agriculture and the National Statistics Institute (INE) as of November 2022 (the most recent data in some cases), it highlighted that the prices received by farmers and ranchers they had risen an interannual average of 23.7% compared to 33.6% when agricultural goods and services had become more expensive. For its part, in the case of the agri-food industry, the Industrial Price Index (IPRI) evolved an interannual average of 16.4% in the same time while the general index of the CPI 11.2% did.

All of the above, in the opinion of this consultant, shows that the different actors (farmers, ranchers, industry, distribution…) would not be benefiting from the high prices to fatten their margins, but would be reducing them or transferring them to the consumer as little as possible. . sources of the National Association of Large Distribution Companies (ANGED)consulted by La Información, have recalled in a similar direction that up to 80% of their costs are from provisioning and that, in 2022, the spending of the first 22 Spanish distribution companies in this concept reached 8,400 million euros.

The impact on the margins of the distribution of the increase in the value of the products in origin and of the purchases from the processing industry marks a range of between 1.5 and 2%. Latre Ballarín calculated, in his presentation in Congress, that the average profitability of the top 40 distributors rolled 1.9% in 2021 and that, among the top 10 from 2013 to 2021, the average return moved in a wide range between 4.6% to -2.3%. While that of mass consumption manufacturers was 8.32% on average. All this, in a context, in which the price is analyzed with a magnifying glass, more than ever, by Spanish families.

‘Parafiscal costs’ and why they affect your pocket

To the above, Latre Ballarín (EY-Parthenon Retail and Consumption) added in the Congress of Deputies, another factor that plays an important role when it comes to multiplying costs and, finally, contributing to the rise in prices: the so-called ‘ parafiscal costs’. That is, all those related to the bureaucracy and certain regulations. Something that they have criticized since Anged, especially for the introduction this year of a new plastic tax. Spain has been the only country in its environment to do so.

“We are not facing a crisis of prices but of costs”, the president of Asaja, Pedro Barato, has reaffirmed in statements to La Información. The head of the main agrarian organization advises that this “it won’t stop until costs come down” and adds that, perhaps, “we have become accustomed to very cheap food”. Pedro Barato enunciates a series of ‘black swans’ that are hitting the primary sector in some way after Covid: the weather (drought)the war in Ukraine and the “prohibitive” policies from Europe “with which they ask us to produce more, which is impossible”. A reference to the new Common Agricultural Policy (CAP) and its strong green conditionality.

Knowing what each one wins Mission Impossible?

So, what are the margins of each link in the agri-food chain? What does each win? Is a transparency exercise similar to the one committed by the French government possible? The head of COAG Markets, Andoni García, recalled that the Food Chain Law (reformed at the end of 2021) authorizes and obliges the Chain Price Observatory to “to prepare studies on the value chain and publish cost indices”. In this sense, he pointed out that “only two value chain studies have been carried out on milk and olive oil” and that there are at least 7 pending studies to be carried out since 2020. One of them dedicated to nectarines. For the representative of this agricultural organization, it is “vital information for the consumer who, in this way, would know the average costs and what each operator does”. In this sense, he has regretted that food prices are no longer published as previous governments did.

At COAG they prepare the monthly Food Origin and Destination Price Index (IPOD)which measures the differences between what the producer and the consumer pay, resulting in the last delivery (of February) that products such as garlic, lemon, table olives and bananas could multiply their price up to 877%

For his part, Latre Ballarín (EY-Parthenon Retail and Consumption) warned in the Lower House against a fragmented agri-food chain, especially in the production and processing industry, with a high number of links with wholesalers at origin and destination as added actors. “Each value chain is specific for each type of product and consists of numerous cost-inducing activities in the process”, he maintained in his presentation.

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