Sunday, December 10

Credit and Caution warns of risk of more defaults in the food sector

The increase in costs and the high competition of food sector in Spain threatens to increase the delinquency in the sector. It is one of the conclusions of a report carried out by Credit and caution, which considers that the deterioration of commercial margins and the gradual end of fiscal stimuli could cause an increase in defaults and insolvencies throughout the next few months.

Specific, Credit and caution forecasts that rising cost pressure on the sector, deteriorating markups and the gradual end of fiscal stimulus could lead to rising defaults and insolvencies, especially among smaller companies that have increased their indebtedness during the pandemic.

The credit insurer expects the added value of the sector to grow by around 2% this year. Although the demand for the restoration has increased since the first half of 2021, these experts consider it to be a “shaky recovery” due to the ongoing spread of the latest variants. Producers and processors in the main subsectors face high prices for raw materials, fertilizers and energy. The beverage segment has partially recovered from the significant drop in sales in 2020, although it has not yet reached pre-pandemic levels. In the fruit and vegetable segment, made up mainly of small businesses, the increase in exports partially offsets the problem of high prices for its inputs. In the meat segment, recently imposed import barriers from China have led to a sharp decline in pork prices which, in combination with rising energy and feed costs, has led to a deterioration in sales margins. the producers.

The situation is not exclusively Spanish. On a global level, the value chain of the food sector presents risks that are very similar to those faced in Spain. In many markets around the world, the margins with which food producing and processing companies work are structurally low and under pressure. But in Spain the distribution sector is very different than in other countries, with great weight of local brands and a highly competitive environment. The bargaining power of the large retailers and the discount channel is very high, but the Spanish buying centers also offer very competitive prices for independent or local chains. In any case, the tension in prices is exacerbated by the volatility of the prices of raw materials, the effects of the pandemic or the unpredictability of the weather “can potentially cause an immediate deterioration in the profitability of companies.”

The change in consumption habits is another element that can cause problems for some producers. The end customer is demanding more and more transparency from food and beverage manufacturers about their ingredients, production processes and supply chains, and whoever does not meet these demands can have difficulties, both suppliers and distributors.

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Credit and Caution experts recall that despite these difficulties, the demand for food and beverages is inelastic, due to the essential nature of their consumption. The polarization of income can pay the market to certain companies capable of offering their products to specific customer segments.

In this context, the food sector presents a high risk of default at the start of 2022, especially in the United Arab Emirates and a moderate risk in Germany, Belgium, Denmark, Slovakia, Spain, the United States, France, Mexico, New Zealand, the Netherlands, Portugal , United Kingdom, Czech Republic, Russia, Singapore or Sweden. The risk is low in Australia, Austria, Brazil, Canada, China, Hungary, India, Indonesia, Ireland, Italy, Japan, Poland, Switzerland, South Korea, Thailand, Taiwan, and Turkey.