Spain: A triple crisis announcing price rises in food
Increasing raw material, energy and logistics costs are putting a strain on companies' competitiveness in the second half of the year. Businesses are enduring a triple crisis which is also threatening employment and investment.
Many manufacturers and brands recognized that they are raising the prices of their products to protect their business, as they can no longer afford the cost increases and cut margins. FMCG companies, gathered at their annual congress by the employers' association AECOC, warned that they are bound to raise prices.
Doomed to price rises
According to Ignacio González, president of AECOC, an association representing more than 30,000 companies, "when companies have cost increases they try to absorb them so that they do not have an impact on the consumer, but we are condemned to have inflation". The intention of companies is to try to encourage consumption at the expense of their profitability. But inflation is suffocating them. "Inflation is a reality in front of us. A lot of things are happening and this has forced us to review our product portfolio", Campofrío's CEO confessed. This leading company in the meat sector "sees price rises as something that has to be faced if things continue like this".
Another group which admitted that it has raised its prices "in some of our brands" is Angulas Aguinaga. "We have to be able to protect our financial structure. It is not just a question of prices but of the business model ", its CEO said during the meeting. Last week it was Heinz's CEO who confessed that the group had raised prices to cope with the triple cost increases.
Those who, for the moment, remain silent are the large multinationals, such as Nestlé or Danone, for example.
The food and beverage industry association, FIAB, was also extremely concerned about the rise in costs. Specifically, its director general, Mauricio García de Quevedo, said that it poses a serious threat to employment and the recovery of the sector. He also explained that company investments will be reduced.
Juan Manuel Morales, general manager of the retail group IFA, remarked that "in the coming years, retailers have to double their investment to 4% of sales, in order to face digital transformation and sustainability". "Current conditions could discourage investment in new projects," García de Quevedo added.
The triple crisis
Energy costs, rising commodity prices and problems with transport and supply are already impacting on the CPI and pose a real risk to the country economy’s recovery," AECOC’s president stated. The added problem is that "from now on there are no forecasts of a fall, but rather the opposite, and the situation could get worse in the coming months".
The food manufacturing industry also recognized the impact of the increase in electricity prices, although it is not planning to stop production because of it, as companies in other sectors have done.
Another major problem facing companies is supply chain tension, caused by demand outstripping supply and transportation problems from China. In the case of Campofrío, for example, they admited that they are having problems finding some materials in the local market and, for this reason, they are increasing their stock or even standardizing alternative materials.
"The current situation is a huge challenge for a sector that has little room for manoeuvre. There is a solution in the short term, to bring household savings to the surface, but for that to happen, we need to generate confidence," Ignacio González concluded.
Taxation and regulation
And talking about confidence, another issue of concern for the sector is regulatory pressure and tax increases, with a strong emphasis on plastics.
For AECOC’s president, "taxation should not harm competitiveness" and regreted that attempts are being made to change consumption habits via taxes, such as the increase in the price of soft drinks in some Spanish regions to combat obesity. In addition, the ghost of a tax on junk food, as proposed by the Ministry of Consumer Affairs, is hovering over the sector.
He has been categorical, "we will not recover the economic level of 2019 until the beginning of 2023".
Besides that, Ignacio González, also Pescanova’s CEO, complained that public administrations ignore the claims of companies. According to him, "in Spain, every year some 12,000 new laws are passed, which, together with the administrative burden, is a clear brake on business development.
Limitations on the use of plastic
A topic highlighted during the meeting, which has been widely reported in the press in the last few weeks, is the limitations and taxes on plastics that will affect the food industry. Some experts estimate the additional costs of packaging at around €2 billion.
The plastics industry considers that the tax on non-reusable packaging constitutes a "disproportionate and, above all, useless discrimination in relation to other materials in order to improve environmental objectives". Its spokesman adds that "as well as having a very negative impact on all Spanish companies, it will affect consumers as the shopping basket could increase in price by up to 3%".
Both the food industry and plastic manufacturers have highlighted the problem that there is no substitute material that "provides the combinations of properties of plastics in terms of food safety, food preservation and contribution to avoiding food waste".
Several sources