Are you aware of the implications of the new Spanish Food Supply Chain Act?

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The  Spanish Ministry for Agriculture showed its commitment to ending up with abusive trading practices when the ‘measures for a better functioning food supply chain Act’ was published in August 2013.

In the words of the current Minister, Isabel García Tejerina, the objective of this regulation is providing legal certainty and transparency to business operations and balancing the supply chain in favor of the small producers who are its weaker part.  

The scope of this law has deep implications for growers and trade operators and has created much of a stir in the spanish agrifood industry. We are at a legal framework of great importance for an strategic sector of the Spanish economy and it directly or indirectly affects foreing companies that are purchasing Spanish fresh food.

The highlights of this regulation

The law shall apply if one of the parties is a SME or a primary grower. Trying to avoid a number of practices resulting from the asymmetry observed among the food market operators, several issues have been regulated.such as unilateral changes and unanticipated commercial payments, the provision of commercially sensitive information or the brand management. 

  

It should be noticed that the Act expressly excludes from its scope the activities like food transportation and product deliveries made to agricultural cooperatives.

 

The main dissuasive measures implemented are fines from 3000 Euros - for minor infringements- to 1.000.000 Euros, -in the case of very serious infringements-. At the same time, this Act calls for a written formalisation of those commercial dealings above the 2500 euros treshold. 

The truth is that many of the practices gathered in this law are already regulated by other legislation (including the Unfair Competition Act)  but t is still early to assess whether this accumulation of legal remedies will be effective and beneficial to the market or will otherwise complicate the legal analysis to the point of generating uncertainties. However, the Ministry for Agriculture has created the ‘Agencia de Información y Control Alimentarios’ (AICA. In English: Agency for Information and Food Control) which is an autonomous body that monitors the enforcement of the Food Supply Act. 

Practical implications. Concern in the food industry 

When one year has passed since the entry into force of the law,  from this moment the AICA is beginning to examine irregularities and impose sanctions. 

This is a major concern within the food sector, where it is day-to-day practice that providers deliver a product and not until the the end of the campaign the final price is fixed. Other situations, like when providers are obliged to finance their distributors´ promotions or commercial support, will be also under the spotlight.

However, some companies see this new situation as an opportunity to enhance their Corporate Social Responsibility policy and give added value to providers and clients. Therefore, if your company is already doing -or planning to do- business with Spanish food growers, it is highly advisable to check out the ‘measures to improve the functioning of the food supply chain Act’ following this link, or seek for legal guidance.

Does the supply and demand law rule the olive oil market?

Spain: First producer of the world

Spain is by far the main producer of oilve oil in the world. Our country leads the ranking of producing nations with around 55% of the worldwide olive harvest.

 

Nevertheless, since the southern Spain went through a drought, last crop here went down to 825.000 tn, meaning only almost 50% of the Spanish harvest we had last year (2013).

Everyone who is familiar with this sector knows that olive oil market is subject to enormous competition. Yet, the supply and demand law could temp the Spanish olive growers to increase their prices. 

 

Spain: aspiring to the title of ´first exporter of the world´

But, in the end,  they operate in a global scene so the said policy will surely bring them undesirable consequences.

With an eye on its eternal rival, Italy, in the last years Spanish olive oil packers have been struggling to conquer and strengthen markets abroad. And it is crucial a smart decision-making when you want to preserve a leading position, even if a poor crop comes -as it is the case lately-.

For instance, Spain is trying to be a leader in the United States olive oil market, which is the first importer of the world for this product (38% of the imports).

Evolution of total U.S. Olive Oil imports per country

Source: International Olive Council -http://www.internationaloliveoil.org/-

 

The 2012/13 season was not good and, as can be seen in the table above, Spain lost near to 10% of its market share in the United States. Reducing the supply and not keeping competitive prices has a price to pay too: a client thrown away. Playing in a such a competitive game simply means that customers have the upper hand.

Needless to say the effort and high costs of getting new customers, the broad consensus within the olive oil Spanish experts is that sacrifices must be done. In order to assure our competitive position in the world, the major packers/exporters are led to buy somewhere else around the Meditteranean sea at the expense of the  trade margins –mainly of the local growers-.  

The crude oil price fall will improve the competitiveness of the Spanish agrifood sector

The current low crude oil prices are the big story for 2015.  As Kenneth Rogoff (Professor of Economics at Harvard University) pointed out, “they are a once-in-a-generation shock and will have huge reverberations [1]. And  it seems that this downward trend is expected to continue for the first half of the year. Today, Brent barrel stands at US$47 but some financial analysts forecast an even deeper plummeting down to US$30 in the coming months.

Source: www.euroinvestor.com

Leaving aside the causes of this phenomenom, the global fuel price slump can actually be seen as an opportunity for the ailing European economy. However, the effects will not be symmetrical: they will not be the same for every country in the EU; nor will they affect every economic sector to the same extent.

In particular, mediterranean countries like Spain, which economies are highly dependent on oil imports, are going to be the great winners of this tendency[2]. In the other hand, highly energy-intensive activities, just as in the case of freight transport, will benefit the most.  Therefore, agrifood Spanish companies will probably translate these lower transportation costs into more attractive prices for their clients.

Although the future is always uncertain and the behaviour of this commodity has an outstanding speculative component, the fact is that, at the present day, diesel fuel price is around 20% lower than a year ago. This situation cannot only be verified when one goes to the petrol stations but when the Commission's Energy Market Observatory statistics are consulted.

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[1] http://www.bloomberg.com/news/2015-01-07/oil-at-40-means-boon-for-some-no-ice-cream-for-others.html

[2] http://elcomercio.pe/economia/mundo/cuales-paises-ganan-y-cuales-pierden-petroleo-barato-noticia-1783352

United Kingdom: the solution to the Russian crisis?

According to the Agriculture Office of the Aragonese Government's estimations, the Russian veto on Spanish fruit products has caused losses amounting between 20 and 30 millions of euros in our region. 

Aragonese fruit exports to Rusia during the last seasons were being up to 110 millions of euros per year. Several areas in Aragon, such as Valdejalon, La Litera or Bajo Cinca, are being affected by this international crisis. 

By quantity peaches and nectarines are the most penalised varieties by these measure and therefore they are turning into higher economic losses. In the second place of this ranking we find apples and pears which production is also significant in Valdejalon.

Recently the Government of Aragon reported an official withdrawal request for 5 million kg made by the local fruit sector. Besides this sort of public compensations, the Aragonese Economic Office believes that a plan to tackle emerging or alternative markets must be drawn up as a long term answer for this issue.



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