May 26, 2020

Insolvencies in large agribusinesses threaten to drag other small



With the increase in insolvencies in large agrifood companies, experts fear a “domino effect” that can drag other smaller companies in the sector and with little capacity to react to external pressures.

Since 2017, the number of insolvencies affecting companies with annual revenues of more than 50 million euros has grown worldwide.

According to a recent study by the credit insurance company Euler Hermes, only 34 major insolvencies of agrifoods were registered last year, 10 of them in Western Europe (4 Italian, 2 Spanish, 2 Belgian, 1 Dutch and 1 British).

Its sector analyst Marc Livinec details to Efe that the majority of these European companies were engaged in industrial activities of the primary sector.

“The most feared impact of these insolvencies is their domino effect within the industry. In addition, food manufacturers have to deal with the large outlets, which are much more concentrated and have little room for maneuver,” ensures.

In his opinion, the negative effects could be mitigated if manufacturers obtain enough power to set prices and resist the pressures of other actors in the chain.

A challenge in the sector has to do with changing habits towards a healthier diet, which forces us to adapt with agility, although producers do not always have the necessary tools to reach new market niches, Livinec adds.

The insurer Coface also foresees a greater demand for healthy and sustainable products, which will make organic agriculture continue to expand in the coming years.

In one analysis, he cites protectionist tensions and climatic risks as some of the main factors that, as in 2019, will impact the agrifood industry this year.

Overall, the growth of the world economy will not recover this year and will increase the number of business insolvencies by 2%, in line with 2019, according to its forecasts.

In Spain, the head of the Risk Unit of the Spanish Export Credit Insurance Company (Cesce), Juan Francisco Pacheco, points out that the agrifood sector has had a “good behavior” in 2019, with a reduced number of competitions of creditors.

It focuses on the solutions or orderly closures of companies, which normally do not have an impact on suppliers or financial institutions, but which last year increased by 8.13% annually.

COMPANIES WITH LOW MARGINS

According to Pacheco, the constitutions of new companies fell 5.86%, a decrease that “also reflects disappointment or poor appetite” for a sector that operates with “very low margins.”

“Any exogenous aspect can bring down a structure, such as a rise in the price of a raw material, a delay in payment of a reference customer or the non-renewal of the credit line,” says the head.

He insists on the lack of negotiation capacity of the producers, which amount to almost 800,000 in the country, compared to the final clients organized in large groups.

The head of Cesce recommends that farmers focus on achieving “more balanced” relationships and investing in research and development to offer products, such as organic ones, that allow us to expand profit margins.

Credit and Surety Sources, meanwhile, highlight the “good performance” that the food sector maintains, with a “stable” credit risk situation.

They mention price volatility, veterinary problems and the impact of climate as the main risk factors, while underlining the need for food and beverage manufacturers to be more transparent about their ingredients, production processes and food chains. supply”.

These sources add that the new coronavirus will have an impact of 0.25 points on the growth of the world economy and that it will be other sectors such as the automotive, electronics, services or pharmacy that face shortages of semi-finished products.

Thin Bethlehem

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