“The Food Chain Law is not being applied”

Juan Colomina

Juan Colomina, CEO of Coexphal, considers that the moment it is applied, the effect will be “the immediate paralysation of the markets”

How will Putin’s war and the rise in costs affect the fruit and vegetable sector?

From the point of view of shipments, Russia has already been closed for several years now. There was aid to compensate for the sanctions, but the situation became chronic and the Russian market was lost. On the other hand, the sale of products from Almeria to Ukraine does not reach even 2 million euros. What is affecting us is the fact that the Ukrainian market is not receiving products from Poland, Romania or Hungary. The most important effect involves a possible increase in costs. Added to the inflation that we were already suffering from, there are the expenses derived from the war and above all, the cost of energy, which affects the different inputs to different extents. If the Russian sanctions are upheld and the exports from competitor countries such as Morocco get worse, they could be diverted to the European Union and make the prices even worse. Another factor to take into account is the fall in Russian spending power, which could mean a fast drop in the consumption of products such as tomatoes, meaning our markets will be flooded with products that previously went to the Russian market.

Do you foresee any important supply problems due to the war? There are already some supermarkets with empty shelves at specific moments…

Mass buying is happening for some products. The catering and restaurant trade, for example, is buying products in view of a possible price rise in some of them such as oil and cereals, so there could be some shortages due to problems of this type. The fruit and vegetable sector in Almeria is in a good position owing to its model based on solar greenhouses. In Holland, the rising price of energy has meant that this winter they have not cultivated between 30 and 40% of the surface area. A few years ago, Holland produced in the April to November window and with the appearance of cogeneration, which made access to heating and the use of artificial lighting easier, the Dutch sector extended its production period and there were times when we saw the markets flooded with produce, including products from Almeria, Morocco and Holland. Now, if Holland withdraws part of its surface area in the winter, the prices should improve. This might be the reason why tomatoes from Almeria are reaching reasonable prices.

The shopping basket has gone up. Alexandre Bompard, chairman of Carrefour, puts this price increase for food in Spain at around 5% and he said in an interview in El País that he wants “to limit the price rises as far as possible.” Do you think that they will continue squeezing the farmers’ profit margins?

I have never had any doubt that the work of the supermarket chains, as with that of any trader in any product, is to increase their operating margins. Regardless of the inflationist situation, they will continue to do this. Any other policy would be suicide. I don’t know what the room for manoeuvre that a supermarket chain might have with the very high competition between them to keep the products cheap. But if they put more pressure on the small fruit and vegetable suppliers to make us sell cheaper, the structural crisis the sector has been suffering from for decades and that is being made worse by unfair competition from third countries will deepen. All of this could result in the disappearance of producers who, as is logical, cannot sell below cost price.

Talking about not selling below cost price, what is the Food Chain Law being used for?

It is being used to seriously reduce competitiveness amongst Spanish producers, to make the work more expensive due to the red tape and making much more difficult an activity that requires significant fluidity and enormous flexibility, because we are working with perishable goods. In between the two extremes that we usually handle, flexibility and safety in the transactions, we normally opt for flexibility, waiving safety and taking on risks. If now, the natural risks of the trade, such as defaulted payments or difficulties in the supply and logistics, we add the administrative burden due to a Communist law that is based on the fact that a centralised decision, with a coercive action by the Government can resolve a market problem… they are saying: “At this moment, through this Law I am going to ban farmers from losing money.” It reminds me of the famous quote by Chávez: “Expropriate!”, when he used the legislative system to obtain something that he couldn’t get by any other means. In this case, it is the same. The pursuit of apparently commendable goals does not justify the making of certain decisions, because in economics paradoxical consequences occur. And we could find that in the attempt to do something good for the farmers or the administrators, the result is detrimental. It is incomprehensible that those in charge with qualifications and technical training that they are at least presumed to have, should have made a decision like this one. Luis Planas is a very good politician and technician. At least he has been up to now. Which is why it is very difficult to understand how he could enact a provision like this one. But the fact is that below him there are admirable technicians such as Fernando Miranda, and they should have been more cautious. I understand that the political question has prevailed and that a large part of the responsibility lies with the farming organisations, which have demanded a regulation that is against the most basic economic orthodoxy. Anyone who has a minimum knowledge of how the sector works, and more so when worsened by the need for urgency with perishable goods and the volatility of prices, should have foreseen the incredible consequences that this Law is having… and why it is not being applied.

The Law is not being applied?

No. If the Law were to be applied, the effect would be the immediate paralysation of the markets. It is not being applied in the compulsory terms of not selling below the production costs. At the moment when the Government, (I understand through the AICA inspectors), starts to move around the companies and to apply the Law with the idea for it to come into effect, the consequence will be the immediate paralysation of the markets. Because producers will not be able to sell. It is impossible. If we go to any auction house now, we would see that vegetables are being sold below cost price. It is impossible to always sell above this price. Even over a single day, the evolution of the prices is different. As on any market, the fruit and vegetable market continually varies. Producers and traders are used to earning money based on what they could sell in the next transaction and vice versa. How can an economic activity be maintained like this? By specialising, knowing how the markets operate and calculating your income, costs and profit margins, at least over one campaign, but better over three or five. If not, you cannot value how your activity is developing.

In a talk at Coexphal, Daniel Lacalle advanced that we could reach a period of stagflation, how can the agricultural sector tackle a situation of this type?

Recently, and I have worked for 33 years in this activity, we have been experiencing a set of circumstances that I had only read about in books on Economics and crisis prevention, but I had never lived through: war, a healthcare crisis such as Covid… The macro economy can lead us to a situation that is similar to that experienced in Japan for years, where prices go up, but there is no economic growth. I want to think that the politicians will know how to face up to stagflation, if it occurs. Regarding the economic agents, I don’t know how we will be able to face up to it. At present, this winter, to a certain extent, we are managing to pass on the costs to the prices, because we form part of this inflation. In 2010/11 with the previous crisis derived from the subprime crisis, Almeria entered a period of negative profit margins and many farmers lost money. Over the last two years, we have experienced an enormous increase in labour costs and recently, energy and other inputs have gone up. But the markets are allowing us to recover part of this increase in costs.

Could the investments from the EU recovery funds be weakened? How would this affect fruit and vegetables?

In our case, in Spain they have been aimed at State policies. We are in a kind of guardianship of the poor, administrated by the Government. The investments have been on paper for a long time and in France and other countries they have already given out an enormous percentage, but here we haven’t seen a single euro. From Coexphal we have presented a PERTE (Strategic Project for Recovery and Transformation) and we have been looking for steps that benefit us most regarding competitiveness (sustainability, modernisation, energy self-generation…) we are in the third phase, waiting for an answer. It is an unbelievable bureaucratic labyrinth.

What is your valuation of the 60 years of the PAC (Common Agricultural Policy)?

In the first PAC, they attempted just what they have put back on the table now, guaranteeing food sovereignty, which at that time was not called this… guaranteeing the access of Europeans to cheap, healthy food through proteins, fats and carbohydrates and it was very successful, but no aid for fruit and vegetables was foreseen. When the aid was attached and was linked to minimum production results, such large amounts of production were reached that products had to be stored. And to avoid the detrimental effect of production surplus, the aid was removed. Subsequently, the increase in healthcare problems due to the excess of a diet rich in fats and sugar caused fruit and vegetables to change their status. Aid was brokered that put a carrot in front of the farmers to ensure that they followed the lines laid down by Brussels (food safety, respect for the environment, health…) through the operational funds. First we were given access to the PAC through a CMO and we are now within the general regulations, but with aid that does not reach even 3% of the final agricultural production value (in cereals they are over 50% and in olive trees, 30-35%), and subject to us spending 3% on subjects that they impose on us. We are the ones who suffer the consequences of this open market and the ones who least aid receive. And we only ask to be left to work without a ‘Law of Imposition.’

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