Wednesday, 22 May 2024
BusinessThe large agricultural companies are the companies in the food sector that...

The large agricultural companies are the companies in the food sector that have taken the most advantage of inflation

The large agricultural companies are the companies in the food sector that have squeezed the most out of the inflation crisis. Much more than industry or supermarkets. Large farming, livestock, forestry and fishing companies and wholesale trade in agricultural raw materials and live animals have passed on the increase in costs (energy, fertilizers…) since mid-2021 to prices. sales and have continued to increase. That is, they have expanded their profit margins. In other words, their businesses are more profitable and they convert a greater percentage of their income into profits.

Specifically, agriculture, livestock, forestry and fishing companies – the first link in the food chain, although not including the self-employed – have increased their profit margin or average profitability from 9.5% in the second quarter of 2021 to 12.8% at the end of 2023. For their part, groups that wholesale trade in agricultural raw materials and live animals have done so from 15.6% to 33.8%, in the same period.

In other words, producers (large olive growers, dairy farms or tuna farms) have gone from converting 9.5 of every 100 euros sold into profits to 12.8 euros, as a result of the advancement of the business based on larger and more intensive farms. in technology and more digitalized, and in dominant positions. Meanwhile, wholesale trade (of olives, fish, fruit, beef…) achieves 18.2 euros more profits for every 100 customers.

These are data collected by the Observatory of Business Margins, the statistics created by the Ministry of Economy, the Bank of Spain and the Tax Agency in this inflation crisis to have more information on the distribution of the damage of price increases between companies. and workers, and to detect which sectors have taken advantage or are taking advantage to obtain more profits by transferring the increase in costs to sales prices.

This information is very relevant in the midst of rural protests. The profit margin or profitability that the Observatory allows to calculate relates “the gross operating result” (a way of measuring profits) as a percentage of sales. Of course, it must be taken into account that the sample of figures that concern agriculture, livestock, forestry and fishing “does not include data on self-employed workers, with a high presence in the sector.” The information obtained is from companies, the ‘giants’, which clearly do not share the problems of small and medium-sized farms. Furthermore, the larger they are, the more CAP (EU Common Agricultural Policy) subsidies they receive and the more anti-crisis aid they receive.

In fact, the rest of the links in the food chain, industry and wholesale trade (such as Makro) and retail (supermarkets and stores) have defended their margins in the inflation crisis, but have not improved them, as can be seen in the graph of this information.

Maintaining margins in an inflation crisis in which demand has resisted also means earning more, because sales have grown due to the effect of price increases. According to the Margins Observatory itself, sales of the entire food chain have increased by 31% since 2019 and 21% since 2021, on average. Given the improvement in profit margins, gross operating income (profits) has soared by 50% since 2019 and 33% since 2021.

It is the self-employed and the most modest farms that suffer the difficulties claimed in the tractor-trailers and in the rest of the rural protests in Spain and throughout the EU. On the one hand, the lack of competitiveness of cereals, orchards, fruit trees and livestock compared to those of Ukraine, Morocco or Turkey, respectively. On the other hand, the environmental and regulatory requirements of the CAP and the rest of the community requirements to guarantee quality and the reduction of climate impact. Without forgetting the price and cost shock due to the end of the pandemic and the Russian invasion of Ukraine, which the majors have squeezed in their favor.

Precisely, in these environmental measures, Brussels has begun to give in, giving in to some of the requests from farmers to put a stop to the green agenda, the limitation on the use of phytosanitary products and the demand to allocate 4 % of crop area left fallow, which is now delayed by one year.

“A multitude of small farmers coexist with large companies. Large companies, as in any sector, have more financial muscle to face the economic cycle and all types of contingencies. This, it seems, is especially evident in the case of the olive tree. The global demand for olive oil is increasing and this favors the appearance of large investors in the sector,” says economist Antonia Díaz, from the UCM, in a recent publication in the specialized blog ‘Nothing is free’.

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