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Something is causing a rise in value chain costs

Increasingly tight margins for large fruit and vegetable companies

For a number of years, the agrarian organizations have been denouncing that agricultural producers are the weakest link in the chain, sometimes failing to even cover their operating costs, while others are doing more business with that production. However, the limited margins obtained by other players, such as large wholesalers and marketers, or even large retailers, reveal that the strong pressure on prices is affecting the entire value chain.

An example of this is SanLucar International Fruits, based in the Valencian town of Puçol, which handles more than 400 million Euro in sales and has its own suppliers and farms in countries such as South Africa, Ecuador or Tunisia, in addition to Spain. In the last audited campaign of 2018, SanLucar achieved a record turnover of 404 million Euro. However, the margins of both its production and intermediary activity were very modest, of just 0.8% and 0.3%.

Other companies are also obtaining similarly tight margins. An analysis of the latest results of the main fruit and vegetable wholesalers set up in Spain yields similar results: constant sales growth, but very small profits. It is almost impossible to find a large wholesale fruit and vegetable company with margins exceeding 3%.

Another example is that of Sociedad de Compra Modernas (Socomo), a subsidiary of the Carrefour group dedicated to the wholesale distribution of fruits and vegetables, which ended the year with over 686 million Euro in turnover and 9.7 million in profits, which represents a profitability rate of 1.4% (2% with the analysis based on the gross result).

Anecoop, the great Valencian second-grade cooperative, with 759 million in sales and leader in the domestic sector, barely reached 2.9 million (0.3% margin). Eurogroup Spain Fruits and Vegetables, owned by Germany's Rewe, based in Paterna, Valencia, and with customers in 14 countries, sold fruits and vegetables worth 401 million Euro bought mostly from Spanish producers and earned 3.7 million (0.9% on sales).

They are not isolated cases. The Almeria-based Alhondiga La Union sold fruits and vegetables worth 297.5 million and earned 5 million (1.6%). The Canary ARC Eurobanan obtained 298.9 million in revenue and 8.4 million in profit (2.8% margin). Cítrico Global, the great bet of the Miura fund together with the Martinavarro family, totaled 354 million Euro, but closed the year 2018 with a 2.8% gross operating margin.

However, despite the price war in the Spanish fields, there has been no slowdown in the investment operations of some capital funds in the primary sector. On the contrary, private equity firms are betting on concentration and vertical integration projects. Expanding companies (Cítrico Global, Atitlan, Grupo Agroponiente, etc.) have started to increase their productions by buying and merging farms with the objective of making them more profitable.

 

Source: elconfidencial.com


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