Crédito y Caución fears that defaults will increase in the food sector

Credit and caution forecasts a growth in the credit risk of the food sector in Spain in 2022, as reported by the credit insurer in a statement.

Specifically, the increased cost pressure on the industry, the deterioration of commercial margins and the gradual end of fiscal stimuli might lead to an increase in defaults and insolvencies in the sector over the coming months, especially among smaller companies, which have increased their indebtedness during the pandemic.

Already last December, the employers of the food sector warned that the new standards on sustainability were behind the imposition of numerous new taxes that threaten the sector. Taxes on plastic containers, on diesel, threaten their logistics chains. Now they also want to tax ultra-processed foods. In short, less power to compete, higher costs and a greater increase in the risk of insolvency detected by Crédito y Caución.

The credit insurer estimates that the added value of the sector grows around 2% this year. Although the demand for restoration has increased since the first half of 2021, he considers it to be an “unstable recovery”, due to the ongoing spread of the most recent variants of the coronavirus.

Producers and processors in the main subsectors are facing high prices of raw materials, fertilizers and energy.

The segment of drinks has partially recovered from the significant drop in sales in 2020, although it has not yet reached pre-pandemic levels, while that of Fruits and vegetables, mainly made up of small companies, the increase in exports partly offsets the problem of high prices for its inputs.

With respect to meat sector, recently imposed import barriers from China have led to a sharp decline in pig prices which, in combination with rising energy and feed costs, have led to a margin deterioration of the producers.

At a global level, the value chain of the food sector presents downward risks that are very similar to those faced in Spain. Thus, in many markets, the margins with which food producing and processing companies work are structurally low and under pressure.

In a highly competitive global environment, in which the bargaining power of the large retailers and the discount channel is very high, the food markets are vulnerable to the materialization of various risks such as the volatility of the prices of raw materials, the possible epizootic outbreaks or weather unpredictability can potentially cause an immediate deterioration in the profitability of companies.

Another aspect is the change in consumer habits, in a new context in which the end customer increasingly demands greater transparency from the manufacturers of food and beverage ingredients, production processes and supply chains.

In this context, the food sector presents at the beginning of this year a high risk of default in the United Arab Emirates and a moderate risk in Germany, Belgium, Denmark, Slovakia, Spain, the United States, France, Mexico, New Zealand, the Netherlands, Portugal , United Kingdom, Czech Republic, Russia, Singapore or Sweden.

While the risk is low in Australia, Austria, Brazil, Canada, China, South Korea, Hungary, India, Indonesia, Ireland, Italy, Japan, Poland, Switzerland, Thailand, Taiwan, and Turkey.

What to do when faced with the risk of insolvency?

With all these factors, Credit and caution estimates that the risk of insolvency by companies operating in this sector is multiplied. However, the credit market in Spain, apart from the banking circuit, has become more professional and has gained ground, offering multiple alternatives for companies and sectors that are in a situation of vulnerability due to an unfavorable situation.

Gedesco solutions are highly competitive. Examples such as the factoring service without recourse, is one of the most used by its clients. But, precisely for sectors with risk of insolvency, Gedesco has a collaborator like get you back which is precisely specialized in the management of bad debts. In addition, it offers an advisory service to recover VAT on unpaid invoices and can successfully recover all unpaid invoices that reach you at no cost, since they do not charge anything if the client does not charge.

Recobrarte is a company specialized in managing the dreaded commercial defaults. Since a large part of the companies that assume non-payments owe this circumstance to the fact that previously some of their clients have assumed non-payments with them, Recobrarte recovers the unpaid debts of the company, assuming all the costs of the procedure, judicial and non-judicial, thus guaranteeing that the client pays absolutely nothing if he does not recover his debt.

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