Customers in a market. /
The increase in electricity to produce and fuel for transport permeates the value chain of fresh products
After several months with skyrocketing prices, no one is unaware since the kilo of peppers for which he pays 2.29 euros in the supermarket has a cost of just 0.76 euros at origin. Or that producing a liter of milk costs 0.32 euros on the farm, and costs 0.76 euros in the store on average. But the overflow of inflation this year has prompted buyers to put the magnifying glass on the entire process that goes from the moment that vegetable is born in the garden until it reaches the shelf; since the cow is milked until the tetrabrick appears on the shelf. And the question is always the same: How do prices go from the garden, or the farm, to the store? When do these cost increases arrive that increase the retail price? And even, who benefits from it?
The reality of the market determines that having any of these products just 100 meters from our homes, even if they are produced hundreds or even thousands of kilometers away, costs money. Many processes are necessary to make the daily and widespread supply of food a reality. And there are many intermediaries that participate in the value chain of each product, from cooperatives, transport, conservation, packaging and labeling companies, etc., to distributors, but not without first passing through different logistics centers.
The rise in inflation has caused the entire production chain to be contaminated by rising prices. And here energy costs play a fundamental role. Electricity and transport condition more than half of the rise in prices that consumers observe at points of sale. “Energy affects everything,” highlights José Miguel Herrero, general director of the Food Industry of the Ministry of Agriculture, Fisheries and Food. He recalls that in order to have fresh food commercially available, complex refrigeration processes are necessary (which require a high consumption of electricity); transport, with truck fleets forced to pay higher prices than a year ago for the diesel they use, even if it is subsidized; or the availability of raw materials to start the process, such as feed for livestock or fertilizers for agriculture, whose prices have skyrocketed since the Russian invasion of Ukraine began.
How does the final price increase?
It is the approximate increase of the PVP with VAT over the original price.
This is what the price of food and non-alcoholic beverages increased in August compared to the same month in 2021.
This is what glass, cardboard or plastic, key materials for the food packaging and labeling process, have become more expensive since January 2021.
Producer clearance price
Price paid to the producer for the total production delivered.
Net profit
Transport to Central
Fruit and Vegetables
General expenses
Manpower of labour
supplies
COMMERCIALIZATION
IN ORIGIN
Horticultural central sales price
and cornfield
Net profit
Losses (9 – 12%)
overhead
Confection (manipulated
of product in boxes)
COMMERCIALIZATION
AT DESTINATION
Net profit
Losses (5%)
Returnable packaging costs
General expenses
Transportation from the Central
Net profit
Manpower of labour
General expenses
Losses (3.5%)
transport to store
In some cases where stores buy through brokers, transportation may be included in the purchase price.
The costs with the greatest weight in the production stage are those related to seeds and plants and phytosanitary productsfollowed by the Amortization of greenhouse structures and plasticsalso highlighting the cost of the manpower.
Source: MARM Food Price Observatory.
How does the final price increase?
It is the approximate increase of the PVP with VAT over the original price.
This is what the price of food and non-alcoholic beverages increased in August compared to the same month in 2021.
This is what glass, cardboard or plastic, key materials for the food packaging and labeling process, have become more expensive since January 2021.
clearance price
to the producer
price paid to
producer for the total
the delivered production.
Net profit
Transport to Central
Fruit and Vegetables
General expenses
Manpower of labour
supplies
central sale price
horticultural and alhóndiga
COMMERCIALIZATION
IN ORIGIN
Net profit
Losses (9 – 12%)
overhead
Confection (manipulated
of product in boxes)
COMMERCIALIZATION
AT DESTINATION
Net profit
Losses (5%)
Returnable packaging costs
General expenses
Transportation from the Central
Net profit
Manpower of labour
General expenses
Losses (3.5%)
transport to store
In some cases where stores buy through brokers, transportation may be included in the purchase price.
The costs with the greatest weight in the production stage are those related to seeds and plants and phytosanitary productsfollowed by the Amortization of greenhouse structures and plasticsalso highlighting the cost of the manpower.
Source: MARM Food Price Observatory.
Herrero insists that in some of these processes energy is the main cost, such as on farms. But in other activities it is labor, as is the case with harvesting. In his opinion, “the costs increase the price of the product in a homogeneous way, at all stages” and he considers that “there are many invisible operations for the consumer, but necessary for its distribution to the point of sale”. The head of the Ministry of Agriculture does not identify a stage that is taking more advantage of the situation. “Even less after implementing the law of the food chain”, which requires not to sell at a loss. “That benefits the whole process so there are no abuses,” he believes.
But the reality is that the price of food multiplies by almost five times from its origin until it reaches the consumer, according to data from the latest Food Price Index at Origin and Destination (IPOD) corresponding to the month of January.
Faced with this situation, the Government and farmers have focused on the large distributors, with whom the Executive is trying to reach an agreement to establish a basic and healthy shopping basket that will keep its price frozen until after Christmas. “They have a lot to do with the rise we are seeing, especially in fresh products, those that do not undergo any type of transformation in the chain,” criticizes Andrés Góngora, responsible for fruit and vegetables at COAG. “We see how the same merchandise is exchanged many times, and that makes the final price more expensive,” he denounces.
Distribution chain
The road from field to table is long. But, in general terms, there are two distribution channels: the traditional and the modern. In the first, the farmer delivers his product to a cooperative or warehouse at origin. This center conditions the production and sells it to a local corn exchange or to a wholesaler who transports it to the ‘merca’, from where they are supplied, for example, greengrocers, food markets, restaurants or small neighborhood stores.
The problem? That large surfaces account for 70% of purchases by Spaniards. And in Europe the figure reaches almost 90%. So farmers must also sell their production through the so-called modern channel, which involves a more direct sale from the field to the supermarket, but which also involves entering the chain of platforms that, according to farmers, are one of the the links in which the price is most expensive at origin.
They denounce that once the farmer delivers his production to the cooperative, the supermarkets pressure to impose a series of suppliers from whom, for example, they buy the cardboard for the packaging boxes, the paper and even the ink for the labels. And the same happens with transport agencies, often external. «In the end, direct sales are not real, you sell to their subsidiaries or intermediaries who work for them on commission. If you do not accept it, they buy the tomatoes from others”, they indicate from COAG. “That part does not generate anything of value for the product or for the farmer. There is no transformation work or direct management and it is where the increase in product prices is least justified, ”they insist.
The super defend themselves
Supermarkets defend themselves by ensuring that all the links in the chain are suffering cost pressure and recall that 52% of agricultural production in Spain is destined for export.
“We want to find a solution for everyone, but the main problem is energy and regulation. The law of the food chain works and has been done, precisely, to protect the weakest link, the farmer, “they indicate from the National Association of Large Distribution Companies (Anged). The sector does not want to enter the origin-destination debate and assures that, to do so, it would be necessary to analyze product by product. Give an example. “50% of the lemon production goes directly to the industry for the preparation of prepared dishes, drinks, etc. Another 25% is exported and only 25% is sold here.” In other words, in this case, they attribute part of the rise to a model in which supply is affected by sales abroad or to industry.
In this context, the spokesman for the OCU (Organization of Consumers and Users), Enrique García, acknowledges that “not all marketing companies have the same cost structures” and not “the same bargaining power” to adjust their prices with the producer. But it does echo a reality that surprises him and that has not occurred in other stages of generalized inflation: «The rise in food prices is very homogeneous between different businesses, when the costs they assume are not the same for all of them ».
In fact, there have been no major changes in market shares, when this type of movement was more common before.