2023-07-06 09:01:06
The droughts and floods recorded in recent months in southern Europe have affected the credit risk of the agricultural and food sector. According to the latest note released by Crédito y Caución, only state aid is containing a wave of insolvencies.
In France, cereal production has been the most affected by the hot and dry weather, followed by fruit and vegetable production. Livestock have been affected by lower milk yields, as parched fields produce less grass. Many farmers have suspended breeding. These difficult weather conditions impact the volume and quality of harvests, leading to potential supply chain bottlenecks and higher prices. The food industry was also affected by the increase in the costs of raw materials, transport and energy in 2022, which caused an increase in insolvencies throughout the supply chain and in food prices. Large French producers are now facing government pressure to cut costs for consumers. Crédito y Caución foresees an increase in delinquencies and insolvencies in 2023 in the French agricultural and food sector.
In Spain, 2022 was a difficult year for the food sector even before the recent drought. Increases in the prices of fertilizers, pesticides and energy were already affecting margins and leaving farmers in a vulnerable position. The drought affects both livestock and agriculture, and sunflower, almond and olive crops are especially affected. Supply problems and price increases are expected and insolvencies are likely to grow. «Delays in payments or insolvencies of the affected companies cannot be ruled out“, says Beatriz Cainzos, coordinator of Large Risks in Spain for the food sector. «Any increase would likely be concentrated in companies with weaker financial structures, and especially in smaller and less diversified ones.«.
Italy has been hit by both ends of the weather spectrum. The worst drought in the last 70 years is compounded by exceptional rains that caused severe flooding in the Emilia-Romagna region, responsible for 28% of Italian sugar production and 13% of wheat production. It is also an important producer of potatoes, fruits, grapes and legumes. Inevitably, the floods will cause prices to rise into the double digits. For now, no increase is detected in the number of companies that cannot attend to orders or make their payments. In the past, other similar events, such as earthquakes, did not cause a significant increase in insolvencies. State support is crucial in this regard.
Looking ahead, the agri-food industries of southern Europe will need to implement coherent strategies against increasingly frequent extreme weather events that will require significant investments to increase resilience to change. In Italy, pipe leaks, which affect more than 40% of the water entering the system, are a serious problem. Various measures have been proposed in France, from diversification towards more drought-resistant crops to the development of more efficient water collection and irrigation systems. Spain is investing in solar-powered desalination plants to alleviate water scarcity, and the focus has been placed on water management.
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