Market Monitor - Focus on the food industry - Spain

Market performance at a glance

• Spanish food production increased 3.8% in 2014, to EUR 93 billion. Growth was mainly a result of higher exports (up 5.9%), while domestic demand remained subdued. However, domestic demand is expected to improve in 2015, in line with the on-going economic rebound.

 

• Persistent consumer price deflation in 2014 and 2015 has had a negative impact on businesses' margins. Profitability ratios have declined due to strong competition and price wars in the food sector, mainly in the retail segment. However, consumer prices have increased slightly in recent months, which could lead to increasing profit margins in the near future.

 

• The intense price war in the retail segment has left some players in a difficult situation. While the industry is still fragmented, industry consolidation is on-going and companies should gain size and become more competitive domestically and abroad.

 

• The external financing requirement of food businesses is high, and access to credit (both working capital and long-term facilities) has further improved. Bank lending to food businesses has increased by more than 17% year-on-year in the January-July 2015 period.

 

• The average payment duration in the Spanish food industry is 70 days. Non-payment notifications have decreased over the past couple of years, and we expect the positive trend to continue, along with the improved outlook: the on-going rebound of the Spanish economy and increasing access to bank loans should result in improved business performance, and subsequently in lower payment defaults and insolvencies.

 

• The food sector's resilience and stable payment behaviour makes us supportive in our underwriting stance. However, we are restrictive when underwriting the fruit and vegetables subsector, which, since 2014, has suffered from over-production and a decrease in exports (also triggered by Russia´s import ban). In this segment, insolvency numbers are well above the average of the food sector, and our outlook remains negative, as the trend in payment behaviour continues to be negative and no improvement is expected in the short term.