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Spain Food and Drink Report Q3 2008
Business Monitor International, Sep 2008, Pages: 67
The Spain Food Drink Report provides independent forecasts and competitive intelligence on Spain's food and drink industry.
Spain’s EU membership is a key factor that firms operating in the country’s food and drink sector must consider before investing in the country. Several recent events highlight the impact of EU policies on Spain’s food and drink industry, with EU membership bringing both benefits and potential drawbacks as discussed in BMI's newly published Q308 Spain Food & Drink Report.
In May 2008 the European Commission launched two investigations into Spanish food firms that had received state aid to improve their facilities. El Pozo Alimentacion and J. Garcia Carrion La Mancha face having to pay back up to EUR15.1mn and EUR14.5mn respectively if these subsidies are judged to have breached EU competition rules. This type of government aid would be perfectly acceptable in nearly ever country outside of the EU and highlights the scale of EU legislation that now governs the relationship between governments and private firms.
Also in May, a Spanish government report revealed details of an alleged EUR250m (US$387.5m) fraud involving the country’s EU milk quota. The report claims that between 1997 and 2005, Spanish dairy producers laundered 1.2m tonnes of milk that was not part of the original quota. Spain’s largest dairy producers including Ebro Puleva and Leche Asturiana will now face having to testify in court, with the issue highlighting one of the peculiarities of operating in the EU, where a firm can actually be penalised for producing some products too efficiently.
The EU’s system of agricultural subsidies, and ongoing changes within the subsidy system, also skews firm’s production decisions. For example in May, Ebro Puleva revealed it was considering selling its sugar business in the face of EU reforms of the sector. These reforms, which are designed to reduce EU sugar production to a sustainable level, have involved cutting subsidies and offering producers financial incentives to leave the sector. The sugar unit is Ebro Puleva’s third largest division but has weighed on Ebro Puleva’s performance and the firm has already revealed it will close three of its sugar plants to reduce production levels.
The wine sector is also heavily regulated by EU rules and on April 29 2008, the European Council of Ministers formally approved a wide-ranging reform of the sector. The reforms are intended to help European producers compete better against their ‘new world’ rivals and also designed to encourage uncompetitive producers to leave the industry. The reforms will also phase out the system of ‘planting rights’ and mean successful producers will be allowed to plant more vines. Spain's La Mancha wine region is likely to be among the worst hit by these reforms as it generates some of the lowest income per hectare in the EU, however other, more profitable regions are likely to expand significantly.
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