In 2021, Spanish law makers introduced a novelty to stop the destruction of value in the food chain. The Spanish agricultural organisation COAG (Coordinadora de Organizaciones de Agricultores y Ganaderos) gives us an overview.

The main cultural shift introduced by the recent amendment to the Act of 2021 is the concept of paying above the cost of production to avoid the destruction of value in the food chain. This aspect has been extensively demanded by organisations representing producers and it is a key factor for the sustainability of the European model of agricultural production. Amending the trade behaviour in the chain is obviously no easy task, but a necessary one for the future of agriculture and livestock farming in the European Union, along with many other measures that must be taken in this regard.

In particular, the Act specifies that the price set in the supply contract which has to be paid to a primary producer or a group of primary producers must always be higher than the total costs borne by the producer or the actual cost of production. This definition includes all costs borne to develop their professional activity. The following items can be taken into account, inter alia: the cost of seeds and plants, fertilisers, plant protection, pesticides, fuel and energy, machinery, repairs, irrigation, animal feed, veterinary fees, amortisations, interest on loans and financial products, agricultural contractors and manpower, work done either by employees or the producers themselves or by members of their family unit.

The production costs borne by each operator along the chain, not just the producers, are worked out individually and specifically. There is no one-size-fits-all or general definition of the costs per sector, per production field or per link in the chain, be it from either a public body or a private entity.

This is a clear progress, albeit it has not been possible to turn the tables immediately. Nevertheless, the foundations have been laid to reach this ambition. The mere fact that the buyers have started to consider that the producers they are buying from incur a number of costs that make up the purchase price is a breakthrough. Until recently, this matter was not considered in the agreed price, but was neglected in the food chain’s trade negotiations and relations. Moreover, this tool enables bargaining, up to a certain point, and whistleblowing by the producer in the event of a breach by the buyer.

The supervisory authorities both on a state level (AICA) and in the autonomous communities (CCAA) carry out inspections within their remit, both ex officio and in response to reports, leading to cases being opened to punish failure to comply with the prohibition of value destruction in the chain. In the first half of 2022 alone, for instance, eight claims involving retailers were filed on grounds of value destruction in the dairy chain.

Moreover, the prohibition of value destruction applies to every link in the food chain: each operator must pay the upstream operator immediately preceding it a price equal to or above the production cost borne. In addition, the sale at a loss at the last stage in the chain, i.e. to consumers, is forbidden, so that retailers will not be able to either offer or sell food products at a price below the one paid to purchase them. Failure to comply with this ban introduced by the Act can be subject to an administrative penalty imposed by either AICA or the CCAA, each within its sphere of responsibility.

In the current market context and as intervention measures have mostly disappeared from the EU public policies, these paradigm shifts have become necessary and must be applied throughout the European single market, through national policies and amendments to EU regulations.

Alvaro Areta García, Technical Officer, Coordinadora de Organizaciones de Agricultores y Ganaderos (COAG)

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