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Home > Food and Beverage > Food > Food - General Markets
Spain Food and Drink Report Q3 2008
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Spain’s EU membership is a key factor that firms operating in the country’s food and drink sector mustconsider before investing in the country. Several recent events highlight the impact of EU policies onSpain’s food and drink industry, with EU membership bringing both benefits and potential drawbacks asdiscussed in BMI's newly published Q308 Spain Food & Drink Report.
In May 2008 the European Commission launched two investigations into Spanish food firms that hadreceived state aid to improve their facilities. El Pozo Alimentacion and J. Garcia Carrion La Manchaface having to pay back up to EUR15.1mn and EUR14.5mn respectively if these subsidies are judged tohave breached EU competition rules. This type of government aid would be perfectly acceptable in nearlyever country outside of the EU and highlights the scale of EU legislation that now governs therelationship between governments and private firms.
Also in May, a Spanish government report revealed details of an alleged EUR250m (US$387.5m) fraudinvolving the country’s EU milk quota. The report claims that between 1997 and 2005, Spanish dairyproducers laundered 1.2m tonnes of milk that was not part of the original quota. Spain’s largest dairyproducers including Ebro Puleva and Leche Asturiana will now face having to testify in court, with theissue highlighting one of the peculiarities of operating in the EU, where a firm can actually be penalisedfor producing some products too efficiently.
The EU’s system of agricultural subsidies, and ongoing changes within the subsidy system, also skewsfirm’s production decisions. For example in May, Ebro Puleva revealed it was considering selling itssugar business in the face of EU reforms of the sector. These reforms, which are designed to reduce EUsugar production to a sustainable level, have involved cutting subsidies and offering producers financialincentives to leave the sector. The sugar unit is Ebro Puleva’s third largest division but has weighed onEbro Puleva’s performance and the firm has already revealed it will close three of its sugar plants toreduce production levels.
The wine sector is also heavily regulated by EU rules and on April 29 2008, the European Council ofMinisters formally approved a wide-ranging reform of the sector. The reforms are intended to helpEuropean producers compete better against their ‘new world’ rivals and also designed to encourageuncompetitive producers to leave the industry. The reforms will also phase out the system of ‘plantingrights’ and mean successful producers will be allowed to plant more vines. Spain's La Mancha wineregion is likely to be among the worst hit by these reforms as it generates some of the lowest income perhectare in the EU, however other, more profitable regions are likely to expand significantly.
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