Italy: the survival of many companies compromised?

At the press conference held on January 26 in Milan by Centromarca, the President of the association, Francesco Mutti, highlighted the critical problems that are affecting the consumer goods industry and that could jeopardize the survival of many companies in the productive landscape.
"In the consumer goods sector, the effect of very strong competition and the constant search for efficiency have always helped to contain price dynamics. The current inflationary climate is the consequence of important and unpredictable events that have affected the industry's operators. In the last two years, they have been weakened by the consequences of the pandemic, by tensions in the area of raw material prices and by bottlenecks in global supply chains. Then came the effects of the war in Ukraine, geopolitical tensions and increased financial constraints. This real storm has resulted in the highest exogenous inflation in recent decades and led to heavy additional costs, which have not been passed on downstream in recent months. This pattern cannot be compared to anything that happened in the 1970s, when the buying power of modern retailing did not yet exist. The rise in prices – repeatedly described and commented on by the media – is a signal that the situation of the companies is no longer tenable."

 According to estimates published by the consulting firm Prometeia, even assuming that the transfer to the downstream of the costs incurred is almost total, about 30% of companies producing consumer products should still operate with negative margins, accentuating a distress already manifested by 23% of manufacturers in 2021. The situation is critical because costs have not been immediately transferred downstream due to the time lag of several months that exists in the passing on of prices from industry to distribution. Researchers estimate that 18% of the consumer goods industry's sales are potentially at risk, compared to the estimated average of 16% for production as a whole. The vagaries of market cycles, high volatility, energy commodity strains and restrictive monetary policies could jeopardize the medium-term sustainability of many companies. "Obviously, costs are transferred downstream at different times and in different ways, depending on the sector and the different cost and margin structures. All of this is taking place in a context of low household purchasing power, of which all companies are fully aware," emphasized Francesco Mutti. 

In the Italian industrial landscape, according to Prometeia, manufacturers of packaged consumer goods, especially food, are expected to suffer the greatest disadvantages, due to the impact of very high raw material and energy costs, especially in the upstream processing phases. For the entire food sector, for example, raw materials represent on average 63% of sales. In the consumer goods industry, it is estimated that only half of the companies would be able to absorb a 50% increase in operating costs without negatively impacting margins. The impact would be severe in terms of investments and jobs, considering that consumer goods represent 17.3% of investments and 14% of jobs in the manufacturing sector. If such a contraction were to occur, it would add another 0.8% to the pressure on household consumption already caused by the decline in employment. Investments in innovation, sustainability and quality control also depend on operators' ability to maintain healthy economic accounts, which have allowed the FMCG industry to effectively monitor mature sectors in the domestic market and reposition itself on foreign markets, essential conditions for the competitiveness of the entire industry.

With regard to the hypothesis of a moratorium on price increases, which has been put forward on several occasions by associations and companies in the modern distribution sector, with which associations and manufacturing operators have been invited to a collective discussion, Centromarca believes that it cannot in any case be evaluated on its basic merits. This would lead to both disruptions in a market that has improved its efficiency over time and to distortions of the competition situation that are not compatible with antitrust laws. The association also points out that acting on behalf of its members is not one of its statutory prerogative. Companies must intervene on prices autonomously, in compliance with antitrust law, on the basis of very different business strategies.
Finally, Centromarca pointed out that the industry has made considerable efforts to contain inflation and that does not consider it appropriate that statements be made by third parties that could lead public opinion and policy makers to assume that specific interventions by individual industries on prices are the result of purely speculative decisions. "Centromarca," said Francesco Mutti, "was and remains widely available to discuss around a table that would welcome government and modern distribution companies, in order to reflect on the possible outcomes of a complex situation that has affected the industry and the country."

Sources: corriereortofrutticolo.it, parma.repubblica.it