Under pressure from inflation, the French food industry is returning to the negotiating table to reach an agreement with the major retailers. It’s a tense climate for food producers, who have been hit hard by rising raw material and energy prices. Here’s an update from the experts at AURIS finance, a consultancy specialising in mergers and acquisitions.
There are more and more rounds of talks, but without any favourable outcome. In France, negotiations between food industry professionals are governed by the EGalim law, which requires the various parties to meet once a year to sign commercial contracts. For 2022, despite an initial agreement sealed in March allowing for a 3.4% price increase, the food industry players have nevertheless returned to the negotiating table. The reason: soaring inflation, which is expected to reach between 7 and 10% by the end of 2022.
Producers are struggling
The rise in food prices has been exacerbated by the Russian-Ukrainian conflict. The French food industry is currently experiencing major difficulties. “We need to get our act together urgently, otherwise some of our companies could go bankrupt tomorrow. We call on the retailers to take into account the seriousness of the situation, and the reality of a situation that has been imposed on us and is not of our choice. New negotiations must be concluded quickly so that all businesses can absorb the shock of the increase. There is an urgent need to take stock of the economic situation of the French food industry, as the long-term future of the sector depends on it. We call on the retail chains to show responsibility and solidarity,” said Jean-Philippe André, president of ANIA, and Dominique Chargé, president of Coopération Agricole, in a press release issued by the Association Nationale des Industries Alimentaires (ANIA- the French National Food Industry Association) at the end of April.
A Charter of Ethical Conduct and negotiations on a case-by-case basis
In March, both parties signed a charter of ethical conduct with the government. In this document, the suppliers undertook to “provide all the necessary guarantees to justify the real impact of the war on their business”. For their part, the supermarket chains undertook to carefully examine all requests for renegotiation of contracts submitted to them “within one month of receipt of the request”. The ANIA is critical of the fact that the implementation of this agreement has been a slow process. According to the president of the ANIA, interviewed by the daily Les Echos, the new contracts signed represent only “20% of the requests”. Negotiations will therefore continue in the coming months. Inflation is expected to continue to rise, leading to a sharp increase in farm-gate prices. For several years now, retailers and suppliers have been locked in often interminable rounds of negotiations. In 2021 alone, before the Ukrainian conflict, negotiations between the parties were already the subject of considerable tension.
Get the support you need
This challenging environment may prompt some food company directors to sell their business. The market for mergers and acquisitions in the agri-food sector remains very dynamic. However, the process remains complex. Numerous factors need to be taken into account in order to properly assess the value of a business and to enter into constructive negotiations with potential buyers. Specialised by sector, AURIS Finance’s experts can assist you throughout your sale transaction.
