In 2023, agriculture increased its margins again compared to the step backwards of distribution | National and international economy

Company margins gained ground throughout the third quarter of 2023 and managed to recover to levels prior to the Covid-19 health and economic crisis. In a 100-based index that takes as reference the fourth quarter of 2019 – shortly before the outbreak of the pandemic – the general rate reached around 105 points in September, according to the latest data from the Bank of Spain…

Register for free to continue reading on Cinco Días

If you have an account on EL PAÍS, you can use it to identify yourself

Company margins gained ground throughout the third quarter of 2023 and managed to recover to levels prior to the Covid-19 health and economic crisis. In a 100-based index that takes as its reference the fourth quarter of 2019 – shortly before the outbreak of the pandemic – the general rate reached around 105 points in September, according to the latest data from the Bank of Spain. Although the evolution continues to be “heterogeneous” by sector, in this recovery the margins of the agri-food chain stand out, driven upwards by agricultural and processing companies. This is contrasted, however, with the decline in food distribution margins.

Yesterday the Banking Supervision published the latest edition of the Observatory on company margins, a project on which it has been working for months together with the Ministry of Economy and the Revenue Agency. According to the data, between July and September last year the evolution of energy prices and raw material costs favored the sales margins of the economy as a whole to exceed pre-pandemic levels. Only the energy sector, whose results are studied separately, and the financial sector, which is outside the observatory, would be excluded from this general analysis.

The corporate margin indicator shows the ratio between the gross operating margin of large companies and their turnover. Therefore, it is important to remember that an increase does not necessarily represent an upward trend in the profits recorded by organizations.

The indicator is useful for analyzing other variables and, for example, knowing whether the increase is due to the optimization of resources by the company; to external factors, such as increases in interest rates; or to a transfer of the increase in production costs onto goods and services. Previous editions of the Observatory, as well as data published by the Revenue Agency itself, demonstrate that there has been a transfer of costs onto the final sales prices. In these situations, where elasticities and price-setting processes are present, one would expect the trend to reverse once the situation has reversed, i.e. when the inflationary crisis ends. This is in fact the argument used by both the Government and the unions to ask for a wage increase.

First of all, the evolution of margins is uneven depending on the sectors studied. According to updated data, in energy companies the operations/sales ratio would have presented a heterogeneous evolution, rebounding in the third quarter in the case of refining and wholesale of fuels, and stabilizing in the case of the supply of electricity and gas. In particular, the margin on sales of the oil refining subsector showed a rebound in the third quarter of 2023, after the sharp declines suffered starting from the second quarter of 2022. The margin on sales, however, of the gas and electricity supply sector would stabilize over the summer, maintaining the increases accumulated throughout the second half of 2022 and the first half of 2023.

Throughout the agri-food supply chain, the indicator continued to recover in general terms. By sector, agriculture would already be at much higher levels than pre-pandemic (close to 125 points) and the agri-food industry, which includes production, processing and conservation companies, would be gradually recovering to approach 90 points. The discordant note would be the margin in the food trade, where supermarkets and large distribution chains are registered. In fact, the subsector has had two quarters of decline and goes from around 100 to around 90. The distribution, specifies the Bank of Spain, continues “without managing to reverse the contractions experienced during the energy crisis”.

Industry is one of the sectors that has benefited most from the drop in raw material prices. Excluding the energy production and agri-food sectors, the evolution of their margins since the end of 2022 has grown thanks to cheaper inputs. “The recovery of margins is concentrated in some subsectors such as transport and capital goods,” notes the Bank of Spain.

Services, for their part, consolidate the recovery that began after the pandemic and margins on tourism and transport sales remain stable at around 100.

Only data from the financial sector is missing. The reason for its absence lies in the Observatory’s methodology, since the information collected by the Revenue Agency with VAT returns is used to feed it, among other sources. Since this sector does not pay this tax, the same calculation cannot be used.

Despite this, industry margins also appear high. Yesterday the deputy governor of the Bank of Spain, Margarita Delgado, announced that 2023 will be a “particularly positive” year for the banking sector. Although we are waiting for the definitive data, you assured in the statements collected by Efe that the margins will be “remarkable”.

The proposal to start an observatory of this type came from the CC OO and UGT unions almost a year ago. The objective was to have data and figures that would allow collective bargaining to be undertaken in those sectors which, due to the evolution of their benefits, were able to face the revaluation of wages.

Last April, the then First Vice President and Minister of Economy, Nadia Calviño, announced the creation of the observatory to maintain effective competition in the markets for goods and services and achieve an “adequate” distribution of income. The measure, supported by the head of Labor, Yolanda Díaz, was contested by employers.

Follow all the information about Cinco Días on Facebook, X and Linkedin, or in our Five Day Agenda newsletter

2024-01-25 04:35:00
#agriculture #increased #margins #compared #step #distribution #National #international #economy