Weak cooperatives and high input costs hike Greek food prices

Fertilisers in Greece are about 60-80% more expensive than Italy. [Oleve Family Estate and Products/Flickr]

This article is part of our special report Farmers under pressure.

In Greece, cooperatives play a limited role in the food supply chain. Combined with rising overhead costs, this has contributed to the erosion of local farmers’ incomes, while emptying the wallets of consumers.

Faced with an unprecedented economic crisis since 2008, Greek consumers have seen their purchasing power dramatically decreased.

At the beginning of the crisis in 2008, 11.2% of Greeks reported shortages in basic goods but, seven years later, this figure rose to 22.2%. According to the latest Eurostat data, Greece is the third poorest member of the EU followed by Bulgaria (34.2%) and Romania (22.7%).

However, food prices have not followed the same trend. Due to a number of factors, ranging from high input costs to a lack of response from cooperatives, final product prices have tended to rise.

Farmers under pressure

EU farmers’ income has come under rising pressure from a number of factors, ranging from climate change, high input costs, the Russia embargo and sluggish demand from China.

Energy and animal feed

This is explained by a number of factors. Input costs for Greek farmers have increased more rapidly than production value. In total, farmers spend approximately €5.1 billion on input costs in order to be able to produce.

Giannis Tsiforos, an agri-food expert at Gaia Epixeirein, a consultancy which brings together farmers, the IT and banking sectors, told euractiv.com that energy and animal feed expenditure makes up 60% of input costs for Greek farmers.

“Unfortunately, in Greece, we have the most expensive diesel compared to other EU countries. In 2015, the return of the oil excise duty to farmers was abolished as part of the bailout programme,” Tsiforos said, adding that energy costs will remain high despite the fall in oil prices.

Animal feed is another issue. Most of it comes from imported protein crops, especially soybeans, he remarked. “We have not been able to use our own protein crops to meet the need for imports and so the animal feed costs remain high,” Tsiforos said.

Vassilis Parolas, the General Director of the Association of Agricultural Cooperatives in Thesprotia region, shares the same view. Referring to fertilisers, he said trade has been concentrated on a few companies that have almost full control of the market.

“One could claim that it works like a cartel on a production cost level. We are about 60-80% more expensive than Italy in terms of fertilisers,” Parolas said.

And the same applies to pesticides, he remarked. “Regarding pesticides, the same multinationals sell at a different price in Italy and in Greece, transferring a profit rate to countries that have a lower tax rate,” he said.

In addition, the cost of veterinary medicines is ten times higher compared to neighbouring Bulgaria or Turkey. “All farmers from northern Greece go to Turkey to buy veterinary medicines, exactly the same ones,” Parolas pointed out.

Supply chain

The structure of the food supply chain tends to exacerbate those issues. In Greece, wholesalers and intermediaries have a strong position in the supply chain. In the fruit and vegetable sector, wholesalers supply retail chains at a 45%-75% rate.

According to Tsiforos, producers do not exceed 8-10% of profit, while the rest is taken by intermediaries and retailers. Unfair commercial practices, like late payments, make farmers’ lives even more difficult. “Late payments are almost 90-120 days, which is more than twice compared to other EU member states,” he said.

In order for farmers to cover production expenses, they take out bank loans that, in the best case scenario, have a 6% interest rate. “Specific measures should be taken […] the market cannot be completely uncontrolled,” Tsiforos warned.

Short food chains seen as answer to farmers' pay and product quality

Local markets, where farmers and producers sell directly to the consumer, have prospered across the EU in both rural and urban areas in recent years.

 

Cooperatives are weakened

Another reason for the high input costs, which result in high final food prices, is the limited role of cooperatives in the country.

Parolas says cooperative involvement in the food supply chain is extremely low.

“There was a well-coordinated process of an old anachronistic framework of cooperatives that led them to depreciation,” Parolas noted, adding that large cooperatives were privatised and there was no way to allocate and coordinate the country’s production activity as a result.

Cooperative production is currently about 11% of total agricultural output. This limited rate has widened the distance between the producer and the shelf, giving room for other “intermediaries” to take control the market and particular agricultural sectors.

“This harms both the producers and the price of a final product,” Parolas explained.

He cited as an example the association of agricultural cooperatives for cereals, pulses and for the animal feed sector (KYPE) which was shut down in 1992.

“All the Greek cooperatives that produced cereals were channelling them there and then the distribution was taking place,” he added.

In an effort to tackle high production costs, the creation of a nationwide company is underway, which will consist of “healthy” cooperative shareholders. “By increasing the volume of demand for raw materials, inputs, we strengthen our bargaining power in the food chain,” he said.

He added that high taxation rates are meagre in the face of what can be achieved in production costs.

“Fertilisers can be reduced by 10%, pesticides and seeds over 20%. With such costs, there is no competitiveness and all costs are going through to the consumer,” he said.

Positions

Referring to the impact of the Russian embargo on Greek agricultural products, Giannis Tsiforos, an agri-food expert at Gaia Epixeirein, said, “Many producers have turned to Saudi Arabia and Gulf countries to fill the Russian embargo gap and this had a positive result”.

“Exports in 2016 reached €5.6 billion, a 6.7% increase compared to 2015. This creates optimism about the progress of exports as the deficit of the agricultural products trade balance has been reduced to less than €500 million annually,” he noted, adding that farmers have mitigated to a very significant extent the consequences of the Russian embargo.

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