Two Steps Forward, a Giant Step Back

Photo credit:  crayola.com

Photo credit: crayola.com

September in Rioja is usually the time when the region slowly returns to life and begins to prepare for the grape harvest after the August holidays. But this year it awoke with a start. The Agency for Information and Foodstuff Control, a government body created to improve transparency in transactions between producers and sellers of foodstuffs, dropped a bomb on Rioja wineries with a law obliging them to pay grape growers 30 days after delivery of grapes or face fines of up to 100,000 euros per transaction. The Agency confirmed that grapes were defined as perishable goods in contracts between wineries and farmers and subject to the 30 day- payment rule. The Spanish Wine Federation protested but the Ministry of the Economy ratified the decision.

Luis Lecea, president of the Rioja Regulatory Council (Photo:  Tom Perry)

Luis Lecea, president of the Rioja Regulatory Council (Photo: Tom Perry)

Without this unfortunate news, all the players here had good reasons to be happy. Sales over the last 12 months had been about the same as in the previous 12 months and ex-cellars prices were stable. From the farmers’ point of view, the 2014 crop appeared to be abundant and several large purchases by wineries at 85 euro cents per kilo for red grapes and about one euro per kilo for white grapes exceeded expectations and not only covered their production costs but guaranteed them a healthy profit. By comparison, in the DE Cava in Catalonia, prices of white grapes are about 35 euro cents per kilo, in Valdepeñas, 24 cents, in La Mancha, 15 cents and Extremadura, 12 cents.

Until now, wineries, especially the big players, have enjoyed the upper hand in their relationships with farmers, dictating grape prices and payment terms. Farmers delivered their grapes on consignment and were forced to accept payment in six or more months’ time depending on uncertain market conditions such as ‘the average price of transactions by three cooperatives’. It was the perfect formula for strained relations.

The election of a farmer as the president of the Regulatory Council ushered in a new climate of compromise that produced an historic agreement: all grape transactions would be subject to written contracts between the parties and payment would take place at 90 days.

The Spanish Wine Federation asked the Agency if its decision excluded the possibility of partial, fixed payment at 30 days and a variable component depending on market conditions. The agency’s reply was that a variable component was possible as long as it was determined by verifiable criteria.

Given Spanish banks’ extreme reticence about loans or credit, this is not the best time to be the managing director or the finance director of a winery.

My good friend Casimiro Somalo, a journalist specializing in wine and agriculture, made an interesting comment the other day on his Facebook page (translation mine):

“There are things I don’t understand and never will. That the government has mandated a deadline for the wineries to pay for grapes seems surreal and like Soviet intervention. This is no excuse to break free market rules, not in the wine trade or anywhere else. I’d like to hear the Ministry’s lawyers explain how they allow the big supermarket chains to pay farmers whenever they please – a year or more? Let’s see if they explain that rights are individual and that we’re capable of signing a contract without rules governing how many hours of sleep we can get. And if this law is good for wine, why not for cereal grains, whose prices have been at rock bottom for years? This is beginning to look shameless.”

Casimiro Somalo (Photo:  Tom Perry)

Casimiro Somalo
(Photo: Tom Perry)

 

 

 

 

 

Advertisements

3 thoughts on “Two Steps Forward, a Giant Step Back

    • The wineries certainly can’t justify accepting the grapes without a price and certainly the farmers weren’t happy to wait six months to get paid. The agreement to subject all transactions to written contracts and 90 days’ payment seemed to be acceptable to all sides and then the government came along… Please see Rob’s comment on FB about the problems of having to pay for all of your raw material in the short term. That’s why I mentioned that I wouldn’t want to be a finance director at a winery!

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s