Açoriano Oriental
Government must act on the sharp rise in interest rates and energy costs

Jorge Rita, President of the Azores Agricultural Federation, says the sector enters 2023 with many "concerns and uncertainties", so the Azores Regional Government's action should be swift and determined. Rita leaves a warning to the industry: not to think of lowering the price paid to the producer

Government must act on the sharp rise in interest rates and energy costs

Autor: Nuno Martins Neves

2022 was an important year for agriculture, one which, despite having started badly, ended well, as a result of the demands of the Agricultural Federation of the Azores, which were echoed in the Regional Government of the Azores.

We started 2022 in a totally different way than in the past. Making a final balance of what our demands were, most of them were accepted. The price of milk reached the level we wanted. The strategies of the Azores Regional Government in concert with the Azores Agricultural Federation were positive. The scenario was positive for agriculture, in the year 2022, despite the difficulties, which are alien to the Region and which we do not control, considering the brutal growth in production costs and their implications affecting all sectors of economic activity in the Region.

It is positive to recognize that the year ended on a good note. We regret that the dairy product industry had delayed increases, but by the end of the year they took an interesting position for producers. In terms of meat, in the horticultural sector and in other agricultural productions, it was a more balanced year than the previous one, although the case of vines was more worrying.

Let's now look at 2023: how does agriculture start the new year?

We are starting 2023 with many concerns and uncertainties, and we do not know if the solutions presented will be sufficient to mitigate the real production costs linked to the sector. Namely, raw materials, energy, and labor. These are complex situations. We must add the financial costs, related to interest rates, which may bring many difficulties. The sharp rise in interest rates can stifle not only families with mortgages, as is often talked about in the media, but essentially companies, farmers, all those who normally also have debts with banks. This situation can be dramatic: we are starting 2023 in a very worrying situation.

The brutal increase in energy will have an impact on agricultural producers, in some cases in a direct way, for those who have medium voltage. Then, the impact on feed mills and dairy industries – all of this could stifle the sector in the Azores Autonomous Region.

We have reported this more than once, and we look forward to hearing what the Regional Government of the Azores will do to minimize the brutal impact of energy that covers all industries, together with the Regional Government of Madeira – the regions most targeted in this aspect.

There’s also inflation and labor costs. We are all aware that people have to earn more. Besides the lack of labor, which is a serious situation, we must improve the earnings of the existing one, because it is fair to do so, given the inflation, which affects everyone. The employees in the agricultural sector also have their families and must live with the dignity they deserve and need.

We hope that the horticultural sector, the vineyard, the organic agriculture, the forest, the meat and the milk will remain stable. If this situation is reversed, at any time, we will be in an uncomfortable situation.

Therefore, I set here a challenge for everyone in the Azores: to clearly understand the path we have to follow in this difficult phase and be surgical in our investments considering community funds and the RRF, so that the economy does not become more fragile than it already is. If the economy of the Autonomous Region of the Azores becomes weaker, in the case of the agricultural sector, we will have very serious problems downstream, in economic, social and even territorial terms. Because we want to keep people in rural areas and this is done with sustainable agriculture.

And what about the challenges, what is the outlook for 2023?

To continue producing with excellence, whether in dairy, meat, fruit or vegetable sectors. We are perfectly aligned with what the Government defends, what the farmers and the Azoreans want. We have no size or scale, so we must value the differentiation of our production and our endogenous products. We must work together, take advantage of the funds, and apply them well. All aid to the Azores Autonomous Region must have a return for the regional economy. These are our great goals, but there is a latent concern from everyone regarding the unknown in 2023.

It is urgent that the Government acts accordingly, mainly regarding energy costs and interest rates?

Yes. We realize that all sectors of the economy feel that they have a right and we have nothing against them. But we all need to understand this: governments are there to intervene when there are crises. And this government must be very well prepared, from our point of view, for this crisis that has been going on for some time and that is becoming more and more serious due to these situations.

Where can the government act, from our point of view? It will always be important to act upstream, on energy costs, on interest rates, with some negotiation with the European Central Bank (ECB), on creating subsidized loans for some economic sectors in the region, such as agriculture; not to mention the RRF, which, due to some delay in some measures, is not having the impact that we would like at this point. The government has to be alert and prepared for this latent crisis situation. On the energy issue, the government can find a way for all sectors of the economy not to be penalized, because I don't see where regional companies are going to get the revenue to make up for all these increases in expenses. A lot is going to be demanded of the Regional Government, the Government of the Republic, and of Europe itself, for this year of 2023.

It will be a year of survival and not of investment?
The Community Support Framework is fundamental because we urgently need to make investments, since, for more than two or three years, there have been no investments in the area of agriculture. But there is a lack of manpower for some investments that we need to make, in terms of construction and improvements in farms. We have the financial envelopes, but we may not have the financial capacity, due to the interest rates that will be applied. We have a community support framework that can be attractive in terms of investment support and we may not have the conditions to do it.

The price of the milk liter paid to the producer has already reached an interesting level. However, the price paid by the consumer has risen dramatically. Is this something that worries you?

We face a big and constant challenge, at the regional and national levels, which is transparency. And I think everybody knows where the problem is, but nobody acts, or very rarely acts. What worries us is that countries where milk is better paid than ours manage to sell cheap products in Portugal. And then we have a distribution system that often does not cooperate. Where is the inspection? When products are sold below cost price, there is a word for it: dumping. When are the mechanisms put in place to verify this dumping?

And this influences the discourse of our industrialists, who start saying that there may be cheaper milk from other countries on the market. But the industry has to do its job in its organizations, at the level of ANIL, Lactaçores, Lactogal and other large companies, to pressure governments to monitor this potential dumping situation.

The other problem regarding milk is that some products reached prices far above what was expected. And that is not really reflected on the producer. It is a fact that the producer's milk has reached levels that, at the beginning of the year, we did not think would be possible; but it must also be said that the last 3-cent increase on the mainland was not reflected in the region. The differential between the Azores and the mainland has increased.

If the industries continue to think that they will always have cheap, available milk, there will be no more cheap, available milk. If we had a reduction of 40 million liters of milk production in 2022, this year we can add another million or so. It should be noted that, from this amount, about 10 million liters of milk resulted from the conversion of milk producers to meat producers. The year begins with all the problems I mentioned, so, if the industry doesn't improve the price of the liter of milk, I don't see what role the industry wants to play.

Can the strategy of reducing the milk price continue?

It can, if the industry does not have a proactive attitude in solving the problem of selling and paying the producers better. Because there ae no miracles. I identified the increases in production costs, and, if the industries want to lower the price of milk, we have a mechanism, which is to reduce.

I will give you an example: when last year we were discussing the price of milk and we said that the industries would “drag their feet”, we were right, because, when we reached the end of the year, there were industries that thought they had too much profit to pass on part of that profit to the producers. But this extra profit they had was because they didn't pay the producers properly! The producers don't need the dairy industries to bank their savings: they need to be paid a fair price for the liter of milk. And that is a price per liter of milk with which we all feel comfortable and able to support our expenses and burdens, and have a stable life with more income and dignity – which is what we all need and deserve.

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