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Nankurunaisa (in time it all works out): an optimistic view of the situation in the olive oil sector

Nankurunaisa (in time it all works out): an optimistic view of the situation in the olive oil sector

The damned coronavirus has changed -or rather, shaken- our lives and the oil industry obviously does not remain oblivious to this relentless reality. Rafael Cárdenas, director of the Centre of Excellence for Olive Oil of GEA, wanted to share with the readers of Mercacei an accurate and brilliant reflection on different levels about the current world scenario imposed by the virus and its repercussions and consequences for the international olive oil sector.

Nankurunaisa, a Japanese term I discovered a couple of days ago, is perhaps the most beautiful word in the world. Its deep meaning alludes to "living today for the sake of tomorrow". Its full version is "never forget who you are and live for today and tomorrow; never forget to smile and, however terrible your day may have been, remember that tomorrow the sun will welcome you with a big smile, do the same". Or, to put it simply, "in time it all works out". This knowledge enlightened me and made me think about what is really important now, which for me is to prepare to face the coming events with optimism. Because there is never enough positive thinking, especially in times like this.

But in order to face these future events with assurance, we must reflect deeply on what is happening and what may happen, and prepare ourselves for it. Along these lines, my intention is to share with the whole sector a reflection of my own that is still a personal vision of what can happen, in the hope that it will help us to emerge quickly and strengthened from this whole spiral of events that is so disastrous, both humanely and psychologically.

To this end, I will now explain the connections at the macro and microeconomic level of the circumstances we are living in these days, relating them to our sector and everything it involves, the countryside, production, consumption, organizations and, of course, people.

Let's start with the big thing, the macro economy, and move on to different aspects such as the oil economy (macro and micro), the business, the companies, the oil mills, the cooperatives, the groups, etc., exposing the different scenarios that could be presented in the next few weeks and focusing all of this on the way out, to end up with the unfathomable, the people.

Change in the economic balance

At the macroeconomic level, it is clear that this crisis will lead to a shift in the economic balance towards Asia. China was the first to fall and the origin of the virus, but it's already rising. The Asian giant has suffered a lot, but its regime of government and the particular idiosyncrasies of this country have allowed it to accelerate the implementation of the necessary actions to get out of the crisis. Something we're going to see in the coming weeks.
The USA -let's not forget its olive oil import volume- is starting to decline. The first world power has the same problem we have in Europe: many states and each one waging war on its own, etc. The result is a slower exit and a chance of relapse. Analysts predict a deep recession and a wide divide between states over health management.

As for the EU, already badly affected by Brexit, it is going to suffer a lot of damage to its economy and its degree of cohesion. It is not feasible that, at this time, the measures adopted should be undertaken individually by each of the countries, a truly discouraging circumstance for those of us who believe that in the union there is strength.

Each country is taking its own measures without taking into account those adopted by the others. A serious error which, together with the unilateral closure of borders, gives a glimpse of a dark future for the Union. If clear and rapid territorial measures are not taken cohesively, such as union on tax policy, defense and health and social issues, the stability of the European Union, its very foundations, will be seriously damaged. Perhaps one of the greatest harms this crisis can do to us Europeans is precisely to stop believing in the "European vision and ideal".

With regard to Africa and Latin America, there is still much uncertainty about the impact of the crisis on these continents. With a significantly younger population than Europe and a higher average annual temperature, especially at this time, Africa may be better placed to have a later entry of the virus, especially if a vaccine is available soon, although its health system -almost non-existent in some countries- suggests that it will take months for the virus to be confined. Measures are already being taken in Latin America, but it is unknown how the virus will spread.

For its part, India is missing, it is not talked about, but it would be illogical to think that the virus will not wreak havoc on a population with such great social differences. Not to mention that the data being handled is also in constant doubt. If in Spain you are already there, imagine the African continent, Asia and Latin America.

Everything seems to indicate that the situation will get worse in the short term, in the next few days or next week it is very likely that instructions will arrive to completely stop the activity in non-food sectors, in distribution or in the manufacture of medical equipment. This will be further exacerbated by the increase in rapid tests expected in the coming days, which will reveal very high levels of infection.

The Mediterranean Basin, one of the areas most affectedIf we carry out this macroeconomic analysis at the olive-growing level -olive macro economy-, we will find that the Mediterranean Basin, cradle and area of the largest world production of olive oil, is one of the most affected, with Italy and Spain leading the way, but also Greece, Morocco or Tunisia.

Perhaps one of the greatest harms this crisis can do to us Europeans is precisely to stop us believing in the "European vision and ideal"

Thus, Italy is already in a very acute phase of the crisis, with measures to close borders and paralyze all activity for weeks now. Spain is right behind in terms of measures and occurrences, but with really alarming increases, and also suffering from the stoppage and limitation of activity of many companies. Greece, on the other hand, which has so far recorded a lower incidence of the virus, is also taking measures in view of the expected large increase in the number of infections.

In our neighbor Portugal, measures are aimed at preventing a greater spread than the current one, which is still limited, while Morocco is closing its borders and trying to contain the spread of the lethal virus. Finally, Tunisia is already taking measures to increase the number of health workers and to limit meetings and normal daily activity.

With the large oil producers affected by the pandemic -in principle the crop should not be affected in the Northern Hemisphere- the question arises: how will this situation affect the crop and business? When will normality return?

The current scenario speaks to us of a moment of scarce work, where the harvesting is already or must be almost finished, of fertilizers and treatments mostly done and the olive grove entering a phase of waiting for water and the formation of the plot with a view to the next campaign. In some areas, a little further ahead, a good harvest is already beginning to be seen if the rains scheduled for these days, and the weather, are respectful of the countryside.

The forecast is for a medium-high season, barring serious weather problems, pending the outcome of the crisis in the producing countries. But it doesn't seem unreasonable to think that, if we don't get out of the crisis quickly, we could have a drop in production of between 200,000-300,000 t in all the producing countries, especially in North African countries.

And business?

If we look at business, we should consider, in addition to production, the current situation in the sector. Let's not forget that a month ago we were with the tractors on the highways. Prices are still as low as they were then, and the CAP is continuing with its pre-crisis reduction of 14%.

Nothing's changed? Something has! The agricultural sector is now perceived as a fundamental pillar of countries and governments, which was not the case a few weeks ago. Companies, of course, are going to be affected. In this respect, a distinction should be made between companies in the sector and mills and cooperatives; the analysis must be different, since the circumstances are also different.

It does not seem unreasonable to think that, if we do not get out of the crisis quickly, we could have a drop in production of between 200,000-300,000 t in all the producing countries

Let us first think of the companies that are dedicated to serving the agricultural sector and the olive oil industry in particular. Large companies have muscle and will resist the shock, with adjustments of course, but they will resist it. For the small ones -services, repair shops, sale of small equipment, fertilizers, etc.- it will be more complicated.

Sales will be affected: they will fall in these two (?) months and will take time to rise again. This will generate less income and the limitation of spending will quickly lead to embracing figures such as the already famous ERTES, or directly to the dismissal of many workers. Liquidity problems will slow down investments aimed at improving production processes or expanding activities, and this will be the case every day for the next few weeks.

With regard to industrial mills, at this stage with few permanent staff, they may be forced to limit it even further. They should not expect support in the form of subsidies, because if they had little before, they will have less now. And while they may not lack government guarantees to apply for loans in order to maintain their activity, this is not the way forward because it will only bring more debt.

In the cooperatives, as in the previous ones, the permanent staff is quite limited so this will not pose a great threat to their profit and loss accounts. The management is different, and so are the requirements, and therefore they will be affected in a different way. In my opinion, they should focus on improving services to members and providing more value. It is time to advance in the professionalization of governing boards and action protocols in order to come out stronger. Cooperative groups here can and should help a lot by focusing on increasing marketing and finding outlets for the product, but without forgetting to support the cooperatives themselves.

If we are honest, it is not a bad time for mills and cooperatives to stop activity for a few weeks. It is not a big disadvantage, as long as the commercial activity and service to partners and customers is maintained. The problem for the extraction sector may come from the drop in consumption, not only locally, but globally, which will mean a drop in income that will be analyzed later.

In the olive oil companies, as in any other, it is urgent to reflect on the situation, create units to manage the crisis and propose a clear plan of action to improve the way out of the situation. In this regard, we must clearly focus on the exit and try to position ourselves as best as possible, and to this end, containment of superfluous expenses and ensuring liquidity is key, which is important for meeting our commitments for payments to suppliers. Compliance is necessary and mandatory if we want our suppliers to comply with us when we need them. Don't lower prices, don't sell in just any way, because it's hard to reverse, it's useless and it drags down the whole sector.

It also seems essential to stay calm. Take advantage of time by improving our internal operations, preparing with training, optimizing protocols, etc. in order to be as far ahead of our competitors as possible at the starting line. Now is the time to do everything we always wanted to do, but never had the time.

Agriculture, one of the key sectors
I was saying before that we must not forget the time before the virus crisis. The tractors were on the highways and the farmers demanded measures from the ministries to improve their profitability, which was almost non-existent, every day. Agriculture was not a priority in "real" policies and it is therefore becoming an unprofitable sector at the bottom of the value chain.

At the beginning of the 19th century, the English economist David Ricardo said that "countries generate greater wealth when they specialize in producing what they are most productive at and trade with it. Even if a country is more productive in all its products than another country, it should always be interested in producing the one in which it is more productive comparatively." Without a doubt, for Spain olive oil is one of those products and it is not being taken care of as it deserves to be. The Spanish food industry is one of the world's leading industries in terms of food safety, quality and technology. Clearly this is going to be demanded by consumers and that's what we have to rely on to get back on track.

In the olive oil companies, as in any other, it is urgent to reflect on the situation, create crisis management units and propose a clear action plan to improve the way out of the crisis

But this perspective is changing in everyone's mind. It's funny how circumstances make us change our perceptions, our thoughts and priorities. Ortega y Gasset said "I am me and my circumstance", and he was right. In these difficult times, agriculture is becoming one of the key sectors in the geopolitical strategy of any State. Assuring local food in times of crisis has always been an obligation for countries, but in recent decades, with globalization, it has ceased to be so... until now.

This, together with the great solidarity shown by the people of the countryside towards others, to that way of being typical of the people of the village, calm, relaxed, I believe that it positions the farmers in everyone's mind in another place different from that of a few months ago, in another position within the scale of values and needs.

Maslow has already placed physiological needs at the core, food is one of them and should be part of the policy priorities of each country and, of course, of the community government in this case.



Three scenarios

Having arrived at this point of reflection, it would not be out of place to identify the different scenarios we may encounter and try to establish what could happen in each of them, no doubt a very risky task considering that the situation changes almost every hour, but necessary to order our mindset.

Scenario V: Pandemic controlled in April and return to normal activity in early May. This scenario V is the least likely from my point of view, but it is still worth analyzing. If this were to happen, the sector would obviously return to full activity, with less damage caused by the crisis in terms of employment and production prospects. The damage to consumption will be analyzed later.

Scenario U: Pandemic under control in May and recovery to normal activity in early June. This would mean that the crisis would continue for more than two months and, together with the problem of sales linked to consumption and exports, would lead to a slower recovery as unfortunately many small businesses would fall by the wayside. The season would also be somewhat affected, but not too much, since in this scenario it is very likely that outlets would be limited for labor reasons and this would partially affect work in the fields, except for exceptions that could be linked to the food sector.

Scenario L: Pandemic controlled in June and in early July normal activity is recovered. In this case, which is also unlikely, we would already be entering a very complicated downward spiral. Stopping activity for so many months would greatly affect employment and the purchasing power of families. Many companies would disappear and the willingness of citizens to consume would drop considerably. It is very possible that the crop would also be partially affected by lack of material and products for treatment and fertilizers, as well as by restrictions and increases in the prices of some consumables such as fuel, etc.

In this harsh scenario we must look back for guidance. The ILO estimates today that the unemployment that will be generated by this crisis will affect at most 25 million people worldwide and at least 8.1 million. This same report says that in Spain, depending on how long it takes to get out of the crisis, there will be between 240,000 and 1.4 million redundancies. Cepyme estimated the ERTES at 2-2.5 million, the same as in the last 6 years.

If we go back in time to see what happened in the previous economic crisis in terms of purchasing power of families and employment, in 2008 unemployment rose, according to official data, to 26.94% in 2012, exceeding the maximum reference values until then of the early 90s, set at 24.55%, and the mid 80s, of 21.65%. Something that reduced the purchasing power of families and, therefore, their consumption.

If we take a look at the olive oil consumption graphs, they also decreased several points in the years following the crisis. Therefore, being conservative, we cannot think that there is going to be an upsurge of this at a local level in the coming months, especially when governmental and EU bodies are predicting a very abrupt entry into the crisis, in a very short space of time, due to the sudden cessation of activity, unlike the previous one, which occurred gradually over a period of more than a year and a half (2008-2010).

If we place ourselves in this scenario, with an increase in the unemployment rate and, therefore, a decrease in the purchasing power of citizens and, consequently, a decrease in consumption, and considering the forecasts that speak of a medium-large campaign and a situation of low prices already stable for months, the most foreseeable is that prices will tend to fall even more if we do not find a way to increase and compensate for the decrease in domestic consumption with greater exports to non-producing countries and to producing countries that see their local production reduced by the crisis.

The most likely scenario today is U, but nevertheless it is interesting to look at them all, to think about what could happen and to plan ahead.

What could governments do to mitigate the effects of these scenarios and support the revival of the agricultural economy?
Certainly, a lot. They have the tools and they will do it, or at least try. The most favorable measures for our sector would be, among others, the following:

  • Establish a number of priority sectors for the economic recovery of the countries and the EU. These should clearly include agriculture and food, with financial measures and support to encourage their rapid recovery.
  • Reformulate the CAP so that subsidies to agricultural production reach the base of the chain (the farmers) more quickly and in greater quantity; and that the CAP is clearly favored by the policies of expenditure expansion that are being announced these days both by the ECB and by the governments of each country.
  • Limitation of taxes associated with agricultural activity.
  • Promoting the incorporation of women and young people in the sector. New people bring new ideas, new outlets, strength and drive.
  • Improving the profitability and transparency of the food chain.
  • Promotion of local consumption as the basis of the economy and local and rural development, which is essential to avoid de-population.
  • Improving agricultural infrastructures and training in new technologies and their application in the field.

What can companies, oil mills and cooperatives do?
Of course, reflect, situate ourselves in reality and draw up an action plan for a rapid and firm exit from the crisis, as mentioned above. In addition, among other measures, the following should be taken into account:

  • Activate as soon as possible a fast and decisive business plan, focusing it at local level -and if possible at an international level- on customers located in those countries where a faster exit from the crisis is foreseen; that is, in the Asian market, with China at the forefront. It is important to establish the routes and channels, to look for output for the product from now on, in a professional and active way.
  • Not to lower the quality of products and services, avoiding the temptation of an apparently quick profitability that is in fact ephemeral.
  • Do not drop the price to compete, because we could be worse off than in the previous situation and we would be facing a big problem of business sustainability.
  • Improve internal operations, processes and therefore customer satisfaction.
  • Take into account the motivation of the company's own customers, empower them and trust them.

And finally, the most important thing: the people

We must understand that what makes an organization work -be it a company, an oil mill or a cooperative- is not the machines, nor the infrastructure, nor the electricity. It's the people, our team, the most important asset we have and which we must take care of, especially in difficult times like the present. Remember, take care of them and they will take care of you and your business in the same way.

Companies and their managers must live up to and fulfill their commitments to their colleagues and employees. In delicate times like these, this means being flexible and tolerant, and taking into account everything that can help us to better cope with these moments, in order to emerge from this situation with strength and drive. In this sense, teleworking can be more than a temporary solution: it is a great opportunity to combine and improve the satisfaction and motivation of our staff, so let's take advantage of it!

The role of the manager, together with the incorporation of women in decision-making positions and ensuring traceability and food safety, are some of the keys for companies that will emerge stronger from the current situation

It is time to sit down and talk about the situation in a clear and reciprocal manner, to communicate in a transparent way and to take measures that are favorable to all, possibly drastic, but focused on the recovery of activity without neglecting training and improvement of work skills.

It is necessary to reflect on the above, and it is here where the image of the manager and the director -from which this sector suffers so much- is fundamental. They are the people who plan and make things happen, they are necessary and they should have power and authority, just as they should be held accountable for the effects of their decisions.

Peter Drucker, considered the father of management, stated in The Practice of Management (1954) that the role of managers and administrators is to "get things done". Now more than ever the olive oil sector needs the presence of these managers who take into account their staff, the circumstances of each company, oil mill or cooperative, their customers -both internal and external-, the property, etc. and who establish clear operating policies and action plans to lead their companies and groups towards the exit from the crisis in the best possible conditions.

These figures, together with the incorporation of women and their different and complementary points of view in decision-making positions, and the assurance of traceability and food safety, will be some of the keys to the companies that will manage to emerge stronger from the current situation.

Nankurunaisa

But let's go back to the term that gives the title to this article. As we said at the beginning, the word nankurunaisa has multiple interpretations: "the important thing is health" "while there is life, there is hope" or "anyway everything will get better".

Many people understand it as hope, that is, the feeling that everything can improve, something that provides tremendous strength to face what we have in hand and what is to come, to achieve success and overcome adversity. If not, if we did not have this confidence in the belief that everything can get better, we would most likely give up on the projects as soon as the first setback occurs.

The agricultural sector has nankurunaisa in its DNA; think about it. And with this thought we are able to gather the strength we need to face these difficulties at a time like the present, when everything seems to be collapsing irrevocably and we will not be able to overcome it.

The olive grove, our people, are pure nankurunaisa. It's about trusting that the passage of time will help us, and trusting ourselves to achieve our goals. To have hope in nature, which is our best refuge at times like these, in the agriculture that feeds us and in the people who accompany us and their power to overcome. I, of course, have nankurunaisa. Do you?

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