Uncertainty at Croatia's Largest Company May Affect Regional Olive Oil Prices

Summary

Agrokor, Croatia’s largest food pro­ducer and retailer, is fac­ing finan­cial dif­fi­cul­ties due to heavy debt, caus­ing the clo­sure of gro­cery stores and poten­tial lay­offs. The com­pa­ny’s strug­gles could impact the price of olive oil in the region, as it sources the prod­uct from both within Croatia and the European Union, lead­ing to con­cerns over sup­ply and demand in the global mar­ket.

Croatia’s heav­ily indebted food and retail con­cern Agrokor recently announced that it was clos­ing 80 to 100 of its Konzum gro­cery stores and lay­ing off an untold num­ber of employ­ees. As the largest food pro­ducer and retailer in the Balkans with rev­enue equiv­a­lent to 15 per­cent of Croatia’s gross domes­tic prod­uct, Agrokor’s finan­cial dif­fi­cul­ties stem­ming from approx­i­mately $6 bil­lion in debt could cause fluc­tu­a­tions to the price of olive oil in the region.

As the owner of Ol Istria and Konzum’s K Plus olive oil brands, Agrokor sources its olive oil both from within Croatia and from the European Union. On the Istrian Peninsula, Agrokor owns at least 65,000 olive trees and pro­duces 130 tons of extra vir­gin olive oil under its sub­sidiary com­pany, Agrolaguna.

While Croatia only pro­duces less than 6,000 tons of olive oil accord­ing to the International Olive Oil Council, or roughly 0.2 per­cent of global pro­duc­tion, any dis­rup­tion to sup­ply and demand in the coun­tries of the for­mer Yugoslavia could com­pli­cate a global mar­ket already strained by a dis­mal har­vest in 2016.

Agrokor cur­rently employs roughly 60,000 peo­ple through­out the Balkans, with a fur­ther 150,000 peo­ple employed by Agrokor’s sup­pli­ers in Croatia alone. Concerns over Agrokor’s abil­ity to meet its lia­bil­i­ties to sup­pli­ers have prompted some to demand pay­ment in advance or to with­hold deliv­er­ies of their prod­ucts until com­pen­sated.

Considered ​“too big to fail,” a cri­sis man­ager named Ante Ramljak has been appointed by the Croatian gov­ern­ment to ensure Agrokor’s abil­ity to repay its debts and over­see the company’s restruc­tur­ing. The com­pany recently secured a €480 mil­lion ($535 mil­lion) loan to help avoid bank­ruptcy pro­ceed­ings and repay cred­i­tors.

However, the burst of liq­uid­ity might only be a tem­po­rary fix for Agrokor. According to Bloomberg Markets, opti­mism for a cash influx dur­ing Croatia’s peak tourism sea­son may be fad­ing as Konzum’s com­peti­tors con­tinue to cap­ture mar­ket share.

The German dis­count super­mar­ket chain Lidl has made sig­nif­i­cant inroads into the Croatian mar­ket in recent years, forc­ing Konzum to adjust its strat­egy by open­ing larger stores in key loca­tions.

Despite clos­ing 80 to 100 of its approx­i­mately 700 stores, Konzum recently opened a super­store in Supetar on the Croatian island of Brač, near the island’s only Lidl. While this may prove advan­ta­geous to Brachia, a pri­mary sup­plier of Brač olive oil to Konzum, the new super­store may not be enough to keep con­sumers from vis­it­ing Lidl.

The size of Agrokor’s finan­cial dif­fi­cul­ties has prompted the Italian bank­ing group Intesa Sanpaolo to cut its 2017 pro­jec­tions for Croatian eco­nomic growth from 3.2 per­cent to 2.9 per­cent. However, 2.6 mil­lion tourists vis­ited Croatia in June of this year, up 31 per­cent from last year, offer­ing a glim­mer of hope to Agrokor and the olive oil com­pa­nies that sup­ply it.