Embracing opportunities to manage credit risk: lessons from Italy’s agrifood sector

Almost every country in the world produces agricultural goods. Each country’s agri-food sector is shaped by factors ranging from regional specificities and culture to climate, geography, and international relations.

Food is a basic necessity, and as such it’s easy to assume that the agrifood sector is safe from certain risks. However, this is not the case, with actors across the supply chain vulnerable to various risks and stressors, from consumers’ purchasing power and inflation to product recalls and natural disasters. Given the increasingly volatile business and environmental landscape, players must navigate new challenges and manage their credit risks carefully.  

As Industry Manager at Allianz Trade in Italy, I’ve seen various trends impact credit risk in the agri-food sector in recent years, and creative ways in which companies adapt in order to manage these. Let’s explore how lessons learned from the Italian agri-food industry could help businesses around the world.

The agri-food sector in Italy is both large and internationally significant. Exports of signature produce, including pasta, cheese, tomatoes and wine totaled more than €60 billion in 2022 – a record year. It’s also, however, highly fragmented and dominated by small, family-run businesses with narrow margins that are vulnerable to geopolitical and economic shock.

Recent years have seen record inflation, supply chain disruption and raw material price hikes. Rising costs for manufacturers – small-scale pasta producers, for example – can result in further reduced margins. For businesses at the start of the value chain, such as farmers, climate-related risks are a major challenge. These organizations face threats to production and harvests due to environmental risks such as water deficit, high temperatures and dryness.

While the risk factors are different for businesses along the value chain, the risk management strategies they can employ do overlap. And these approaches can benefit farmers and food producers the world over.

-          Diversifying crops and distribution methods

E-commerce and exports represent excellent growth opportunities, particularly when paired with technological innovations. Tech can not only distribute products more efficiently, but reduce waste and cost and help companies expand into new markets. And when it comes to adapting to the changing environment and climate, farmers are turning towards alternative produce or ready-to-eat products historically grown in warmer regions, both seizing new opportunities and helping buffer against current and future risks. Take kiwis: thirty years ago, Italy wasn’t known for producing kiwi fruit. Today, it’s the second-largest kiwi exporter in the world.

-          Certification

We recommend that businesses invest in having their produce certified. In Italy, for example, we have the “Made in Italy” label. This offers protection against counterfeit products that lack the unique production process, region of origin and raw materials in that specific produce. This applies to a range of products including cheese, such as mozzarella and parmesan, and tomatoes. Certification to organic standards can also improve profitability – despite general consumer slowdown, the sale of organic products in Italy has increased by 130% over the past 10 years.

-          Partnerships

Aggregating companies together through consortiums and strategic alliances consolidates contractual influence and broadens market reach. It enables them to be more structured and, therefore, more powerful.

As part of a robust business strategy, it’s important to anticipate and monitor risks, and credit risks in particular, so as to build strong and durable customer relationships and know when to adjust payment and delivery terms.  A trade credit insurance policy with Allianz Trade gives companies not just protection when a customer doesn’t pay, but also a wealth of information to help clients choose safe and secure markets and buyers to support international and domestic expansion. We conduct regular, in-depth sector analyses of factors including profitability, liquidity and legal issues, and gather information on individual buyers and their payment habits.

But what really differentiates us are our territorial risk offices, which are located in every region. Our personnel on the ground pay visits to agri-food businesses, gathering information firsthand.  When we say we know the sector inside out, this is what we mean – we can even tell you how many cows a certain farmer owns!

As a long-standing pillar in the production and export of food products, Italian food buyers and sellers have strong relationships that go back decades. Here at Allianz Trade, we take the same approach to our customers around the world. We strive to support our clients to manage risks and identify opportunities over the long term. To do this, we leverage our extensive buyer database and global footprint to provide reliable information and guidance.