Spanish supermarkets want VAT reduction to limit price increases

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Supermarkets are asking for VAT reductions on food to keep prices in check. Asedas, the group of Mercadona, Lidl and Dia, proposes to the government that the sector can negotiate its electricity contracts as large consumers to reduce costs

See also: Huge price increase at Mercadona on some products

This is in response to rising energy, fuel and commodity prices, which have shaken the food sector. The request to the government has been prepared by the business association Asedas, which brings together supermarkets such as Mercadona, Lidl, Dia, SalvaMas and Consum.

VAT reduction

One of the proposals is to lower VAT on food and provide benefits to companies in the sector to negotiate contracts with electricity companies. The sector is in “an unprecedented situation with record high commodity price increases”.

On the one hand, companies fear that the rise in prices will affect household consumption. It fell by 3.7% quarterly between January and March, according to INE. Indirectly, these price increases will weigh on their bottom line.

On the other hand, while companies are playing with their margins to pass on increases as little as possible to avoid losing customers, this strategy is becoming increasingly limited.

So far, headline inflation has risen above food prices (9.8% from 6.9% in March, last month with full data), but increases continue.

Other proposed measures

To remedy the situation, Aseda proposes several measures in the fields of energy, transport and taxes. The association, which brings together 20 companies with a total of 19,000 stores and 282,600 employees, is calling for a VAT reduction on food and consumer products to help control prices.

It also calls for a moratorium on special taxes such as fluorinated gases and the new tax on disposable plastics.

The food sector ‘important’

The designation of the food sector as “essential”, as happened during the pandemic, is another request. For practical reasons, a legal framework would be needed that would enable companies to take the necessary commercial measures to guarantee supplies in situations of shortage.

A measure to this effect has already been taken in the royal decree, which the government approved in April. Stores were allowed to ration the sales of products in emergencies, as happened with sunflower oil.

Transport guarantee

But there are also new measures on the table, such as guaranteeing transport for all links in the food chain during strikes or lockouts, such as the one the transport sector held a few weeks ago, which gave rise to serious supply problems. Establishing minimum requirements for service during strikes can prevent this.

In terms of energy, Asedas advocates that the new pricing system be implemented as soon as possible, which breaks down the effect of gas from other sources. This has already been approved by the government, but no details have yet been given on how the measure will actually be implemented.

Asedas also wants the concept of “essential consumer” to be developed. It should provide access to more flexible and cheaper contracts with electricity companies.

The war intensified the process of price increases

The escalation in inflation began to be noticeable in September and accelerated towards the end of 2021. The war in Ukraine, which produces important grains for the Spanish economy, intensified the process. In March, a shortage of sunflower oil began to develop (more than 60% of what Spain imports comes from the area), and the transport strike weeks later worsened the situation.

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