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Just days before the first round of parliamentary elections, the new French government faces a domestic financial crisis that threatens to tear a gaping hole in the country’s rural infrastructure. When poultry processor Groupe Doux went into redressement judiciare, or administration, on Friday, it faced crushing debts, variously estimated to stand at more than EUR430m.

Although Doux has suffered amid volatile commodity costs, about EUR200m of that debt is down to a grandiose venture in Brazil, which started 14 years ago with the purchase of local firm Frangosul. While Brazilian meat giant JBS is now operating these facilities, the associated debt remains with Doux.

The debt belongs to Doux, which is 80% owned by the Doux family through a holding company, the remaining 20% being held by BNP Paribas. Last week Barclays International was offering a EUR35m lifeline, in return for a stake in the business, which reported sales of EUR1.4bn in 2010.

No 2011 accounts are available, since they have not yet been published. The only 2011 figure in the public domain is EUR54.9m in export restitutions paid under the Common Agricultural Policy, making Doux France’s largest single beneficiary of the CAP.

Charles Doux, the head of the family, now presides over France’s biggest poultry exporter as CEO after Guy Odri was suspended two weeks ago. It would appear M. Doux has had two crisis teams at work as he decided the next steps for the business. One had been working for weeks with the national corporate rescue agency the Comité Interministériel de Restructuration Industrielle (CIRI) and bank representatives in Paris to secure options on the EUR35m bail-out package.

The second team worked closer to home. On Thursday, Doux reportedly filed for a “cessation de paiements” order in Quimper, freezing the company balance sheets. The date coincided with the end of the first half of the financial half year: a new half year would have started on June 1. 

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By GlobalData

However, those who met the next morning to discuss Doux’s future were not all aware, when they convened, that the agenda had already been pre-empted by earlier actions. The Doux management attended a low-key tribunal hearing in Quimper, which went into closed session for the morning and subsequently adjourned until the end of the afternoon, when administration was announced.

The ministerial reaction in Paris to the news from Quimper has been volcanic. “Charles Doux took a personal decision to refuse a solution which guaranteed a EUR35m lifeline to the group. He decided to break the negotiations and go into administration,” fumed a statement from France’s agriculture ministry. As far as M. Doux was concerned, he faced a difficult choice and took the least worst option.

This week, the work of ascertaining the full extent of the Doux debt started, in a bid to limit the damage. By Monday afternoon, meetings were in progress with representatives of 800 poultry farmers, some of whom have had to wait as long as 90 days to be paid for deliveries to Doux abattoirs. 

As well as being a major employer in the west of France, Doux also indirectly supports an estimated 20,000 jobs among suppliers to the group’s sites across the country. These take much longer to identify than the Doux payroll.

In a bid to prevent a ripple of secondary casualties, the Breton regional authorities have stepped in. Michel Morin, the Breton regional vice president with responsibility for agriculture, promised that, starting this week, payments to suppliers would be met by the administrator. “It’s a significant guarantee,” he told journalists, “since it will allow production to continue.”

The Doux business model had a degree of vertical integration which included a network of inhouse hatcheries and feed factories. These supply chicks and feed to contracted poultry farms. The feed production in turn relies on locally-contracted farmers for up to 80% of the grain inputs. This infrastructure is at risk, since suppliers are sufficiently close to Doux for their future to depend on the contract business. Restructuring the suppliers’ businesses will take time, which they simply do not have.

The 3,400 Doux staff received their May wages on Tuesday from AGS, a national employers’ contingency fund, so that the 24 sites across France can remain operational. Poultry abattoirs need thousands of finished birds a day to operate, but in recent months, Doux has faced unscheduled gaps in deliveries.

The question of redundancies has already been raised, as the administrator, Sophie Gautier, gets to grips with the accounts. The crisis is being followed closely in Paris by the French government, which has seconded two members of the Conseil Général de l’Alimentation, de l’Agriculture et des Espaces Ruraux (CGAAER), an administrative policymaking unit of the French agriculture and food ministry.

The plight of Doux will dent France’s pride in its place in Europe’s agriculture sector. Poultry is routinely cited in case studies to exemplify the country’s world class food exports and France’s self-image as a food-producing centre of Europe has suffered a setback.