The question I would ask this coach is: What is the point of having seven-year-old children do this? Is it to motivate them to play harder and run faster? Is it to punish them for losing? Does he really expect that they will improve their performance because of it? It certainly is completely unacceptable to single out one child for the penalty, and then allow the other children to laugh at him while he is doing it. This only teaches poor sportsmanship and demoralizes the child who is laughed at.
Some coaches incorrectly take techniques that are used for older children and adults, and incorporate them as a technique for children. While it may be permissible to have penalty drills in certain circumstances at the high-school or college sports level, it is totally inappropriate in younger, elementary-school age children. Younger children are at a different developmental level than 18-year-olds. They can't use the motivation of avoiding a penalty to make themselves perform better. They tend to internalize everything and would likely see this type of "punishment" as an indication that there is something wrong with them, or that they are "bad." This will likely further discourage them.
For another thing, young children truly don't have as much control over their physical motor skills as older children do. They might not have figured out what to do to make themselves run faster or kick the ball harder, and they need help from their coach to learn this, not donkey kicks for being slow!
I suggest that you bring this issue up with the camp directors immediately. They can consult with your local youth sports league program, as well as a child psychologist, if they need guidance on appropriate training techniques for young children.