Spain Agribusiness Report Q3 2009

The Spain Agribusiness Report Q309 looks at the domestic farming industry during a global recession that shows little sign of abating. For a country boasting nearly a third arable land, agriculture in Spain is, according to sources, diminishing both in terms of GDP (3.5%) and labour force participation (4%). The services-based industry is by far the country's top employment sector; yet in a response to the slowdown, it has been among the worst affected, particularly in the tourism subsector as belt-tightening consumers curtail their holidays in the sun.

As such, efforts to promote agricultural development have stepped up in the hope that Spain can capitalise on strong export promise. The pork industry is one of the sectors where growth has taken off considerably and it has shown considerable strength over the last 20 years, attributable to such factors as EU-entry, closer ties between feed sellers and livestock producers, and changing consumption habits. In addition to feeding locals, BMI sees the export market becoming progressively pertinent to the considerations of Spanish pork producers. Exports almost doubled in the two-year period to 2008, to 1.255mn tonnes, while notable pork consuming nations, including China, will provide ample opportunities for strong revenue growth, as its own industry takes the weight of rapid population expansion and increased urbanisation. While raw pork exports will comprise the bulk of foreign trade, there exists considerable potential for value-added sales via increased marketing and exposure of regionally processed pork; chorizo and a variety of cured and seasoned hams - including Serrano or Iberico varieties - are presently consumed mainly in Spain, although these niche products are becoming increasingly popular across a progressively cosmopolitan continent.

Processed pork currently represents a paltry 5% of entire Spanish pork exports, underpinning our view that such goods will play a larger role in future pork production decisions- and help drive pork output growth of 7.1% in the four year period ending in 2013. Spain's pig traders' association, Ancoporc, believes that rising feed costs will contribute towards a further year-on-year (y-o-y) reduction of the country's already shrinking pig herd by a couple of percentage points in 2009, which, while it is likely, is not deemed to stunt overall industry growth and productivity gains. Despite a positive outlook for the consumption of sugar-based products, overall sugar consumption is set to continue on a downward trajectory, which has been the trend witnessed in the preceding outlook window. The prevalence of public health consciousness is likely to lead an increasingly conscious public to look for sugar substitutes. Additionally, consumers could well forego the consumption of refined white sugar on breakfast cereals or in hot beverages, as a means of lowering intake.

We forecast consumption to diminish by 0.6% to 1.34mn tonnes by the end of the projection period. Production is set to fall by almost 50% as support measures are removed and a host of players leave the industry. The grains industry looks particularly promising through to 2013, with all three categories covered in our outlook forecast significant double digit production growth. Barley in particular is predicted a staggering five year growth rate of 81.72% as the less moisture dependent plant is seen to exhibit greater yield consistency than corn or wheat. However, the latter mentioned crops will also benefit as producers look to raise export revenues to pick up the slack from reduced output from other EU countries suffering from reduced subsidies.

At a time when domestic producers are likely to face increasing competition from foreign entities, we believe that the diversity of Spanish agriculture may provide the industry with the chance to gain valuable revenues through the marketing of regionally branded value-added produce, which are sure to be popular in foreign countries. As well as the produce covered in our outlook, the nation is a top producer of olives, grapes (Spain has a flourishing wine industry) and tomatoes, while the country is the top organic producer in the EU and will be sure to earn favourable revenues when ethical consumers regain the financial ability to support their moral convictions.