Spain Agribusiness Report Q4 2009

The BMI Spain Agribusiness Report Q409 continues on the themes touched upon in previous publications, as producers in EU countries continue to adjust to the removal and phasing out of longstanding support measures. In addition, Spanish consumer confidence is still affected by the recession and we expect negative GDP growth to continue into 2010, further dampening the demand outlook. Over the course of the outlook, grains are expected to perform the strongest with notable growth across all categories. Meanwhile, the dairy, sugar and rice industries are expected to experience increasing difficulties through to 2013. Spain was one of the 'Club Med' countries that came under attack from environmentalists for its reluctance to cease trading the endangered bluefin tuna. In early September the European Commission, led by Mariann Fischer Boel, lent its support to a global directive to ban trade in a delicacy with dwindling global stocks.

Despite optimism that the ban would go ahead, Spain, along with several other neighbouring countries - including France, Italy and Portugal - refused to back the motion, to the chagrin of much of the international community. Given the size of Spain's rather substantial fishing fleet and the high profitability of fishing bluefin, we expect this wrangling to continue throughout the projection period to 2013. Although lucrative export markets for the fish may become increasingly difficult to serve, particularly if the threat of sanctions are foremost in the minds of importers. In mid-September farmers from 14 European nations took to the streets in simultaneous demonstrations, both domestically and outside EU headquarters, hoping to force policy makers' hands in providing greater levels of support to the flagging sector.

Milk was poured away, and in some cases given free to households, as disgruntled producers demanded guaranteed support prices to help them offset tanking farmgate prices and low demand. Spanish farmers, however, were largely absent from the demonstrations, as the central government promised to align purchasing prices with the wider retail index, a proposal that seems to have appeased farmers in the short term although, given the wider implications of the Common Agricultural Policy (CAP) reform agenda and historically low prices, we expect milk output to slide by 6.14% to 2013. Despite a positive outlook for the consumption of many sugar-based products, overall consumption is set to continue on a downward trajectory, continuing on from the trend from 2004-2008.

The prevalence of public awareness campaigns is almost certain to lead an increasingly health-conscious public to substitute sugar for perceived healthier alternatives. 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. Meanwhile, production is set to fall by almost a half as the industry continues to adjust to a lack of quotas and intervention buying. Grains and, to a lesser extent, livestock are seen to provide at least some relief to downtrodden producers. With higher volumes of arable land being turned over to grains production, cheaper animal feed should be made available to farmers, while a pick up in consumer demand, particularly for pork, will contribute to healthier profit margins going forward.