Most of the statistics for 2021 have already been published, so now is a good time to take stock of last year. Starting with the primary sector, national accounting data show that gross value added (GVA) in real terms fell by 5.5% in 2021, after having recorded an advance of 4.4% in 2020, a trend contrary to that of the economy as a whole (GDP grew by 5.0% in 2021 after falling by 10.8% in 2020). However, the conclusions drawn from these data should not be overly pessimistic, as they represent a return to normality after an exceptional performance in 2020. If we compare the level of Q4 2021 to Q4 2019, the primary sector’s GVA is 2.6% higher than its pre-crisis level and its contribution to the economy as a whole is similar to pre-pandemic levels (2.7% of GVA in 2021 compared to 3.4% in 2020 and 2.9% in 2019).

The Economic Accounts for Agriculture (Economic Accounts for Agriculture) published by Spain’s Ministry for Agriculture, Fishing and Food (MAPA) allows for a more in-depth look at the different components that make up the agricultural sector’s GVA.¹ According to these statistics, shown in the table below, agricultural production in 2021 grew by 7.8% in value terms, an increase that is exclusively due to higher prices since the quantity produced hardly altered (0.2%). Agricultural production essentially includes plant and animal production. In 2021, the value of plant production rose by 10.7% mainly because of higher prices for certain foodstuffs, such as olive oil, cereals and industrial plants. On the other hand, the value of animal production rose by 3.7% (especially sheep and goat meat, as well as beef and veal), as a result of both an increase in the quantity produced and also modest growth in prices.

Production costs must be subtracted to calculate the value added of the agricultural sector. In 2021 these rose sharply (12.6%) due to higher energy (34.7%), fertiliser (27.4%) and feed (12.6%) prices. As a result, value added increased by 3.8% in nominal terms but growth was zero in real terms.

It is evident that the trend in production costs is having a big impact on the agricultural sector, even jeopardising the livelihood of farms in some cases. The difficulties encountered by farmers to pass on increases in production costs to their sale prices is a problem that is mostly due to the sector’s own particular characteristics: the disparate nature the chain’s operators, relatively rigid demand, seasonal markets and the fact that most of the products are perishable, among other factors. But it is also true that the current situation of rocketing production costs is aggravating this structural problem. In this respect, Spain’s recent approval of its Food Chain Law (Ley de la cadena alimentaria), which establishes that each operator in the food chain must pay the operator immediately upstream a price equal to or higher than the cost of production, should help to alleviate this situation, although it is still too early to assess its effectiveness.

In any case, it should be remembered that these rising production and food costs are not only affecting the Spanish economy but represent a global phenomenon. According to the World Bank, agricultural prices rose by 23.5% in 2021, an increase that is probably linked to supply shortages, increases in input costs (especially coal, natural gas and fertilisers) and the strong demand for basic animal feed in China.² In 2022, the outbreak of the armed conflict in Ukraine has pushed up agricultural prices on international markets and their short-term trajectory is highly uncertain, conditional on input price developments and, in the longer term, on biofuel policies linked to efforts to decarbonise the global economy.³

As for production costs, in addition to the sharp rise in energy prices, fertiliser prices also grew by 80.5% in 2021 according to the World Bank (due to increased demand and shortages of certain chemical ingredients used in their production) and all the evidence suggests they will remain at these high levels in 2022 as a result of the conflict in Ukraine. Industry sources point out that the war could aggravate the lack of Russian ammonium nitrate in fertiliser plants and other mineral fertilisers. The rising cost of fertilisers worldwide is especially worrying for Spain as it is a net importer of this input.

The food industry improved its performance throughout 2021, up by 3.4% in industrial production (in real terms) and 8.4% in turnover (nominal value). Beverage manufacturing, which was more affected by the pandemic due to its greater dependence on the HORECA channel (hotels, restaurants and cafeterias), recovered particularly well in 2021 (12.3% growth in industrial production and 13.0% in turnover) and has now passed its pre-crisis level, in spite of the poor figures recorded in December 2021, as shown in the following chart.

One issue that has caused much concern in the manufacturing industry in recent months are the supply shortages resulting from the disruptions observed in global value chains, tensions that could be exacerbated by the war in Ukraine.⁴ According to the European Commission’s survey on factors limiting production capacity, in January 2022 25% of Spain’s manufacturing companies mentioned that one factor limiting their production capacity was a shortage of materials and/or equipment, a much higher percentage than the historical range (see the chart below). In the food industry, however, only 5% of the companies reported suffering from this shortage of materials and/or equipment, a percentage within the historical range. Nevertheless, food companies in several European countries are experiencing supply problems, especially in Germany (67%) and France (31%), so this is an important factor to watch.

Rising energy costs are the other main factor hurting the manufacturing industry. However, the impact is relatively limited in the case of the food sector thanks to its lower energy intensity compared to other industrial branches (energy represents 2.2% of intermediate costs in the food sector compared to 4.3% for manufacturing as a whole). An analysis of the sensitivity of the sector’s economic performance to a 50% increase in gas, electricity and oil supply prices in Spain (assuming sale prices remain the same) shows that the sensitivity of the gross operating surplus of the food sector is clearly less than that of manufacturing as a whole, since in this hypothetical case it would fall by 8% compared to 16% for the entire manufacturing industry.

The labour market is also evolving favourably in the agrifood industry: the number of workers affiliated to Social Security rose by 3.7% year-on-year in February 2022, far exceeding the pre-crisis employment level thanks to the food industry’s strong performance. In beverage manufacturing, on the other hand, in February 2022 employment was still 3.1% below its February 2020 figure.

The trend is less favourable for registered workers in the primary sector, in line with the greater difficulties faced by the sector. The number of registered workers fell by 4.1% year-on-year in February 2022 and is 2.1% below the employment level recorded in February 2020. From March onwards, new employment contracts in the primary sector will be affected by the application of the recently approved labour reforms, one of whose main objectives is to reduce the high degree of temporary employment in Spain’s job market. The primary sector has a high rate of temporary employment (53%), intrinsic to the particular circumstances of agriculture and seasonal activities, so it will have to adapt to the new types of employment established by the reforms (discontinuous permanent contracts or temporary contracts only for foreseeable situations and of a short, restricted amount of time, for a total of 90 days).

To analyse the demand trends in the agrifood sector, we have calculated indicators of nominal expenditure on food and hospitality based on card transactions via CaixaBank POS terminals, which also enable us to differentiate between Spanish cards and those issued abroad in order to estimate the impact of international tourism on the HORECA channel.

Spending with Spanish cards in supermarkets and large grocery stores increased by a significant 36% in 2020 and fell by only 1.1% in 2021, remaining at a high level.⁵ This positive trend has continued so far in 2022 (+5.5% year-on-year in February). On the other hand, Spanish card expenditure in restaurants recovered strongly in 2021 and exceeded its 2019 level (+13.5%), thanks to the relaxation of restrictions, the boom in domestic tourism to the detriment of international travel and the release of pent-up demand.

However, the recovery in foreign card expenditure on hospitality is still incomplete (–22.6% in 2021 compared to 2019). One positive note is that the latest wave of infections with the Omicron variant only had a modest effect on international tourism (about 2.95 million tourists arrived in Spain in December, 31.5% fewer than in December 2019, compared to a drop of 28.1% in November), and in January it was already showing signs of recovery, making us optimistic about the 2022 tourist season.⁶ However, the outbreak of war in Ukraine may cause a slowdown in tourism from European countries, the main issuers of tourists to Spain. In any case, the perception of Spain as a safe destination compared to other Mediterranean competitors could ultimately mitigate the impact.

Real-time data therefore show a very positive trend in expenditure on food up to February. However, higher food prices paid by the end consumer reduce the purchasing power of shoppers and may eventually erode real consumption. In fact, according to the retail sales index produced by Spain’s National Statistics Institute, food sales rose by 0.9% year-on-year in December 2021 at current prices (nominal value) but fell by 2.5% at constant prices (in real terms). That same month, CPI figures already showed a big increase in the price of unprocessed food (6.5% year-on-year) and processed food (3.5%), so that foodstuffs contributed 1.2 points to the overall inflation figure of 6.5% at the end of last year. Inflationary pressures have merely increased since then and the outlook is not at all promising considering the latest energy shock and rising prices for agricultural products on international markets.

Spain is a major exporter of agrifood products: with a global share of 3.9%, it ranks fourth in the EU (behind the Netherlands, Germany and France) and seventh worldwide.⁷ During the pandemic, agrifood exports picked up their pace, growing by 4.0% in 2020 and 11.2% in 2021, to reach €59 billion. The agrifood sector therefore accounted for 18.6% of all Spanish goods exported in 2021, 1.1 points more than in 2019. Agrifood imports, on the other hand, fell in 2020 (–5.6%) and, despite picking up by 15.8% in 2021, the external trade surplus of agrifood goods stood at 1.5% of GDP (compared to 1.1% in 2019).

Practically all products with a significant weight increased their exports in 2021, with particularly positive growth in olive oil exports (16.5%), to which we dedicate an article in this Sector Report, as well as wine (10.0%). Also noteworthy is the good performance by molluscs (48%) and fish (26.0%), products which had declined significantly in 2020. There are two notable exceptions to this optimistic trend: citrus fruits (–2.4%), whose sales in European destinations are being affected by strong imports of South African citrus fruits, and pork (–2.6%), whose exports have slowed significantly over the year, decreasing by 19% in Q4 2021 after strong growth in 2020 (27.8%), following the extraordinary rise in demand from China as a result of their domestic production being severely affected by African swine fever. In 2021, Spain’s pork exports to China decreased significantly (–20.2%), a decline that could only be partly offset by the rise in pork exports to other destinations (11.6%). Looking to the future, high dependence on the Chinese market (the destination for 40% of pork exports) is a vulnerable point for the sector, should China’s pig herds and its domestic production capacity recover.

Trade relations with Russia had already fallen considerably since 2014 due to the «Russian veto» on the import of European agricultural products, so that in 2021 only 0.4% of Spanish agrifood exports went to Russia (compared to 2.2% in 2012). Exports of agrifood products to Ukraine are also insignificant (0.3% of the total) (see the table below).

However, the war in Ukraine will directly affect the agrifood sector because Russia and Ukraine are major exporters of agricultural products worldwide (see the relative shares in the chart above). In particular, Spain is highly dependent on imports of cereals (flour and animal feed), sunflower oil (used in the agrifood industry, for example, in canned food and in the production of all types of processed foods) and mineral fertilisers. Specifically, 29.7% of the corn, 19.3% of the rye, 4.8% of the barley, 63% of the sunflower oil and 8.6% of the mineral fertilisers imported in 2021 came from this region.

The following table⁸ shows the relative weight of imports of these products compared with the estimated domestic demand. Most notable is the high dependence on sunflower oil from Ukraine, as domestic production is relatively low and the likelihood of it being substituted by other producers is low, since Ukraine and Russia account for almost 80% of the world’s sunflower oil exports. The alternative would be to use alternative vegetable fats such as soya, palm or rapeseed oil, whose prices are rising on international markets, or olive oil, of which Spain is the world’s leading producer.

In cereals, the greatest dependence is on corn, which could affect the production of animal feed and milling products (flours and derivatives). In this case, there is the possibility of sourcing from other alternative producers (Argentina, USA or Canada).⁹ In any case, the price of cereals on international markets is rising sharply as a result of the conflict and this will make the bill more expensive.

Finally, Spain’s agrifood sector is also highly dependent on imports of mineral fertilisers from Russia. Further increases in fertiliser prices are in addition to an upward trend in production costs that already severely affected the agricultural sector in 2021.

Given the high degree of uncertainty, it is still too early to assess the extent to which the agrifood sector will be affected by all these factors and the measures that will be taken to mitigate the impact. The impact will be greater or smaller depending on how long the conflict lasts, its geographical scope and the sanctions and counter-sanctions imposed.

The excellent performance recorded by exports demonstrates the high level of foreign competitiveness enjoyed by Spain’s agrifood sector. One issue of concern in this context of high inflationary pressures is that the inflation differential with respect to other major producers could harm competitiveness. Likewise, in the medium term one of the sector’s challenges for exports to continue driving growth will be to promote greater sustainability in production processes in order to mitigate the environmental impact of this activity. In this respect, the NGEU funds, channelled through component 3 of the Recovery, Transformation and Resilience Plan (PRTR) and the agrifood PERTE, will help to boost investment in innovation and digital transformation, supporting the transition to a sustainable, competitive and resilient food system.

Component 3 of the PRTR, focusing on the environmental and digital transformation of the agrifood and fisheries system, provides for an investment of 1,512.8 million euros (1,051 million euros under the Recovery and Resilience Mechanism). The plan is based on four fundamental pillars, including improved efficiency in irrigation to achieve a better use of water resources, an area to which we dedicate the second article of this Sector Report. The plan also includes the promotion of sustainability and competitiveness in agriculture and livestock farming, a strategy to digitalise the agrifood sector and the rural environment, and the modernisation of the fishing sector.

On the other hand, the agrifood PERTE, approved on 8 February 2022 and endowed with 1,002.91 million euros up to 2023, is aimed at transforming the agrifood chain towards greater competitiveness, sustainability, traceability and food safety. It consists of three key areas: (i) a specific support package for the agrifood industry (400 million euros), (ii) specific measures to support digital adaptation and extend this to all agents in the value chain (454.35 million euros), and (iii) specific measures to support innovation and research in order to achieve a competitive agrifood sector at all levels (148.56 million euros).