The agriculture, forestry and fishing sector is beginning to turn a page following the sharp decline recorded between the end of 2021 and the first half of 2023, when it endured particularly adverse weather conditions (due to the severe drought affecting much of the country) and soaring production costs (largely triggered by the war in Ukraine). After registering year-on-year declines of up to two digits in gross value added (GVA) in real terms (the biggest fall, of 27%, occurred in Q3 2022), the sector abandoned negative rates in Q2 2023 and grew by a significant 7.6% in the first half of 2024, exceeding the growth rate of the economy as a whole (2.8%). Despite this recent improvement, the GVA of the agriculture, forestry and fishing sector is still 6.2% below the level of Q4 2019, while the GDP of the economy as a whole exceeds that level by 5.7%.¹ The recent good performance is allowing the sector to gradually regain its previous share of the total economy: in S1 2024 it represented 2.6% of total GVA, 0.1 pp more than in 2022 but still less than the 3.0% which it represented on average during the period 2015-2019. The reduced role in the economy of the agriculture, forestry and fishing sector relative to the pre-pandemic period is also explained by the strong growth experienced by other economic sectors (such as tourism and information and communications). It should also be noted that the relative weight of Spain’s agriculture, forestry and fishing sector far exceeds the euro area average (1.7%).

The Economic Accounts of Agriculture for 2023 show that the GVA of Spain’s agriculture, forestry and fishing sector grew thanks to the combination of an increase in agricultural prices and a reduction in intermediate consumption, which fell by 4.3% last year. Although this decrease is rather limited, bearing in mind that costs grew by 41% between 2020 and 2022, it nevertheless offers the sector a respite. The reduction in intermediate costs is mainly explained by the fall in energy prices (–30.8%), fertiliser prices (–29.8%) and, to a lesser extent, feed prices (–2.1%).

On the other hand, the value of agricultural output increased by 4.0% in 2023 thanks to the increase in prices (13.1%), which more than offset the fall in production volume (–8.0%). Behind this decline, of particular note is the sharp fall in crop output (–12.2%) due to another year marked by water shortages. Rain-fed crops were the hardest hit, with olive oil (–58.6%), cereals (–34.8%) and wine and must (–21.1%) registering the biggest declines.² On the other hand, crops that largely use irrigation performed somewhat better: fruit production increased (4.6%) and also benefited from a 15.8% rise in prices.

Comparing Spain’s crop output with that of our European partners, the sector performed even worse than in 2022. All the region’s major agricultural exporting countries, with the exception of Italy and Spain, improved compared to 2022. Moreover, Spain performed particularly poorly, having amassed a cumulative decline of more than 20% in its crop output in the last two years.

The prolonged drought that has been affecting the Iberian Peninsula since 2022 acted as a restriction for supply and crop yields throughout 2023. In the chart on the following page we can see that between 2004 and 2021 there was a sharp increase of over half a million hectares in the area under irrigation in Spain, bringing the total figure to 3.9 million hectares in 2021. This represented 22.9% of the total area dedicated to crops and 7.8% of the country’s total geographical area.³ However, the prolonged drought experienced by many areas of Spain in 2022 and 2023 led to a slight decline in the irrigated area (–4.4% between 2021 and 2023), reducing its share to 22.1% of the cultivated area and 7.5% of the total geographical area in 2023. It should be noted that irrigation contributes some 65% of the total value of final crop output. This is a very significant figure and reflects the higher yield of irrigated crops compared to the rain-fed variety. Irrigation is undoubtedly a cornerstone of the production and exporting potential of Spain’s fruit and vegetable sector.

It is important to note that in recent years there has been an increase in the land area irrigated using localised (drip) irrigation systems. This is a much more efficient approach which uses far less water and it has steadily replaced gravity-based system which entail much higher water consumption. Sprinkler-based systems, which are more typical of arable crops, have also been implemented in recent years. In any case, we must continue to prioritise modernising our irrigation systems in order to ensure that our agricultural sector remains competitive, profitable and efficient in the use of water.

The latest reports produced by the Ministry for the Ecological Transition and the Demographic Challenge (MITECO) monitoring the drought show an incipient and slight improvement in the situation since mid-last year: while 35%-45% of the country was affected in the second half of 2022, in the second half of 2023 this figure was 15%-25%. The first half of 2024 also shows an even clearer improvement (10%-15% of the country affected), but we will have to wait a few more months before this trend can be confirmed and, in any case, the situation remains delicate in several areas.

Although the sector’s key costs remain well above pre-pandemic levels, in recent months the gradual moderation that began in 2023 has continued. The biggest corrections from peak prices have been recorded in energy costs, fertilisers and, to a lesser extent, animal feed, which is the biggest component in the sector’s intermediate consumption (representing around 55% of the total).

All the indicators seem to suggest that this trend of moderation will continue over the coming months. On the one hand, energy costs, in both the oil and the gas markets, continue to moderate and are now at their lowest levels since the outbreak of the conflict in Ukraine (although we cannot rule out the possibility of an escalation in the conflict in the Middle East altering the current energy outlook). On the other hand, the World Bank’s April 2024 report on the outlook for food prices⁴ anticipates further price declines in the remainder of 2024 (–6%) and in 2025 (–4%), with particularly significant reductions expected in cereals, oils and flour due to the increase in global output. Wheat and maize prices are expected to come down significantly in 2024 (by –15% and –21%, respectively), with smaller reductions expected in 2025 once prices have normalised. However, the institution itself warns that the risks affecting these forecasts are clearly skewed to the upside, taking into account sensitive factors such as climate, geopolitics, dynamics affecting input costs and potential problems in shipping.

The gradual decline in costs and the nascent easing of the drought is translating into more positive estimates for the 2024-2025 campaign after what have been two difficult years. According to the report on agricultural land area and output produced by the Ministry of Agriculture, Fisheries and Food (MAPA, with data up to June 2024), the production of winter cereals (wheat, barley, oats, rye and triticale) is expected to reach 16.4 million tons (Mt) in 2024. This represents an 88% increase compared to the 2023 campaign (when output was 8.7 Mt) and is slightly above the average of the last five campaigns (15.7 Mt on average in the period 2019-2023). There is also an increase in the yield of these crops, exceeding the average yield of the last five seasons in most cases.

An increase in wine production is also anticipated, after the poor harvest of 2023-2024. The Ministry of Agriculture, Fisheries and Food (MAPA) predicts a 17% rebound in grape production for must and wine in 2024-2025, although the sector will fall far short of resuming the average production of the previous five seasons (7.2% below the 2019-2023 average). As for olive production, the MAPA has not yet provided its expectations for this campaign, although the sector’s various trade associations expect output in 2024-2025 to recovery to around the average level of the last 10 years, both in Spain and worldwide. Although it is still very early days for these forecasts, sale prices at mills have begun to moderate due to the improvement in the anticipated balance between supply and demand.

After two years of deterioration due to higher costs, the food industry is beginning to experience a revival. Industrial output grew 1.9% year-on-year in the first half of 2024, marking the first positive growth rate since 2021 and leaving behind the sharp 2.6% decline recorded in 2023. Behind the improvement in 2024 lies the moderation in the inflation of production costs which the sector is currently experiencing. Beverage production, for its part, fell in the first half of 2024 (–2.8% year-on-year, after recording a 2.0% decline in 2023). This ongoing decline is largely attributable to a correction following the surge in activity recorded in 2021 and 2022 (when the country was emerging from the pandemic and the HORECA channel experienced a revival). In fact, beverage production now stands 3.8% above the 2019 level, while food production is still 2.1% below this benchmark. 

The agriculture, forestry and fishing sector continues to see job destruction, at a rate of between 2% and 3% per year, causing its share of the total number of registered workers to continue to decline. The latest available data are no exception: the sector destroyed 18,000 jobs between January and August, equivalent to a year-on-year decrease of 2%. On the other hand, the number of registered workers is growing at at rate of 2.3% year-on-year in the food industry in 2024 to date (from January to August), which is a similar rate of growth to those recorded in recent years.

The temporary employment rate in Spain’s agrifood sector continues to steadily decline: in Q2 2024, 33.7% of wage earners in the sector had a temporary contract, which is 5.7 pps less than a year ago and 20 pps less than in 2021, when the labour reform came into force. However, the evident seasonality of activity in the sector means that this temporary rate remains much higher than for the Spanish economy as a whole (13.6% in Q2 2024).

The surge in production costs in the food industry was largely passed on to food prices paid by the final consumer. Thus, food inflation reached 16% at the end of 2022, although inflation rates have since moderated to 2.7% in August 2024. For the coming months we expect the short-term disinflationary trend in food prices to continue, although we could see a rebound in 2025 once the VAT reductions applicable to certain products are eliminated. 

Despite this moderation in the growth of food prices, there is still no significant revival in demand: in real terms, retail food sales grew at rather modest rates (1.2% year-on-year in July 2024), slightly below those recorded in 2023.

The improvement in agricultural output has allowed agrifood exports to grow by 3.0% year-on-year in volume terms in S1 2024, following two consecutive years of setbacks (–5.0% in 2022 and –8.9% in 2023). In terms of value, the growth rates are higher thanks to the rise in the prices of most agrifood products in the international markets. Thus, exports grew by 5.9% in S1 2024, up from the 3.5% recorded in 2023, and now exceed 70 billion euros in the 12 months to June 2024. 

Since agrifood imports are much lower than the sector’s exports, since 1996 it has been consistently registering large trade surpluses. Indeed, they are the highest among all sectors and help to partially offset the deficits traditionally recorded in the balance of trade in non-agricultural goods. In S1 2024 this surplus reached 1.1% of GDP, a significant figure only surpassed by the extraordinary records of 2020 and 2021 at the height of the pandemic.