Spain: 2022, a year marked by production costs, drought and the new CAP
Spain's agricultural sectors are finally coming to the end of a very difficult year. Unprecedented increase of production costs, frost, high temperatures and, above all, lack of water, have reduced yields of some crops significantly. The new CAP 2023-27 created some uncertainty and concern before being implemented.
Severe drought
The effects of climate change are becoming increasingly apparent in agriculture and have direct implications for farm viability. The year 2022 will be remembered by farmers for the severe drought, which has caused a decline in national agricultural production. Data from the Ministry of Agriculture set the decline in plant production at 14.7%. Almost all crops have been affected and, for example, 25.8% less cereals harvested, vegetable production was 9.7% lower and fruit production 19% lower than 2021. Production reductions also depended on the region and so, for example, in Castilla-La Mancha the loss of almond production was around 80%.
Drought has certainly been a very unfavorable weather event in 2022, despite the rains in November and December, but it is not the only one, as there have also been several episodes of extreme heat across the country and frosts in spring which also left heavy damage to agriculture. In summer, water and heat stress reduced yields in some rainfed crops by up to 80%, such as olive groves and vineyards.
More info: Spain: Agriculture drought losses to reach 10 billion | Nieuwsbericht | Agroberichten Buitenland
For the livestock sectors, production costs also shot up and the adverse weather conditions led to different negative effects for both extensive and intensive farming: a lower feed-to-meat conversion rate, lower animal weights, difficulty of access to pastures...
Other negative-impact event must also be taken into account, the forest fires, generating important losses. According to the European Forest Fire Information System (EFFIS), 39% of the hectares burnt in the EU in 2022 were on Spanish territory, that is, 310,000 hectares, four times more than the average for 2006 to 2021.
Skyrocketing production costs
In addition to extreme weather events, higher production costs were already being felt in agriculture months before the invasion of Ukraine. The war has only added much more pressure to the bad situation of the primary sector and the entire agri-food chain.
According to the Ministry of Agriculture, the global increase in production costs was 31.2% in 2022. This rise was led by animal feed (34.6%), energy and lubricants (49.6%), fertilizers (62.1%) and phytosanitary products (20.3%).
The increase in production costs, together with lower productions, has led to a 5.5% drop in agricultural income in Spain in 2022. It is obvious that the increase in agricultural prices had not been able to sufficiently neutralize the skyrocketing rising of costs which have occurred.
In recent months, the rise in production costs seems to be slowing down slightly in items such as agricultural diesel and moderating its rise especially in fertilizers. Farmers’ organizations say they are hopeful that cost containment policies - such as the cap on gas or Russian oil - will bear fruit and costs will begin to moderate significantly.
New CAP, new scenario
Several organizations point out that the new CAP had already been shaping farmers’ activity, even before its entry into force. This autumn, thousands of farmers were already adapting to the new requirements of the EU regulations when planning and sowing their crops.
The new CAP comes at a very difficult time and farmers’ organizations are more belligerent in their criticism because they believe that this is not the time to raise more environmental requirements, which they also relate to the Green Deal and other EU policies. Among the criticisms are the "complexity" and "cumbersomeness" of the eco-regimes, the lack of protection against competition from third countries, the lack of market mechanisms against price volatility or international crises.
Spain, where CAP subsidies account for 20% of agricultural income, will be the third beneficiary (47 billion euros for the period 2023-2027), behind France and Germany. This policy also includes the Posei Program for the Canary Islands and the program for the consumption of fruit or milk in schools.
In Spain, just over 630,000 farmers could obtain CAP aid. Annually, 4.8 billion will go to direct aid, 700 million for market measures and 1.7 billion for rural development, plus 700 million for sectors in difficulty (extensive livestock, beetroot, rice and raisin). There will be more aid for young people, a 15% bonus for women who join the activity and interventions for 612 million euros, with programs for fruit and vegetables, wine, beekeeping and, for the first time, the extensive olive grove.
Latest developments
Less than 4 euros saving per 100 of purchase
At the end of 2022, the sky-high prices of the shopping basket have been one of the issues that have been at the center of everyday life in households, the concern of the food chain and even disputes within the government, which finally decided to lower VAT on food during the first half of 2023. As already mentioned in previous articles, overall inflation shows a clear downward trend, while food and beverages continue to soar (Fig. 1).
Prof. Luis Cerdá, from the International University of La Rioja, assures that news like this goes "straight to the brain", especially after months of inflationary context. In his opinion, it will have a "de-stressing" effect among buyers, who experience it as a relief, and it is very likely that purchases will increase.
Antonio Khalaf, from the consultancy firm IRI, describes the package of measures approved by the government as an "absolutely cosmetic" exercise, as, according to him, "it is practically not going to be noticed in the final bill".
Along the same lines, the Association of Taxation Technicians (Gestha) considers the measure "ineffective" and calculates a saving of 3.85 euros for every 100 euros of basic food purchases; and in the case of oil, a saving of 1.36 euros for every 25 euros of purchases.
New tax on single-use plastic
On 1 January 2023, apart from the lowering of VAT on basic foodstuffs, the Plastic Tax came into force. For the director of Aecoc, the organization bringing together the manufacturing industry and retail companies, "this new tax, for the moment applicable only in Spain, increases the extra costs for companies and, therefore, makes us less competitive compared to our European neighbors, generating, in addition, a great deal of legal uncertainty".
Industry organizations have quantified the direct impact that this new tax would have on food companies and retail chains at around 690 million euros. To this figure should be added the so-called Extended Producer Responsibility (EPR), which may involve a further burden of some 1.15 billion euros. Thus, the government could raise a total of 1.84 billion euros from this tax alone.
Companies have long called for a delay in the entry into force of this new tax, as it has already been done in other member states. The sector warns, due to the increase in production cost overruns, the new tax on single-use plastics threatens to push up food prices in the midst of rising inflation. For the time being, only fresh fruit and vegetable from organic farming are excluded from this tax.
According to a study by Acoplasticos, beverages will see their prices affected by around 3-4% and dairy prices (milk, cheese and yoghurt) will grow somewhat less, between 1% and 3%. “The tax will inevitably impact on the final price of products sold in small packages and will rise by up to 7%", its president stated.