The agricultural, livestock, forestry and fisheries sector is experiencing a slow but inexorable decline in terms of contribution to Spain's GDP since industrialization began. Although it is based on the fact that it was a logical consequence of development – agriculture gives way to industry and this in turn to the tertiary sector – the situation has gone much further due to both endogenous and exogenous factors, which have been interacting with the sector in the last forty years.
In terms of National Accounting published by the National Statistics Institute (INE), the weight of the primary sector on GDP has been reduced by 1.2 percentage points in the last quarter of a century, from 3.9% at the end of 1995 to 2.7% in 2019.
In the same period, agricultural income in nominal terms has grown continuously below nominal GDP: just an accumulated annual 1.7%, compared to an annual cumulative annual average GDP growth of 4.2%. According to data from the Ministry of Agriculture, one of the determining factors of the nominal growth differential of the primary sector versus the average is the price behavior.
Since 2010, prices received by farmers have stood at 2.28% per year on average, with stagnant production segments such as cereals or milk; others in strong recession such as vegetables or potatoes and, finally, oils, wines and nuts where prices at 2018 are substantially higher than in 2010. Given the production structure, where crops such as cereals, fruits weigh and vegetables, the evolution of prices has had a negative effect on agricultural income in general terms.
This behavior of the agrarian macroeconomics with respect to the rest of the sectors is conditioned by an institutional structure very different from that of the rest. For Spain (also in general for Europe) agriculture is considered a reserve that is used for the fulfillment of such important objectives as the security of food supply (food sovereignty), the provision of food at affordable prices for the consumer and, since a few years, to achieve the objectives of reducing emissions of polluting gases.
The powerful CAP
In exchange for exercising a reserve and with the imposition of a demanding system of quality standards and characteristics of the products, producers receive compensation from the European funds of the Community Agricultural Policy (CAP) for an annual amount of 6.3 billion Euros in 2018, of which 4,900 million correspond to direct payments, that is, those granted without any conditionality.
However, this organization of the Spanish agricultural market has generated numerous unintended negative consequences, the most important being the collapse of prices at the origin of the products and the inability on the part of the basic farmers to exercise market power. In the agricultural segment of bulks such as wine, oil or cereals, the purchase price from the producer is not set by a crossroads of supply and demand, but the buyer – usually a wholesaler – imposes the purchase price taking into account three parameters: volume of inventories, amount of direct payments received from European policies and current import prices for similar products, especially from countries with less stringent food regulations such as those outside the EU.
This is possible given the excessive atomization existing in Spanish agricultural producers. In Spain there are 3,755 cooperatives and only five major distributors. While Spanish cooperatives such as Dcoop or Coren each invoice around 1,000 million annually, Mercadona generates revenues above 24,000 million. However, the joint turnover of agri-food cooperatives exceeds 30,000 million euros. With which only these three figures give an idea of the inefficiency of the market: a cooperative integration would create a real competition for distribution and, therefore, an opportunity of enormous importance to redistribute the added value generated in the food chain to the producer and less To the wholesaler and distributor.
At present, the absence of competitors makes the agricultural market a dysfunctional market with two poles of concentration of power of imposition of prices: on the one hand, the wholesalers who buy the product in origin and, on the other hand, the distributors or marketers that carry the product transformed to the final consumer. Neither the producer, nor the transformer nor the final consumer have sufficient capacity to intervene in the process, limiting themselves in most cases to being accepting prices.
Is a reform necessary?
And in the case of the final consumer, with an elastic (sensitive) demand with respect to the price and not so much for quality. Therefore, a root reform of the behavior of the agri-food market and its participants is necessary. But the list of solutions contains some certainly dangerous ones such as establishing a price and margin control over distributors or even a minimum price perceived by the farmer. Being the easiest solutions, they are the most economically and socially harmful, given that the problem is not nominal (of the price of the good that the producer sells), but of a real balance between income and expenses so that its exploitation is minimally viable. A minimum price usually leads to a submerged economy, but the most serious is the impact on the final consumer, who will opt for cheaper products from abroad, which neither meet European standards nor have equivalent quality seals.
Therefore, it is necessary to propose a strategy of value creation, not of redistribution of the generated value, in which the farmer receives a greater part of the added value of his crop thanks to having strengthened sales channels, far from dominance positions, with an identifiable brand with a real and potential wide market. This inexorably goes through an in-depth reform of the CAP to eliminate direct payments and transfer them to the second pillar of conditional payments, these being less distorting for prices at source, as happened in countries like New Zealand.
In sum, until a few years ago, the agricultural sector of low added value (bulk and sale of products with little transformation) has been maintained thanks to the direct funds of the Community Agricultural Policy (PAC) and to a guarantee price mechanism (Fega) in exchange for imposing low prices on farmers at source and thereby ensuring food security; generating a business with very narrow margins. However, the pressure of salary costs, together with the expectation of rising energy prices, has caused what was acceptable to date to become impossible, leading to small farms at closing and causing a rebellion of farmers, who depend between 30% and 40% of their disposable income on direct payments from the CAP, which are the main regions of the protests.
Therefore, we must leave the past behind and focus on continuing to build a powerful Spanish agri-food sector that has managed to transform and generate competitive positions in the world in recent years in segments such as pigs, wine, fruits and vegetables or Nuts