Ukraine is a key supplier of some commodities to Spain
The current situation is a further cause for Spanish farmers' concern, as Spain buys from Ukraine almost 20% of its imported cereals, essential commodities for its powerful livestock and feed sector. A second concern is that Ukraine is Spain's second largest supplier of sunflower oil.
The Spanish primary sector was already struggling with a substantial rise in energy and other input prices, combined with a prolonged period of drought. Ukraine's invasion is adding problems to sectors such as livestock farming and also the food industry and food retailing. This is now due to the impossibility of importing raw materials such as cereals and sunflower oil from Ukraine.
Ukraine is Spain's second largest cereal supplier
Spain has a strong livestock sector (it is China's leading supplier of pig meat) as well as a strong feed manufacturing sector, while at the same time it has a structural deficit in cereals. In 2021 (Fig. 1), Spain imported from Ukraine 18.4% of its total cereals purchased on international markets, worth 545 million euros, being its second largest trading partner after Brazil.
In this scenario of possible shortages, Spain's cereal imports from Russia must also be taken into account (Fig. 2).
In the case of corn, a staple for the manufacture of animal feed, imports from Ukraine exceeded 30% of the total, accounting for 2.4 million tons, worth 510 million euros (Fig. 3).
For Jorge de Saja, manager of the feed sector organization CESFAC, the Spanish sector is very dependent on Ukrainian maize, "especially now, because February was the start of our strong buying period, to last until August". In the second half of the year, Spain purchases this commodity from Southern hemisphere countries such as Brazil.
On March 14, the Ministry of Agriculture has just published a resolution in order to temporarily relaxing the specific requirements for corn imports from Argentina and Brazil, after meeting with the the sectoral organization AECEC.
According to the information provided by AECEC, and after carrying out the corresponding risk analysis of 10 phytosanitary products, the following conclusion has been reached: six of those products do not present any problem in light of the current legislation. For the remaining 4, the ministry has agreed to establish a maximum limit in accordance with article 18 of Regulation 396/2005. With regard to the USA, it has been verified that it presented no problem, therefore no exceptional measure is necessary.
Minister Planas also asked for "CAP measures to be made more flexible so that cereal sowing can be increased in Spain and other European countries". This would mean, for example, reducing the area under set-aside, which in Spain is half a million hectares.
In this context, considering that Spain has an "average structural deficit in the last five seasons of 14.4 million tons of cereals, the main destination of which is to supply livestock", the search for alternatives to avoid a shock to a sector that is already badly affected is all the more urgent.
Seventy percent of sunflower oil imported by Spain comes from Ukraine
In 2021, Spain bought 430,000 tons of sunflower oil (crude and refined) from Ukraine, which accounted for 70% of total sunflower oil imports. As for sunflower cake, it was 126,000 tons, 53% of the total (Fig. 3). These figures show that Spain is highly dependent on Ukrainian sunflower oil.
All farmers' organizations agree that a European agricultural policy that limits their food production and increases their dependence on the outside world cannot be allowed. They recall the risks for the agricultural sector of trade decisions taken by Russia, such as when in 2014 blocked exports of some European food stuffs following the annexation of Crimea.
Olive oil, next to be affected
The lack of sunflower oil for the food industry has put the spotlight on olive oil as a substitute, which has increased its at-farm-gate prices and has led some experts to warn of shortages if the war continues. The large supermarket chains have begun to ration sunflower oil in response to the increase in purchases by consumers. According to the retail sectorial Asedas, this hoarding behavior, reminiscent of the initial months of the pandemic, seems to have disappeared in a couple of days.
Spain is fortunate to be the world's leading producer of olive oil, with a 45% market share, and this fat can make up for the lack of sunflower oil. Spain only consumes on the domesic market a third of the olive oil produced in the country.
The food industry to reformulate its products
Faced with a situation of possible shortage of sunflower oil, the food industry is beginning to take measures and the first of these is to reformulate its products. Coconut oil and palm oil seem like alternatives to replace sunflower oil. A problem arises, you have to modify the labeling. FIAB, the sectoral organization of food and beverage manufacturers, is going to ask the Spanish Agency for Food Safety and Nutrition to ask the Commission for a temporary flexibility in the application of the Regulation on labeling, considering the substitution of other ingredients of the affected raw materials.
"The greatest concern is in the oils used in canning, where sunflower oil is an indisputable element in our manufactures", J.M. Veites, manager of the sectoral organization of canned fish manufacturers, said. He confirms that they have stocks of sunflower oil for a maximum of two weeks.
Other Spanish sectors to be affected
Sales of Spanish wine to Russia and Ukraine accounted for some 440 million euros in 2021. As for olive oil, exports to Russia accounts for 3% of total exports.
Spain is the world’s leading exporter of black olives and Russia (plus Ukraine), after the USA, is its second largest partner worldwide. From January to November 2021, black olive exports to both countries exceeded 33 million euros.
“This has been the trigger that has blown up the delicate economic balance that the fishing fleet maintained after almost two years of the pandemic,” Javier Gartat, Manager of the sectoral organization Cepesca, states. The sector has been warning for months about the increase in operating costs, the high price of fuel, the impact of inflation and logistical difficulties.
Prices are up by 7.6%
The Ukraine's invasion is already impacting Spain in the economic field and in the consumer's pocket. Not only electricity and oil are more expensive, but also the prices of food stuffs such as bread, meat or drinks such as beer.
The Consumer Price Index (CPI) for February, the first month directly affected by current situation, showed a 0.8% increase in prices compared to the previous month and an annual increase of 7.6%, the highest rate recorded since 1986.
Official statistics show another disturbing figure. While the estimated cost of the shopping basket in Spain increased by 7.6% in the last 12 months, in the euro area as a whole it increased by only 5.8%. This indicates that Spanish consumers have suffered a price increase 30% higher than in neighboring countries.
Compared to February 2021, the prices that have risen the most (Fig. 4) are those of electricity (80.5%), liquid fuels (52.3%), butane and propane (33.4%), diesel (28.4% ) and gasoline (25.1%). Some foods that make up the shopping basket also rose, such as edible oils (32.3%) or pasta (19.9%).
On another level, the conflict is the last straw that breaks the camel's back with an inflation triggered for months. The Spanish economy ended last year with inflation of 6.5%, its highest level for almost 30 years, caused mainly by rising energy costs. In February 2022, it registered a rate of 7.4%.
Additional info on Spanish-Ukrainian trade relationship
The Spanish trade balance is clearly in deficit in favor of Ukraine (Fig. 5). In 2021, Spain imported merchandise worth 1,548 million euros, while it exported worth 681 million euros.