Spain: The agro food sector, one of the least affected by coronavirus lockdown

The balance of the crisis for the food sector has been relatively positive although Spain has been one of the countries worst affected by the pandemic. Food manufacture, a key industry for the supply of the population, had to face, together with the logistics and distribution sectors, an unusual increase in demand during the first weeks of lockdown.

Título Bankia

Spain has been under one of the strictest lockdowns in the world since PM Sánchez declared the state of emergency on 14 March, with citizens only allowed out to buy food or medicines or visit de doctor. On 21 June, movement restrictions across the country were eliminated, although mandatory masks and social distancing continue.

After more than three months in lockdown, the Spanish agro food sector has been one of the least affected by the confinement. However, the closure of the borders that prevented the entry of tourists harmed the food sector, since food consumption outside the home accounts for a third of its total turnover; some subsectors allocate 100% of their production to the HORECA channel.

According to the figures provided by the sectoral organization FIAB, in 2020, the sector's production will fall by between 4% (more optimistic scenario: no resurgence of the virus) and 8% (if there is a second wave of the virus in the autumn). Depending on the scenario, this would translate into lower revenues, up to 115-110 billion euros; in the worst case, it would mean a return to 2016 levels.

This association of food and beverage manufacturers is also very negative in its forecast for the sector's exports, expecting falls of 6-11% year-on-year in 2020 as a whole. In any case, this possible deterioration is not observed in the data available for this year; food exports are one of the few items that have improved in recent months.

Bankia estudios

With regard to the labor market, the lesser impact of the crisis on the sector is even clearer: between February and May, it was one of the few sectors recording an increase in average social security affiliation. Besides that, the use of instruments to contain job destruction has been very low in this sector compared to others.

The debate on food security is gaining momentum with COVID-19

The disruptions created by the coronavirus in global production and distribution chains have reignited the debate on food security at the global level, as a policy that governments must prioritize to ensure the supply of basic commodities to people in emergencies.

Thus, this health crisis has increased interest in shorter supply chains and national food security. Therefore, it is likely that in the post-COVID era, local supply chains could replace global ones, with proximity taking precedence over remoteness.

In this respect, in recent months, some countries have taken measures to restrict exports of agricultural raw materials as part of their post-COVID recovery plans. For example, Vietnam suspended rice exports, Serbia discontinued sunflower exports, and Russia stopped exports of several cereals.

To determine the potential winners and losers from a hypothetical imposition of food security policies on a global scale, we focus on net food exports (Fig. 1). According to the World Bank, the countries with the highest positive food trade balance are concentrated in emerging markets, mainly in Latin America. In the EU, half of its 27 member states have a positive balance, with small economies leading the way, as, for example, 2% of its GDP in Bulgaria.

Balanza comercial
Fig. 1. Food trade balance

This is followed by the Netherlands, Spain and Italy, whose positive food trade balance is 1% of their GDP. In principle, these countries would see part of their external income fall in a context of declining external demand for food, because of policies aimed at increasing domestic agro food production in order to reduce dependence on external supplies.

In contrast, Germany, the USA, Japan and China have a negative food trade balance, as do most countries on the African continent.

Spain’s food trade balance

Food exports have expanded by an annual average of 7% in the last decade, as the Spanish economy restructured after the bursting of the housing bubble.

Costa salarial
Fig. 2. Average wage cost in the agricultural sector

During this period, the competitiveness of the agricultural sector has improved significantly: average labor costs have fallen by a cumulative 10% between 2010 and 2019, in contrast to increases of 15% in France and nearly 30% in Italy (Fig. 2).

Spain went from having a food trade balance of around 0% of GDP before 2008 to becoming a net exporter, reaching 1% of GDP in 2019 (Fig. 3).

Comercio exterior
Fig. 3. Food foreign trade in Spain

Food exports accounted for 17% of Spain's foreign sales in 2019, the second largest behind capital goods sales. Fruit and vegetables and meat account for more than half of all food exports. Almost two thirds of Spanish exports go to countries within the EU, mainly France (15.8%), Germany (11.5%) and Italy (10.1%); 4.4% of total food is exported to the Netherlands.

Among the exports outside the EU, the most important destinations are China (4.3%), the USA (4%) and, above all, the United Kingdom (8%), all of which are net food importers.

Thus, Spain would be directly affected by a reduction in external food demand if its main markets decided to implement measures to reduce their external dependence. It should be noted, however, that the diversification of the economy in recent years, on the one hand, and the concentration of food exports in EU member countries, on the other, could cushion part of the negative impact that this external shock would generate on the country's aggregate.

In fact, Spain could benefit from a policy of deepening trade relations within Europe (Europe first?), which could counteract the decrease in purchases by the US and Asia.

The full report in Spanish can be found here