The rain is beginning to give way to the fields, which will need much more than a couple of days of dripping to save the crops. Spain faces one of the three driest hydrological years since 1961 with only 25% of your harvest insured. If water continues to be scarce, millions of euros will be lost and the country, which is already the leading importer of cereals in the EU, will depend even more on foreign countries to supply all its demand.
The problem is exacerbated for three reasons: its main supplier is Ukraine, which is currently facing an invasion; more than 70% of all grain goes to livestock, so it is feared that the impact on prices will not be limited to a single product; the drought could extend until 2025 due to La Niña, a climatic anomaly. The scenario, as a whole, threatens to trigger inflation and experts fear that it will remain so for the next three years.
From October 1 to February 20 it has rained 41% less than normal in the country as a whole, according to the State Meteorological Agency (Aemet). This has caused more than half of the field to be on alert due to drought and even in the most critical areas, such as Andalusia, Extremadura or Castilla La-Mancha, there is talk of losing up to 70% of production, according to the Coordinator of Farmers and Ranchers Organizations (COAG).
Crops waiting for the rain
Rainfed farmers (who irrigate the field only with rainwater) are the ones that register the greatest falls. Many of them consider that the damage is already partially irreversible, especially in cereal crops such as wheat, barley, rye or oats. This is how Miguel Padilla, general secretary of COAG, explains it.
José Luis Jiménez lives in Madrid and is one of those affected farmers, although, as he himself points out, his colleagues from Extremadura and Andalusia are much worse off. According to his estimates, it is already a fact that part of the harvest will be lost in these regions. For the rest, it takes at least five days of rain, that is, around 30 litres.
Irrigated farmers, although they are in a less serious situation than rainfed farmers, have also seen their agricultural production altered due to the lack of reservoir water. It is about more than 3.7 million hectares of crops that have seen their water supply reduced, in some cases by more than half, because the reservoirs are at 40% of their capacity.
The most worrying situation is in the Guadalquivir, where the swamps are at 28.4%, and in the Guadiana basin, where they are at 30.3%. However, even in areas where the weather has given up, such as Madrid, it is expected that this year 7% less cereal will be harvested, according to estimates by the irrigation community of the Real Acequia del Jarama.
The decrease in the harvest seems an inescapable fact and in such a situation, the agrarian organizations warn that the peasants will lose their jobs without having compensation to support them.
Of the 13 million agricultural hectares that, according to the Ministry of Agriculture, Fisheries and Food (Miteco), depend solely on rainwater to cultivate, only 3.3 million are insured against possible losses due to drought. This is 25% of the total farmland, according to data from Agroseguros, a company that is responsible for managing compensation on behalf of insurance companies. As if this were not enough, there is the added problem that those who use the irrigation system are not covered by the insurance system.
The agrarian representatives attribute the low contracting of policies to the increase in premiums, of which the workers have gone from paying less than 40% of the cost to 60%. Added to this is the lower coverage or higher penalties among farmers who, due to the location of their crops, suffer more claims.
From the Agrarian Association of Young Farmers (Asaja) they specify that the rise in premiums has coincided with the increase in all factors of production, in particular diesel, forcing producers to choose what to invest their money in. “Without insurance you can work even if you risk the continuity of the operation, but you can’t do without the rest of the inputs because then you don’t work,” explains Gregorio Juárez, an organization technician.
Given the claims, Agroseguros does not deny that the cost of insurance has risen, it is 2.9% more, but it specifies that it is due to the increase in the insured capital, which in the last five years has risen by 13.2%. In that time, the claims ratio, which represents the part of the premiums that is used to cover claims, has increased to 119%, leaving the company in losses, according to its official data. The company recalls that in 2017, when the last great drought was recorded, they had to pay 230 million in cereal losses, “the largest compensation in history.”
There is one undeniable fact: adverse weather events are taking their toll on more than one sector and in more than one region. Beyond Spain, the lack of rain is altering agricultural production in the Mediterranean region. In southern Portugal, southeastern France and northwestern Italy, the water level is well below the seasonal average and the irrigation reservoirs are at their minimum capacity. Outside the European continent, in the United States there is talk of the worst “megadrought” in the last 1,200 years, according to the journal Nature Climate Change.
According to experts, it is a phenomenon that affects the entire northern hemisphere and could last until 2025 due to La Niña, a climatic anomaly that is associated with cold waters on the ocean surface and that causes arid seasons. Its appearance, according to Tomás García Azcárate, an agrarian economist, will promote a lack of grain that will raise the price of food for two or three years, although he does not dare to give an estimate of how much it will rise.
In the immediate future, doubts are concentrated in the coming months, since the poor cereal harvest will affect all the countries that, like Spain, are deficient in their production. “The closest case is Morocco, which is also experiencing a drought problem, which will increase the demand and price of grains,” says the agrarian economist.
The war sharpens the prices of cereals
The situation is exacerbated by the Russian invasion of Ukraine and its possible impact on the food supply chain. Kiev contributes 34.7% of the grain imported by the European Union and in 2020 it was the first national supplier, with 9.8% of the total volume of imports, according to the agri-food trade balance.
Spain is also the country with the greatest deficit in cereal production and, consequently, the one that buys the most. In 2020 it reached 14.4 million tons. Of that total, 29% was wheat and 56% corn, whose origin was mainly Ukraine. This country has also become the main supplier of sunflower oil, with 73.3% of imports registered two years ago.
Of the total demand for grain in Spain, 72.2% is destined for intensive farming. Consequently, not only cereals will pick up, but also meat. This is how Azcárate explains it, who believes that there is a 50% probability that the country will maintain high inflation for the next three years due to the war, the prolonged effect of the drought and energy prices.
For his part, the Minister for Rural Development, Livestock, Fisheries, Food and the Environment, Guillermo Blanco, already warned last week that “there may be a problem of shortages” of feed for animals due to the “multiplier effect” on the costs of raw materials that can cause the conflict between Russia and Ukraine, especially in the case of cereal and corn.
Although ranchers will suffer from higher raw material prices, Azcárate fears more for consumers, who have not yet recovered from the economic crisis brought on by the pandemic.
Chema Gil, professor of Agricultural Economics, agrees with his counterpart that food prices will rise, although he does not know how much or how long the escalation will last. Beyond the drought that is hitting Spain, the analyst is concerned about the evolution of the world market, since the decrease in national production could be compensated with more imports. However, with the current war scenario, Europe will have to start looking at other producing countries, such as Canada or the United States.
For now, the price of wheat shot up again last week as a result of the invasion. It rose 7.6% to $10.59 per bushel (about 27 kilos) in the benchmark market in the United States. The revaluation of this and other grains has led the UN to warn that the current war will impact world supply.
The employers of cereals and feed in Spain have already asked the Government to allow the entry of transgenics from the United States, the leading power in the corn trade, in order to guarantee supply in the community market and face the “unsustainable ” price escalation.
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