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Viewing cable 08MADRID489, SURVEY: IMPACT OF RISING FOOD/AGRICULTURAL

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Reference ID Created Released Classification Origin
08MADRID489 2008-04-30 11:55 2011-08-24 16:30 UNCLASSIFIED Embassy Madrid
VZCZCXYZ0000
RR RUEHWEB

DE RUEHMD #0489/01 1211155
ZNR UUUUU ZZH
R 301155Z APR 08
FM AMEMBASSY MADRID
TO SECSTATE WASHDC 4698
UNCLAS MADRID 000489 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EAGR EAID ETRD ECON PGOV PREL TBIO
SUBJECT: SURVEY: IMPACT OF RISING FOOD/AGRICULTURAL 
COMMODITY PRICES 
 
REF: SECSTATE 39410 
 
1. Summary: Rising food prices are a sensitive political 
issue in Spain.  The opposition conservative Popular Party 
(PP) criticized the ruling Spanish Socialist Party (socialist 
PSOE) party in the run-up to the March 9 elections for double 
digit increases in prices of some basic foods.  The 
conservatives made some headway with this criticism, although 
not enough to win the election.  Spain is a net importer of 
food and feed for livestock so it has an economic interest in 
being able to produce and import corn and soy feed from as 
many sources as possible.  This will likely influence Spain 
to continue to be a relatively liberal member of the EU with 
respect to agricultural biotechnology.  Given Spain's 
interest in renewable energy, there may also be scope for 
U.S.-Spanish cooperation in biofuels.  End Summary 
 
SPANISH AGRICULTURE BACKGROUND 
------------------------------ 
 
2. Spanish agricultural and fishing production amounted to 
Euros 27.3 billion in 2007, almost 3 percent of GDP.  Spain 
exported about Euros 25 billion worth of agricultural and 
fish products in 2007 and imported Euros 24 billion.  Roughly 
900,000 people work in the sector, about 5 percent of the 
labor force.  Given current prices, Spanish farmers are 
interested in expanding their marketing of olives, olive oil, 
wine, fruits and vegetables.  Agriculture is important in 
Spain and farmers are influential, although not as 
influential as in, say, France.  With respect to Spanish 
international agricultural policy priorities, Spain's wine, 
cheese, cheese, olive, ham and other producers of high-end 
specialty products pressure the government to ask for a 
geographical indications regime in the Doha trade round 
context.  Spain benefits from the EU's common agricultural 
policy, although not to the same extent as other countries 
such as France.  Nonetheless, Spanish farmers approve of the 
support and protection they receive as a result of the EU's 
common agricultural policy.  The GOS would likely only 
support EU agricultural market access concessions if the U.S. 
agreed to big cuts in farm subsidies and/or the U.S. made 
concessions with respect to geographical indications.  Within 
the Doha context, Spain also wants continued EU protection 
for canned tuna imports.  (Note: In the Doha round, canned 
tuna is treated as an industrial product.) 
 
3.  In 2007, the U.S. exported to Spain about USD 1.5 billion 
worth of agricultural, fish and forestry products to Spain. 
Spain exported to the U.S. roughly USD 1.3 billion worth of 
agricultural products, fish and forestry products to the U.S. 
The U.S.'s most significant market access issue with Spain is 
that Spain as an EU member does not import American biotech 
corn even though Spain is a biotech corn producer.  This is 
because U.S. corn exporters cannot guarantee that American 
corn shipments do not contain biotech varieties that have not 
been approved by the EU.  There are approved biotech 
varieties in the EU and Spain, but not all the varieties that 
have been approved in the U.S. have been approved in Europe. 
Spain's main market access issue in the U.S. is gaining 
permission to export specialty ham products.  The Spaniards 
have been successful in meeting U.S. phytosanitary 
requirements and over the coming years, more Spanish ham will 
be permitted to be sold in the American market. 
 
ANSWERS TO REFTEL QUESTIONS 
KEYED TO REFTEL PARA. 7 
--------------------------- 
 
4. DEMAND: Spain is still a big "Mediterranean diet" consumer 
of fish, fruit, vegetables, olives, olive oil, rice, beans, 
cheese, bread, wine, and, to a more limited extent, meat. 
However, there is an increase in consumption of less 
expensive American-style pre-packaged foods, something that 
concerns the Ministry of Health because there is a rising 
obesity rate in Spain.  During the last 12 months, consumer 
prices for bread, spaghetti, onions, chicken, eggs, milk, and 
olive oil have increased in a range from 12 to 34 percent. 
Spain is a net exporter of olive oil, olives, wine, and 
fruits and vegetables.  It is a net importer of fish (Spain 
is the second largest per capita consumer of fish in the 
world after Japan), meat and wheat.  Spain mixes imported 
high quality North American (hard winter) wheat with local 
wheat to make flour for bread.  The Embassy has not seen 
significant changes in consumption patterns yet, although in 
TV interviews consumers threaten to buy less milk and bread. 
This may reflect the fact that Spain's relatively high GDP 
per capita allows consumers to go on buying traditional foods 
and beverages and perhaps cut back on something else.  Over 
time though, price increases should have an impact on 
consumption patterns, unfortunately perhaps in the direction 
of accelerated consumption of pre-packaged foods.  Per capita 
consumption of wine is down, although this may also reflect 
changing attitudes towards alcoholic beverages rather than 
 
price rises.  In response to dramatically higher nitrogen 
fertilizer prices, Spanish farmers are cutting back on their 
use of nitrogen fertilizer. 
 
5. SUPPLY: With respect to what crops to prioritize, Spanish 
farmers respond to price signals and EU policy.  In 2007, for 
instance, Spanish farmers planted as much wheat as they could 
to take advantage of higher prices and the European 
Commission's elimination of its land set-aside requirement. 
Dairy production is also up, although farmers find it 
difficult to increase production much more because dairy 
replacement heifers and compound feed are very expensive. 
Spain's significant production of wheat, barley, and other 
cereals takes place on dry land dependent on rainfall for 
crop yields.  For these products, the weather more than 
anything else determines production yields.  Corn, fruit and 
vegetable production takes place on irrigated fields, and 
access to irrigation water is key to production.  Spain is a 
major promoter of renewable energy sources.  The Abengoa 
consortium is a major biofuels producer, for instance in the 
U.S.  However, in Spain there has not been major crop 
cultivation for biofuels production because there is no 
mixing requirement for gasoline.  In addition, wheat prices 
are prohibitively expensive.  Abengoa has two biofuels 
production facilities near Salamanca that have been closed 
since late 2007 because current tax incentives and raw 
material prices do not currently make it economically 
worthwhile to produce biofuels in Spain. 
 
6. POLITICAL IMPACT: Spanish consumers definitely notice the 
rises in prices, and there has been a flurry of press pieces 
on the subject over the past year.  The opposition made some 
headway in criticizing the government for the price hikes, 
although not enough to win the March 9 national elections. 
In Spain, the big dividing line on agriculture is not between 
urban vs. rural groups or rich versus poor.  The important 
dividing line goes between those autonomous communities (the 
Spanish equivalent of states) that have enough water and 
those that do not.  This has been a highly contentious 
political issue for a long time.  Recently, the socialist 
central government reversed policy in that it agreed to 
divert water from the Ebro River which originates in 
socialist-ruled Aragon to Catalonia which has a socialist-led 
coalition government.  This angered the opposition 
party-governed autonomous communities of Valencia and Murcia 
that would like more water for agricultural purposes.  When 
the socialist party took power in 2004, its general policy 
was to rely less on water diversion and more on desalination 
plants.  Since then, there has been a major investment in 
Spain in desalination plants, but not enough to meet demand, 
and some plants have not yet begun operation, for instance an 
important plant in Barcelona.  Over the coming years 
therefore, water rights and water sharing will continue to be 
a controversial political issue in Spain.  With respect to 
agricultural biotechnology, higher prices for feed will 
likely result in the government continuing to have a 
relatively liberal policy.  Public attitudes have not changed 
much, although it is worth noting that on April 18, the 
influential pro-government daily, El Pais, ran a fairly 
balanced article that provided some arguments for 
biotechnology in the context of rising prices.  On April 29, 
El Pais ran a similar story.  Given the possible future 
development of biotech varieties capable of resisting drought 
and Spain's chronic water shortages, Spain is a country worth 
continuing to target in terms of developing greater 
acceptance of agricultural biotechnology within the EU. 
 
7. ECONOMIC IMPACT: The immediate economic impact is on 
inflation.  In 2007, inflation in Spain was 4.2 percent, 
almost two percentage points higher than the eurozone 
average.  Inflation is used in determining public pensions 
and has an impact on wage bargaining as well.  The immediate 
challenge, therefore, for the newly reelected socialist 
government is to find ways to moderate inflation which will 
be difficult given the global increases in food prices and 
the increase in the price of oil and fertilizers.  The IMF 
recommends that Spain liberalize the distribution sector 
more, but so far the government has not announced plans to do 
so.  Besides, Spain already has several competing supermarket 
chains.  Other than lifting the remaining restrictions on 
Sunday shopping, it is not clear how much impact additional 
distribution liberalization would have in terms of dampening 
price hikes. 
 
8. ENVIRONMENTAL IMPACT: The recent price rises in 
agricultural commodities have not had a discernible impact on 
the environment.  Clearly though, to the extent that rising 
prices provide incentives for greater agricultural 
production, there will be increasing competition for water. 
This issue, which many believe is related to global warming, 
will over the next twenty to thirty years be the existential 
issue for Spanish agriculture.  In Spain's dry lands, farmers 
will determine which cereals they produce depending on world 
 
prices and rainfall patterns.  The same is true with respect 
to crops grown on irrigated land.  With respect to the 
latter, there appears to be a shift away from corn to higher 
value fruits and vegetables, but we do not know if this shift 
will be permanent.  The EU's common agricultural policy is 
also hugely influential.  For instance, lower EU support for 
rice and cotton production has led to lower Spanish 
production of these crops.  However, if world prices for rice 
remain high, Spanish rice production could go up again. 
 
9. GOVERNMENT POLICY RESPONSE: Neither the Agricultural 
Counselor, nor the Economic Section, are aware of changed 
policies as a result of global agricultural prices rises. 
 
10. IMPACT ON POST PROGRAMS:  There has been no impact so 
far, although the Embassy will continue to advocate for a 
science-based approach to agricultural biotechnology, and we 
will explore what possibilities there may be for biofuels 
cooperation. 
 
11. POLICY PROPOSALS: Post will continue to point out the 
relationship between agricultural biotechnology, higher crop 
production, less environmental impact and ultimately lower 
prices.  On balance, the Spanish government's decision to 
merge the Agriculture and Environmental ministries into one 
"super ministry" called the Ministry of Environment,  Rural 
Development (Agriculture) and Marine Affairs is probably 
beneficial from the standpoint of promoting greater 
acceptance for agricultural biotechnology.  Embassy will 
therefore continue to engage the GOS on agricultural 
biotechnology.  Continuing on Ambassador Aguirre's successful 
renewable energies mission to the U.S. with high-level 
Spanish officials on February 11-14, there may also be an 
opportunity to exchange ideas and proposals with respect to 
biofuels. 
Llorens