The modernization process of Spanish agriculture has drastically altered the role of this sector within the overall Spanish economy.

According to Spain’s agriculture ministry, the sector’s role is now focused on helping to sustain demand from other industrial and services activities. It also concentrates on supplying the powerful Spanish food industry, which has become a key sector of the Spanish economy, representing 19.33% of total product turnover and 25.72% of expenditures on raw materials.

Spain is a member of the European Union, and as such, its agricultural policies and programs are tied to the E.U.’s Common Agriculture Policy. In 1998, Spain’s share of E.U. guarantee expenditures was second only to France.

The Spanish agriculture ministry estimates that E.U. guarantees and guidance payments account for about 25% of the country’s total farm earnings. Spain’s cereals sector, including rice, typically receives the largest proportion of E.U. assistance, followed by olive oil. In terms of the E.U.’s 2000-2006 rural development program, Spain is the largest single beneficiary of the restructuring efforts, slated to receive slightly more than 48 billion euros.

Changes in CAP programs for various types of crops have affected Spain’s crop mix and consumption, as producers have responded to the amount of support available. For example, under Agenda 2000, lower intervention prices and more restrictive rules regarding grain going into intervention have resulted in lower domestic prices and higher domestic consumption of grains, particularly in feed rations.

But also under Agenda 2000, Spain obtained an increase to 2.9 tonnes per hectare from 2.6 in the average yield used to calculate direct payments. CAP programs also call for equalizing compensatory payments between grains and oilseeds. These changes are expected to shift area to wheat away from oilseeds and to make grain production attractive again.

WHEAT AND FLOUR MILLING. The Spanish flour milling industry is modern and dynamic, and its major milling companies have incorporaed the latest in technological advances. The sector comprises about 240 companies throughout Spain, which together mill approximately 4 million tonnes of wheat a year.

Spain is considered one of the E.U.’s five leaders in flour production. After trending lower from the late 1970s to the early 1990s, Spain’s flour output since 1994 has been on the increase.

According to the International Grains Council, Spain’s flour production in 1998, the last year for which data are available, totaled 2.55 million tonnes of flour, up 30% from the 1994 low of 1.973 million tonnes. Average annual flour production from 1996 through 1998 was 2.584 million tonnes.

Much of the increase is attributable to the rising consumption of bread and other flour-based products. Even though bread comprises only about 9% of the overall Spanish diet, the agriculture ministry reports that per capita bread consumption in 2000 stood at 58.47 kg, reversing the downward trend through the early 1990s and up 6% from a low of 55 kg in 1992.

Spain exports about 300,000 tonnes of flour and semolina annually, according to La Asociacion de Fabricantes de Harinas y Semolas de Espana (AFHSE), Spain’s milling industry association whose membership accounts for about 80% of the country’s total flour and semolina output. Semolina exports primarily are shipped to the countries of North Africa for couscous.

The sector has undergone consolidation over the years, and since 1993, the number of milling companies has declined by 38%. Even so, small- to medium-sized mills remain active.

Industrywide, capacity utilization dropped to as low as 35% in the 1990s, and despite consolidation, overcapacity persists as a major difficulty for the sector. The situation has prompted AFHSE, in conjunction with GAM, the European milling association comprising individual national associations, to propose radical programs to address the problem.

At a GAM conference in April, an AFHSE proposal to restructure Spain’s milling sector was supported by GAM’s membership, according to a report from Molineria y Panderia. GAM is working to obtain European Commission cooperation in its efforts to effect restructuring throughout the E.U.’s milling sector to reduce overcapacity.

AFHSE was the only national delegation to present a sector reorganization plan to the GAM conference. The Spanish proposal in essence contemplates the possibility of establishing a system of incentives to stop production. Any such plan will need the backing of the E.C. GAM’s top priority is to obtain an endorsement from Brussels of a restructuring plan for its member countries.

COARSE GRAINS AND FEED. Spain has a deficit in coarse grains, as annual feed and total use typically exceed production by about 3 million tonnes or more. This season, more maize is expected to be planted, narrowing the deficit, as precipitation and water reservoir levels are relatively high and oilseed subsidies are declining relative to grains.

After approval in 1998, an estimated 25,000 ha of Bt maize were seeded in the 2000-01 crop. Despite increasing criticism from many diverse groups, including calls for a moratorium on planting, area planted with genetically improved varieties is expected to increase in 2001-02.

Currently, both wet millers and dry millers have a policy of not using GM maize. Feed compounders, on the other hand, continue to accept GM maize.

Until recent years, the United States was a major supplier of maize to Spain, exporting 1.1 million to 1.4 million tonnes annually. But since November 1998, no regular U.S. maize has been imported because of the E.U.’s failure to approve additional genetically improved varieties. Spain has replaced its traditional U.S. imports with supplies from Argentina, France and, to a limited extent, Eastern Europe and Brazil.

Spain is required to import about 220,000 tonnes of U.S. sorghum by Feb. 28, 2002 to meet the requirements established under the U.S.-E.U. Enlargement Agreement. Until recently, the CIF price for U.S. sorghum was above the domestic price, preventing imports, but declining prices are expected to encourage Spain to meet the requirements before the deadline.

The effects of the bovine spongiform encephalopathy crisis on Spain’s feed industry remain unclear. The first two cases of BSE in Spain were discovered in late November/early December 2000, with an additional five cases identified as of mid-January. The cases resulted in an immediate decline of 30% in beef consumption during December 2000 and January 2001. Although consumption stabilized somewhat as public panic eased, beef consumption for the year is expected to be down by 15% to 20% from expected levels.

Beef producer incomes will be supplemented by generous payments, which could temper actual production cuts. At the same time, pork consumption rose dramatically, as consumers sought to replace beef in their diets.

___8048___