Spanish Dried Fodder Sector Faces New Challenges

An Expert's View about Support Activities for Services Husbandry in Spain

Posted on: 19 Mar 2012

In MY2012/13 the Spanish dehydrated fodder sector will face a number of challenges.

THIS REPORT CONTAINS ASSESSMENTS OF COMMODITY AND TRADE ISSUES MADE BY USDA STAFF AND NOT NECESSARILY STATEMENTS OF OFFICIAL U.S. GOVERNMENT POLICY Voluntary Public - Date: 3/01/2012 GAIN Report Number: SP1205 Spain Post: Madrid Spanish Dried Fodder Sector Faces New Challenges Report Categories: Grain and Feed Approved By: Robert Hanson Agricultural Attaché Prepared By: Marta Guerrero Agricultural Specialist Report Highlights: In MY2012/13 the Spanish dehydrated fodder sector will face a number of challenges that include lower water availability for irrigation (as the result of an extremely dry winter) and the total decoupling of dried fodder support payments. The weak domestic demand is expected to be offset by a consolidated presence of Spanish dried fodder in export markets, particularly in the Middle East. General Information: Disclaimer: This report presents the situation for forage production and exports in Spain. This report contains the views of the authors and does not reflect the official views of the U.S. Department of Agriculture (USDA). The data are not official USDA data. Abbreviations used in this report: CMO Common Market Organization EC European Commission EU European Union FAS Foreign Agricultural Service GTA Global Trade Atlas SPS Single Payment Scheme HS Codes: Harmonized System codes for commodity classification used to calculate trade data. Harmonized Codes for Dehydrated Fodder: 1214 Rutabagas (Swedes), mangolds, fodder roots, hay alfalfa (lucerne), clover, sainfoin, forage kale, lupines, vetches and similar forage products, whether or not in the form of pellets. 121410 Alfalfa (Lucerne) meal and pellets; dehydrated, sun-cured and other. 121490 Hay (including alfalfa, whether or not double compressed, and Timothy); clover; and other. MS EU Member State(s) MT Metric ton (1,000 kg) MY Marketing year (May/April) PS&D Production, Supply and Demand Ha Hectares N/A Not Available Spanish Dried Fodder Sector Faces New Challenges Page 2 out of 8 Acreage and Production Spain is the EU Member State with the largest dried fodder production, representing over 50 percent of the total EU-27dried fodder production. Fodder cultivation expanded when Spain joined the European Union in 1986, and since then, fodder production, has generally followed an upward trend, with the exception of those market years where grain plantings turned to be more profitable. As shown in Table 1, alfalfa continues being the main fodder crop, representing over 80 percent of total fodder acreage. In the main growing areas, alfalfa is part of the rotation alfalfa-corn. After area increases in MY 2009/10 and MY 2010/11, better prices in the grain market resumed farmers? interest in planting grain crops for MY2011/12 instead of fodder crops, which lead to a marginal decrease of fodder crops area. However, the area reduction was offset in terms of production by higher yields. For MY 2012/13, the total area planted to fodder crops is expected to decline marginally. Fodder crops are planted for a five year period. In Spain half of the fodder plantings are carried out in winter and the other half in spring. Good prices, significantly low ending stocks and a strong export demand encouraged winter plantings. However, water availability in the main growing regions is constrained by an extremely dry winter and farmers might switch to less water demanding crops - this is particularly true in the case of spring plantings. In addition to that, new regulations entering into force, such as the total decoupling of fodder payments (see policy section) might play a role in farmer?s decisions. Table 1: Spain, Area Planted to Subsidized Dried Fodder (Hectare) Market Year Alfalfa Vetch Sainfoin Fescue Corn Rye Other Total Grass Grass 2006/07 164,020 4,716 956 5,596 1,190 8,274 7,176 191,928 2007/08 143,554 4,583 506 6,043 1,197 7,744 5,994 169,623 2008/09 122,411 4,039 679 5,696 1,248 5,972 5,993 146,038 2009/10 135,747 9,106 641 9,748 1,076 8,301 4,074 168,693 2010/11 147,065 12,375 469 7,724 1,1,74 8,063 7,946 184,815 2011/12e 146,800 6,200 595 5,850 915 7,350 7,100 174,810 2012/13f 143,100 6,050 580 5,750 900 7,170 6,950 170,500 Source: FEGA (Spanish Agricultural Guarantee Fund) AEFA and FAS Madrid estimates. According to National Crop Area and Yields Survey (ESYRCE), at the national level, almost 70 of the alfalfa acreage is grown under irrigation. In Aragón, the main producing region, the percentage of irrigated alfalfa amounted to nearly 80 percent, while in other relevant producing regions, such as Castile y León, the percentage of irrigated alfalfa added up to 60 percent of the total area. The overall high rate of irrigated alfalfa results in stable yields per hectare throughout the years. Table 2: Spain, Production of Subsidized Dried Fodder (MT) Spanish Dried Fodder Sector Faces New Challenges Page 3 out of 8 Market Dehydrated Fodder Sun Dried Total Year Fodder 2006/07 1,832,791 141,860 1,974,651 2007/08 1,683,736 98,603 1,782,339 2008/09 1,317,700 209,800 1,527,500 2009/10 1,553,309 157,300 1,710,609 2010/11 1,673,106 131,320 1,804,426 2011/12e 1,674,250 135,750 1,810,000 2012/13f 1,665,600 135,000 1,800,600 Source: AEFA (National Dried Alfalfa Producers Association) and FAS Madrid estimates. In MY2011/12, water availability in irrigated land along with mild temperatures until mid fall resulted in good yields by enabling farmers to carry out up to 6 cuts in many of their fields. Processing There are different techniques in preserving fodder through reducing moisture content, mainly dehydration, sun-drying and milling. The resulting product includes pellets and bales. Bales are the most common product, representing over 75 percent of total production. According to the national standardization rule UNE 34602, pellets are made of fodder flour and should be presented in a cylindrical shape; with a diameter between 3 and 13 mm and a maximum length of 6 cm. Bales are parallelepiped shaped formed by pressure, and tied by rope. Depending on the type of fiber content they can be classified as: Short fiber bales: containing less than 20 percent of long fiber (over 10 cm). Long fiber bales: containing less than 20 percent of short fiber (below 10 cm). According to their size, bales can be classified as: Small bales: below 40 kg weight, that can be handled without mechanical assistance. Large bales: over 40 kg weight, or that can only be handled with mechanical assistance. Table 3: Spain Dried Fodder Product by Production Type (MT) Market Year Pellets Bales Total 2006/07 671,381 1,303,269 1,974,651 2007/08 605,995 1,176,343 1,782,339 2008/09 534,625 534,625 1,527,500 2009/10 427,652 1,282,956 1,710,609 2010/11 451,106 1,353,350 1,804,426 2011/12e 416,300 1,393,700 1,810,000 2012/13f 414,138 1,386,462 1,800,600 Source: AEFA (National Dried Alfalfa Producers Association) and FAS Madrid estimates. There were 100 dried fodder processing plants in Spain in 2005. In 2008, only 76 were operational and Spanish Dried Fodder Sector Faces New Challenges Page 4 out of 8 only 74 are expected to operate in MY 2012/13. Aragon and Cataluña, both irrigated by the Ebro River, and Castile y León in Spain?s central plateau, are the regions with the largest installed processing capacity, representing about 80 percent of Spain?s total capacity. Table 4: Spain Location of Processing Plants Region Number of Plants Aragon* 37 Cataluña* 11 Castile y Leon 12 Castile-La Mancha 6 Navarra 4 Andalusia 2 Extremadura 1 Balearic Islands 1 Total 74 Source: AEFA (National Dried Alfalfa Producers Association). *As part of its purchase policy, a UAE agricultural company purchased two dehydrating fodder plants in Spain, whose production is completely devoted to the export market. One of them is located in Zaragoza and was acquired in 2009, and the other one is located in Lleida, acquired in 2012. Table 5: Spain Number of Processing Plants by MY Marketing Year Number of Processors 2006/07 86 2007/08 80 2008/09 77 2009/10 76 2010/11 76 2011/12 74 2012/13f 74 Source: AEFA (National Dried Alfalfa Producers Association). Consumption The dairy herd, which is the primary consumer of dehydrated fodder in Spain, has diminished its inventories almost 10 percent throughout the last five years. Dried fodder demand in the domestic market remains weak, driven by the downward trend of dairy cow population. However, milk prices paid to farmers grew and so did dairy cow inventories throughout 2011. Table 6: Dairy cow population, dairy cow milk production and milk average prices Year 2007 2008 2009 2010 2011 Dairy cow population 932 888 837 837 851 Milk production (1,000 MT) 5,779.2 5,879.2 5,776.3 5,887.6 5,930.0 Spanish Dried Fodder Sector Faces New Challenges Page 5 out of 8 Price (Euros/ 100 kg) 36.41 39.08 30.02 30.26 31.80 Source: Eurostat. MARM. Dairy Survey and FAS Madrid estimates. In MY2011/12, the pace of dried fodder sales during the first half of the marketing year has been higher than in previous years resulting in lower company stocks and a tight market situation. The strong demand of the export market has been the main driver. Trade The EU-27, lead by Spain, is the world third largest exporter of dried fodder after the U.S. and Australia. While Spain?s imports come mainly from other EU Member States, United Arab Emirates, followed by the EU and North African countries are Spain?s main clients. Table 7: Spain Total Imports of Fodder by Origin in MT * C MY MY MY MY MY ountry of Origin 2007/08 2008/09 2009/10 2010/11 2011/12e EU-27 17,088 24,336 7,588 10,664 10,400 Others 1,129 1,171 944 158 400 TOTAL IMPORTS 18,217 25,507 8,532 10,822 10,800 Source: GTA and FAS Madrid estimates. * Includes both bales and pellets. The EU and North Africa countries have been the traditional destination of Spain?s fodder. Nevertheless, exports to United Arab Emirates (UAE) have been growing steadily over the five past years. In MY2011/12 lower competition from the United States in the export markets allowed Spain to increase its imports, concentrated mainly in the Middle East. In MY2011/12, exports to the UAE are expected to account for almost 70 percent of Spain?s fodder exports, followed by the EU-27, which represented about 20 percent of total exports. Other countries such as Saudi Arabia are also steady increasingly importing fodder from Spain. For instance, in MY2011/12, exports to Saudi Arabia are anticipated to represent nearly 10 percent of Spain?s total exports. Table 8: Spain Total Exports of Fodder by Destination in MT * Country of MY MY MY MY MY Destination 2007/08 2008/09 2009/10 2010/11 2011/12e Spanish Dried Fodder Sector Faces New Challenges Page 6 out of 8 EU-27 208,670 131,001 115,590 235,259 161,077 United Arab Emirates 202,803 260,458 370,294 335,917 585,985 Saudi Arabia 20,714 8,153 60,831 60,761 80,179 Morocco 44,508 25,812 11,460 37,248 9,352 Others 15,421 35,490 27,776 89,152 33,702 TOTAL EXPORTS 492,116 460,914 585,951 758,337 870,296 Source: GTA and FAS Madrid estimates.* Includes both bales and pellets. Production, Supply and Demand Table 10: Spain Production, Supply and Demand for Dehydrated Fodder Mar Y MY MY MY MY MY Unitket Ye Mar 2007/08 2008/09 2009/10 2010/11 2011/12e 2012/13f s P 1,782,33 1,527,50 1,710,60 1,804,42 1,810,00 1,800,60roduction 9 0 9 6 0 0 (MT) Imports 18,217 25,507 8,532 10,822 10,800 10,500 (MT) T 1,800,55 1,553,00 1,719,14 1,815,24 1,820,80 1,811,10otal supply 6 7 1 8 0 0 (MT) Dom. Consumptio 1,308,44 1,092,09 1,133,19 1,056,91 n 0 3 0 1 950,800 951,100 (MT) Exports 492,116 460,914 585,951 758,337 870,000 860,000 (MT) Total 1,800,55 1,553,00 1,719,14 1,815,24 1,820,80 1,811,10 Demand 6 7 1 8 0 0 (MT) Source: FAS Madrid estimates. Policy In 2006, the existing EU support for the dried fodder sector, which initially was fully paid to the processing industry, was redistributed between growers and the processing industry on a 50/50 basis. Direct support to growers was integrated into the Single Payment Scheme (SPS), based on their historical deliveries to the industry and within national support ceilings. The implementation of this reform coincided with the beginning of Spain?s increasing exports to UAE, which allowed the processing industry to remain competitive despite of the lower CAP payment received and the weaker domestic demand. Until MY2011/12 there was a single dried fodder MGQ for the EU-15 of 4,855,900 MT that merged the previous maximum guaranteed quantities for dehydrated and sun-dried fodder. For the new Member States, there was a separate MGQ of 104,823 MT. The total EU-25 MGQ is 4,960,723 MT. The MGQ was split into Guaranteed National Quantities (GNQ) by Member State. Under this system, penalties were imposed (reductions in aid) if the EU MGQ is exceeded by any Member State for one year. Penalties are applied in those countries which are responsible for the overrun. If EU dried fodder production during a given marketing year did not exceed the MGQ, the full aid was paid. Spanish Dried Fodder Sector Faces New Challenges Page 7 out of 8 Since MY2006/07 the MGQ has not been exceeded so the aid has been fully paid without reductions. According to Commission Regulation (CE) 707/2011 the final amount of the aid to be paid to processors for dried fodder in MY2010/11 remained at 33 Euros per MT, since the maximum guaranteed quantity has not been exceeded. While there are not official data available yet, the same amount of money is expected to be paid to the processing industries in MY2011/12. To be granted a production subsidy of 33 ? per MT, the processing industry must have had contracts with farmers which established price and acreage. In the event that the dehydrating plant had its own fodder production or acquires fodder from authorized buyers, delivery declarations are required. Regarding quality standards, fodder to be dehydrated or milled in the plant should have a minimum moisture content of 25%. The product obtained must have a maximum moisture content of 12% in the case of sun-dried fodder or dehydrated fodder that had undergone a milling procedure. The maximum moisture content could be up to 14% for other dehydrated products. In addition, sun-dried fodder should have undergone a milling procedure within the processing plant to be eligible for the subsidy. The minimum protein content as compared to dry matter had to be 15%. From 1 April 2012, the aid for dehydrated fodder scheme will be fully incorporated into the farmer?s Single Payment Scheme (SPS) and processors will no longer receive the aid. The amount of money to be paid to farmers via SPS will be based on their historical deliveries. The reference period considered includes years 2007 and 2008. Under the SPS farmers receive a set amount per hectare of agricultural land maintained in good conditions, and not linked to the crop produced. Thus, the decoupling of the subsidy to fodder production could result in changes in fodder production levels. Planting decisions will be solely based in market conditions and the dehydrated fodder industry will have the 33 Euros per metric ton less to offer to farmers. With the integration of fodder payment in the SPS, minimum quality requirements (including minimum moisture content) will not be mandatory. At the moment, the aid scheme after 2013 remains to be defined. However, the European structural deficit of vegetal protein, the environmental benefits of alfalfa cultivation could justify a special treatment to the fodder sector. For the forthcoming aid scheme, the processing industry defends the maintenance of specific payments at least partially linked to the implementation of supply contracts between farmers and the dehydrating industry. They also defend the establishment of minimum amounts of fodder to be delivered to the processing industry to grant the continuation of their activity. Spanish Dried Fodder Sector Faces New Challenges Page 8 out of 8
Posted: 19 March 2012