Opinion: The high cost of low prices
By Cristóbal Aguado Laza, President of AVA-ASAJA
If you spend four and earn five, your company is viable, but if after a while you start spending six and keep earning five, the numbers no longer come out in your favor.
This is what is happening in thousands of agricultural holdings, the reason why the average age of farmers and ranchers is getting older and older. The reason why there is no generational change and the brown stain of uncultivated fields becomes ever larger.
The most established crop in Valencian agriculture, citrus fruits, is a paradigmatic example. A few days ago we learned about a new study, entitled 'The Valencian citrus industry, the evolution of its production costs and the expenses that determine them' published by María Ángeles Fernández-Zamudio of the Valencian Institute of Agrarian Research (IVIA).
This study clearly illustrates the brutal escalation of the expenses involved in citrus production while the price at the origin of most varieties has hardly changed.
In short, the total cost involved in producing a hectare of oranges amounts to €6,826 (US$8330). This is 15 percent higher than a decade ago and up to 70 percent higher than in 1992, an almost 30-year period.
Similar results can be found for mandarins: the cost per hectare reaches €7,589 (US$9,261), an amount that is 16 percent more than in 2010 and 69 percent more than in 1992.
Lemons, however, take the cake with costs increasing by 25 percent in 10 years and 74 percent in 30 years, reaching €6,890 (US$8,408) per hectare.
This report joins another recent study which María Ángeles Fernández-Zamudio also collaborated on along with researchers Pedro Caballero (IVIA) and María Dolores de Miguel (Polytechnic University of Cartagena). In it, they quantified average production costs to be €0.23 per kilo(kg) for oranges (Navelina and Lanelate varieties), €0.28/kg for mandarins (clementines), and €0.20/kg for lemons (Fine and Verna).
But let's return to the new study. In all these years, labor has continued to be the expense representing the highest percentage of total costs (depending on the species, it represents between 21 and 25 percent). The increasing mechanization of the sector should have contributed to lowering this number.
However, between the Valencian citrus industry’s high salaries- the highest of all the producing areas in Spain and increasingly demanding, and enforced, labor regulations, labor costs have not stopped growing.
The same can be said for irrigation. After so much modernization, so much drip irrigation, and so much energy efficiency, water costs have risen the most, already accounting for 20 percent of the total, 25 percent if we add the depreciation of facilities.
I still remember when the government argued that it was abolishing special irrigation rates to promote competition in the electricity market and lower prices. As of June 1, rate changes will come into force that, whatever politicians may say, will mean a new twist: attention to irrigation entities because with only 15 minutes of improper use of contracted power they will pay a surcharge for excess and, if this is repeated, the costs could rise to thousands of euros.
On the other hand, the maintenance of 15 percent of the global cost calculations that the study attributes to phytosanitary products is surprising.
The elimination of two-thirds of active ingredients authorized just a decade ago has left producers without more effective and cheaper substances. On the contrary, what little they have at their disposal is both more expensive and less effective.
Consequently, they are forced to multiply the number of treatments if they want to try to prevent pests and diseases from destroying their crops. Even then, they sometimes do not succeed (see South Africa's Cotonet) and suffer severe income losses due to the decline in marketed crops.
We could be talking hours about production costs that have skyrocketed during the last 30 years. To a certain extent, it’s normal that this is the case because the price of life tends to go up in societies that aspire to improve.
However, as I said at the beginning, with most citrus varieties, especially the Navelina orange and the Clemenules mandarin, field prices have practically stayed the same throughout this time. And so, logically, the numbers come out red, no matter how green politicians want to paint the sector.
If the average cost of citrus production is high, still higher is the economic, social, and environmental cost being paid by citrus growers - and by society as a whole, let's not forget - due to the imbalances that prevail within the food chain.
It is evident that the current reform of the Chain Law should include a record of contracts and a reference for costs and prices, established by a public body and based on studies such as the latter from the IVIA. But the reach of any regulation will be limited if, at the same time, the political class does not act on agricultural imports from third countries.
We are not against the free market nor open trade. In fact, Valencian agriculture was a pioneer in exporting its oranges to half the world.
What we consider immoral and suicidal is the deregulated entry into the European market of foreign shipments that substitute local production instead of complementing it, without a minimum phytosanitary, environmental, social, or labor reciprocity and worse still, without adequate surveillance for the pests and diseases that endanger our crops.
Large distribution chains know that the predominant buying criterion is price, so if one puts a mandarin from Morocco or an orange from Egypt on their shelves at a cheaper price than in Spain, others will follow.
Now that the ‘From Farm to Table’ strategy is a year old, it is good to remember that we will make little progress fighting against climate change if the European Union does not review trade agreements with third countries that promote unfair competition and generate much more pollution. So I don't know how we will get to the 2030 agenda or 2050 Spain, but it doesn't look good at all. On the contrary, it looks very bad.