Iran war threatens Malaga's countryside with increasing costs

The war in Iran and the closure of the Strait of Hormuz that has sent gas prices soaring have become a cause of great concern for the Spanish agricultural sector.

The situation brings back memories from the start of the war in Ukraine in 2022, when production costs spiked, eventually causing a sharp rise in the final consumer price. The crisis contributed to double-digit increases in foodstuff CPI.

The main concern is the price of diesel, which directly impacts farmers' expenses. According to experts, the rise is "speculative". "We have started to receive offers from distributors that are totally unacceptable and unjustified," they say. "We are not using new fuel. Spain has reserves equivalent to more than 90 days of consumption," Secretary General of the Coag organisation Miguel Padilla has said.

According to Padilla, contracts for the supply of agricultural diesel, industrial gas and fertilisers do not operate in real time. In other words, large distributors and manufacturers work with hedges, forward contracts and stocks purchased weeks or months before delivery.

"The gas used today to manufacture urea in a European plant [one of the most widely used fertilisers to provide nitrogen to crop soils] was already contracted before anyone heard of the latest episode of war in the Middle East. The diesel that will arrive this week to the cooperatives was bought when the barrel was at a different price," Padilla stated.

Regardless, costs are already rising. The price of the aforementioned urea is moving at around 600 dollars on the futures markets, the highest since March 2022. In just four days it has shot up 24 per cent, increasing the rise so far this year to 41 per cent.

Farmers also say that less than five per cent of the fuel in Spain comes from the conflict zone, which implies that the increases do not respond to a real market situation.

The sector is urging the government and the national commission for markets and competition (CNMC) to monitor distributors' practices. "The market for agricultural inputs (diesel, fertilisers, electricity for irrigation) is highly concentrated, which gives large operators a pricing power that goes far beyond what would be required for real competition," they say.

Minister of Agriculture Luis Planas has called for prudence. "We must remain vigilant and monitor the situation, but without any undue alarm, despite the fact that what is happening with Iran, Israel and the US is very dangerous," he said on Thursday. He is positive that Spain will find a solution in the face of Trump's threats to cut off trade ties.