Why is the agri-food sector the most affected by the war in Iran?

MadridLast week, the Minister of Economy, Carlos Cuerpo, admitted that the war in Iran was already having an impact on the economy. "pockets" of the citizenry And this week the Spanish government has already announced that it will meet on Friday in an extraordinary way to address the economic consequences of the conflict in the Middle East. However, the tension in the region has not affected all sectors equally; one has been particularly hard hit: the agri-food sector. It is no coincidence that Minister Cuerpo and the Minister of Agriculture, Luis Planas, met with representatives from this sector on Monday to discuss the measures to be taken. But why has the primary sector felt the effects of the war the most? Experts consulted by ARA point to three factors: the increase in the price of oil—which rose above $100 per barrel on Monday—gas, and consequently, fertilizers, as well as cereals.

Francesc Reguant, an economist specializing in the agri-food sector, describes the chain of events. First, the closure of the Strait of Hormuz prevents the transit of 20% of the world's oil production and, consequently, leads to a rise in energy prices. Second, the price of grain increases because it is a "substitute for oil" through the production of biofuels, and at the same time, the production of animal feed suffers. And third, the increase in the price of gas directly affects fertilizer production, especially since urea (which is produced from natural gas) is a fundamental element. "This war is a bad idea. It will be costly worldwide," he warns, since beyond this initial impact on the primary sector, he foresees a generalized increase in prices that will reach the consumer.

Josep Lladós, Professor of Economics at the UOC, also highlights the importance of the Middle East due to the primary sector and warns that those next to suffer from energy costs will be transporters, which—he adds—will drive up prices throughout the entire production system. For the professor, the big difference from the first week of the war is that they have begun bombing Iranian gas and oil infrastructure. –also on the island of Kharg—so investors are already certain that there will be a restriction on the oil supply and the price is starting to skyrocket in the market. He also points out that Qatar is one of the world's leading gas producers and is unable to sell it: "This directly affects the price of fertilizers at the very moment farmers need them, especially for cereal production," he states, adding that this sector is suffering the most from the new crisis because it has narrower profit margins and energy is a very important part of that. He emphasizes, in any case, that there will not be an energy supply crisis in Spain because it is not the main recipient of crude oil from the Gulf, but warns that it will suffer the consequences of the market turmoil.

"If this lasts, we will have a price problem, an inflationary shock," warns Josep Reyner, president of the Catalan economic commission of the College of Economists. Agreeing with the previous experts' thesis on the reasons why the primary sector suffers the most—the increase in the price of oil, gas, and fertilizers—he adds that this impasse could eventually spread to the entire economy and could even lead to interest rate hikes by the European Central Bank, although we are not yet at that stage. In this regard, he anticipates that the Spanish government will take measures on Friday to try to keep prices under control: lowering energy taxes or selectively targeting specific productive sectors such as agri-food, but also transporters, since the increase in energy costs directly affects their expenses and consequently can be passed on to the consumer. Furthermore, he emphasizes that while the Strait of Hormuz remains closed, longer and more expensive alternative routes will have to be explored.

The PSOE-Sumar government, in fact, It is already working with concrete measuresBut he will have to find consensus among his parliamentary partners (who propose divergent measures) in order to pass them in Congress.