Growing interest in Spain to acquire farms: an analysis of the reasons – Articles

Until a few years ago, Spanish integrator companies avoided growth through farm ownership, mainly for two reasons:

• the large investments they had to make in the facilities, which significantly reduced the profitability of their investment in pig farming
• numerous complexities associated with the daily management of farms, especially in
  • environmental issues (manure disposal, carcass removal, etc.)
  • Personnel Management

Thanks to the gradual consolidation of the pig production model, the creation of new farms with a significant number of employees, about 3,000 pig breeders in accordance with the maximum allowed by law in Spain, and the introduction of highly productive genetic lines that have allowed production of about 30 or more piglets per sow per year, some integrators have opted for production models based on their own breeding farms a few years ago, where production costs can be even lower than those obtained with classic integration, although the return on invested capital has been significantly reduced.

Over the last two years, coinciding with high profitability of production and serious health problems that are causing very serious economic problems in the affected farms, and also given the difficulty of contracting with new farms in integrated models, many integrators are changing their production principles of action and are starting to buy facilities, some of which have many years of operation.

At 3tres3, recognizing this reality, we asked our readers why they thought these changes were happening and why integrators and meat groups were buying farms. The survey was very well received, with 401 user responses and 645 opinions, as respondents could select multiple options.

The results were as follows:

First of all, emphasize the variability of the answers, since the most majority of options does not exceed 34% of the answers, and the next two have only 25% support, so we believe that there are different reasons explaining this phenomenon, and some of them also complement each other.

Let’s look at different options.

1º Difficulty in building new farms due to legal and environmental issues (33.41% of participants)

There is no doubt that it is becoming increasingly difficult to obtain permits for the construction of a new pig farm. In addition to the rules on distances from other farms, there are difficulties with the handling of manure and, above all, with the licence to obtain water, where the permits of the Hydrographic Confederations are increasingly limited. In areas classified as sensitive zones, new permits are not possible.

To these difficulties we must add the pressure and resources of local anti-farm groups, which complicates and delays municipal permitting, and regional moratoriums on new farms over large areas of land. With fewer farms expected than previously forecast, ensuring each farm produces becomes more important.

2º Lack of generational change at the head of many small and medium-sized family breeding farms (25.93% of participants)

In Spain, as in other countries in Europe and the rest of the world, there is a very profound change in pig farming models, from production on small or medium-sized family farms to larger farms run by businesses, with hired staff, most of the time completely unrelated to farm ownership.

We don’t have statistics in Spain on the average age of family farm owners, but there is no doubt that many of them are close to retirement age.

New generations do not want production systems that involve working 365 days a year, including holidays, without the opportunity to enjoy vacations or weekends, and when they have to take on responsibility for family farms, they look for alternatives that are compatible with new, social realities.

Many small farms are converting to feedlots or isovai, while medium-sized ones are trying to expand to accommodate new production models.

The largest farms or those with expansion capabilities are sold to integrators or beef groups who want large farms of adequate size that allow them to fill their feedlots and feedlots from one or a very small number of sources to improve their cost and health efficiency.

3º Ensure the supply of animals to your structure (25.18% of participants)

The high productivity of Spanish slaughterhouses, which exceeds the production capacity of Spanish farms, is well known. This fact, as well as the difficulties in importing pigs for slaughter for economic, health and logistical reasons, have led to a significant part of the meat groups being involved in production in order to ensure the supply of animals for slaughter and the production chain and to be able to meet their commercial obligations.

4º Control production costs and strong fluctuations in piglet prices (18.45% of participants)

High piglet prices in recent years have meant that the profitability of livestock production based on purchasing piglets, both imported and from domestic customers, has been low, encouraging the purchase of piglet farms to better control the price of the piglet, its origin and its health.

5º To enable meat product integrators/groups to continue to grow and gain market share (18.20% of participants)

The large Spanish meat groups, whose activity is mainly linked to production, want to continue growing and gaining market share both nationally and internationally, and to do this they are investing directly in production, given the difficulty of continuing growth based solely on the classic integration model.

6º Difficulty in building new farms in integrated systems due to high construction costs and large financial expenses (16.71% of participants)

The cost of a breeding place on a new farm in Spain has increased dramatically in recent years, many times exceeding 3,000 euros per place in phase 1, and the financial costs have increased significantly, making it difficult for those integrating to access bank financing and, above all, to make their investments profitable. In addition, financial institutions require investors to provide or personally guarantee a significant portion of the total investment, which often makes it difficult or impossible for participants to invest.

There are other, rarer responses that could also be the reason for buying and selling in specific cases, but they all have responses below 11%.

• Prevent other integrators from entering the companies’ areas of influence.
• Provide piglets with good sanitary quality.
• Take advantage of the liquidity of companies
• To have more control over the personnel and investments that will be made in the facilities.

As conclusions

The Spanish pig production model is changing depending on the ownership of the breeding farms, which are still mainly family-run. The greatest concentration of pork production in Spain is around integrators and meat groups, which, thanks to their volumes and economic capabilities, are absorbing other production companies and small family businesses.

There are more farms and projects for sale by owners suffering from serious health problems and a high average age, as well as legal, environmental and economic difficulties, as well as large investments required to build new farms. All this “forces” pig companies that want to maintain their market share or continue to grow, to engage in direct investment in facilities by purchasing breeding farms, which means that they must directly take over the management of personnel, environmental aspects and cost control on the farms, and also leads to a significant drop in economic profitability, measured by the total invested capital.