By Martin Roberts
MADRID, April 16 (Reuters) - Falling Spanish food prices have helped turn consumer inflation negative for the first time on record but farmers say low prices are forcing them to sell below cost, plant less or give up farming altogether.
Thousands of angry dairy farmers rallied in Madrid on Thursday in a noisy protest to highlight losses of 1 million euros ($1.32 million) a day between them just to break even.
"We cannot survive with these losses and these restricted quotas, said demonstrator Rosario Arredondo who has a small dairy farm in the northern Cantabria region.
She said she receives 29 euro cents a litre for milk that costs her 40 cents to produce.
Spain's National Statistics Institute said food was a leading factor in the consumer price index in March falling 0.1 percent from the same month in 2008, the first drop since the CPI was first compiled in 1962.
Farm gate prices have fallen even further.
The Asaja union estimates Spain had 173,000 dairy farms in 1993 but just 24,000 now, and said they may vanish altogether if steps are not taken at national and European level.
Spain's four leading farm unions has urged the government to stop supermarkets from importing milk at below cost. Spain has to import 2.8 million tonnes of milk a year on top of an EU production quota of 6.2 million. The government estimates sterilised milk most often retails at 91 euro cents, or 4.9 percent less than a year ago, although it has recently been available for 51 cents in the Dia discount chain, owned by France's Carrefour.
GRAIN AND CITRUS
Grain farmers have responded to a 35-percent drop in grain prices since last year's harvest by sowing 8.9 percent less land to wheat and barley this winter, according to official figures.
If yields go down in the same proportion, the winter cereals harvest in import-needy Spain will decline to 17.6 million tonnes this summer from a bumper 19.5 million in 2008.
Many farmers say the fall could be more pronounced because they have cut back on costly fertiliser.
"The weather could improve matters, as this year water reserves are higher, but farmers will be using a lot less basic fertiliser," an ASAJA technician said.
Even bumper harvests cannot meet Spain's grain needs and the country is expected to import 8 million tonnes in the crop year ending in June.
Spain's Cooperative Farmers' Association estimated that citrus farmers too were cultivating 10-15 percent fewer trees this season compared to last.
Spokesman Juan Safont said much farm land on the Mediterranean coast had been swallowed up by a construction boom.
"Farmers cannot make money so they retain land ownership but give up farming," he said by telephone from easterly Valencia, Spain's leading citrus producing region.
"We produce for animals as well as people, so if we become dependent on imports and give up Mediterranean farming the way we are because they are cheaper today, it could end up costing us very dearly," he said.
Farm unions -- and consumer groups -- have long protested over what they say is the widening gap between what they receive and what a handful of powerful retailers charge to consumers.
"It cannot be that whatever we sell is rock-bottom while all the value added by what the consumer pays is grabbed by four firms with very little effort," Asaja president Pedro Barato said.
Farm union COAG estimated in a recent report that food was sold at more than 4.5 times producer prices on average.
Amongst other measures, the union has called for producer prices to be shown alongside retail prices in shops.
(Reporting by Martin Roberts, editing by William Hardy)