Argentina has long been famous for its vast agricultural capacity. Indeed, for most of this century, cattle ranching and grain crops have provided a large part of the country's national wealth.
Agriculture still occupies a central role in the country's economic and cultural identity, although mining and manufacturing have become larger contributors to national income. Agriculture's direct share of gross domestic product has declined during the last decade, but primary agricultural products continue to form the production base for many domestic industries.
Argentina has about 400,000 small, family-run farms, but agriculture increasingly is dominated by large estates averaging 10,000 hectares. In general, Argentina's agricultural policies favor the laissez faire, free market approach, with no export subsidies or production incentives.
Foreign investment in Argentine agriculture increased significantly in the 1990s, attracted by the quality of land and climate. This investment reflected confidence that the country could benefit from comparative advantages, especially through improving yields, crop quality and agricultural infrastructure.
Since 1998, Argentina's agricultural sector has been affected adversely by the recession plaguing the broader Argentine economy. And with continued low world prices for grains and oilseeds and high agricultural debt loads, many producers currently are struggling to make ends meet.
The Agriculture Secretariat has been actively working with the public and private sector in developing solutions to address both low commodity prices and increasing farm debt. Among the measures taken have been repayment schemes through the National Bank that allow farmers to access easier credit terms.
Other solutions have included a fund that allows farmers to hold wheat off the market in the short term in anticipation of better price levels. The government last year also placed a short-term moratorium on forced farm sales for those operations with overdue debts.
Some leaders within Argentina's agriculture sector have expressed a need for government support for farmers, including the adoption of production subsidies for agriculture. Such actions would represent an extreme shift in philosophy, as Argentina has long opposed the use of such tools for itself and for its competitors. Another impediment to implementation of farmer supports would be insufficient funding and lack of infrastructure to make the program operational.
Given the financially difficult times for production agriculture, many Argentine producers have been looking to genetically modified crops to improve productivity and shave costs. Argentina has been a world leader in the adoption of biotechnology for soybeans, and to a lesser extent, maize.
The "Roundup Ready" weed resistant soybean variety was planted on 1.4 million ha as early as the 1997 planting season, and 80% to 90% of 2000 soybean plantings were genetically modified. Part of the appeal of GM soybeans is derived from its use in the minimum tillage operations not common to maize production.
Increasing numbers of farmers also are incorporating Bt maize in their operations. Bt maize is expected to make up some 20% to 30% of the 2000-01 maize crop.
Argentina closely monitors world market acceptance of biotechnology products, and to date has only approved varieties for commercial production that are already allowed into the European Union. Still, much concern exists about increased demands for labeling or outright restriction of trade in key destinations.
Argentina has the ability to provide some segregation services to importers, but given the relatively small supply of non-GM soybeans on the local market and a handling system geared toward fungible stocks, Argentina's ability to meet market demand for segregation will be limited, at least in the short term.
Some trade in small lots of non-GMO soybeans has been completed in the current year, but in most cases the price differential that the buyer is willing to pay is not sufficient for handlers to make investments necessary to develop a separate product channel. The government of Argentina also remains strongly opposed to mandatory differentiation or segregation of GM crops in its export markets.
GRAIN AND PROCESSING. Argentina's flour milling industry is modern and relatively efficient due to developments fostered over the past 20 years by economic and market reforms. In the past five to 10 years, the industry has become increasingly consolidated and concentrated, with a handful of companies controlling more than two-thirds of flour sales.
Argentina's milling industry has a total daily capacity in excess of 20,000 tonnes, wheat equivalent. Argentine wheat grind in the past five years has averaged about 4.6 million tonnes a year, reaching 4.74 million in 1997-98.
Argentina's milling activity is centered in the province of Buenos Aires, home to about 57% of milling activity. Santa Fe province is the second largest area, accounting for about 11% of milling activity.
The country's largest milling company is Molinos Rio de la Plata, 65% of which is owned by Cargill S.A. after a 1999 merger. The deal put under one company the six Molinos Argentine flour mills, the four flour mills Cargill owned and one it leased in Argentina.
Argentina has the highest per capita wheat consumption in South America, but domestic consumption in the past decade has remained fairly flat. About 70% of domestic wheat flour use is for traditional artisan bread baking, with only 3% going to large industrial bakers. Dry pasta takes up about 7.7% of total flour output, with cookie and biscuit uses consuming 6.6%.
Exports are a key component of the domestic flour milling industry. Indeed, in 1998-99, Argentina was the world's third-largest flour exporter, shipping about 601,000 tonnes, wheat equivalent.
Brazil is Argentina's single largest flour export market, but in the past two years, the Brazil market has slipped substantially, primarily because of currency relationships. Between 1997 and 2000, Argentina's flour shipments to Brazil declined by about 57%.
In January 1999, Brazil devalued its currency versus the Argentine peso by up to 70%, immediately making Argentine flour more expensive. And the Argentine peso's one-to-one link with the U.S. dollar, which has been quite strong in the past year, has lessened the competitiveness of Argentine flour even more.
The shrinkage in the Brazilian flour market has meant that Argentina's milling industry currently is undergoing some tough times. Argentina's own economic recession has made it difficult for millers to increase production and sales domestically, and prospects for the industry remain depressed until the recession eases and the economy improves.
OILSEEDS. Argentina's oilseed crushing industry is a world leader, with some of the largest and most efficient plants in the world located there. The country has the added advantage of positioning its facilities near export points, in some cases, directly along the Parana River.
About 29 million tonnes of capacity are currently installed. Despite increased domestic oilseed output, that amount is still larger than the combination of local production plus the additional raw product that comes from Bolivia and Paraguay. With this overcapacity and the low crush margins that have prevailed in recent years, some shakeout of the industry is expected.
As with its other agricultural products, exports are critical to the Argentine oilseed industry. The country is the third largest exporter of soybeans, behind the U.S. and Brazil, and ranks one or two in the shipment of soyoil and soybean meal.
INFRASTRUCTURE AND TRADE. While Argentine agriculture is known to be cost competitive, the industry traditionally has suffered from high internal transport costs. With privatization of ports and some roads, Argentina's transportation system has made major advances in efficiency, but work remains to bring down the costs.
Although the main growing regions are located within several hundred miles of modern port facilities, the trucks commonly used to haul grain from the country stations to the river are costly, and the roads are often not paved. Thus, transport fees continue to represent an important fraction of the farmer's cost structure, lowering the farm gate price considerably. Some plans have been floated to change this situation, but a lot of money and time will need to be invested.
Argentina's improvements to its river transportation system have given its export industry a big boost in competitiveness in world markets. Costs for loading and shipping grain are now among the lowest among major exporters.
However, the system faces a great challenge. The decline in draft, due to drought upstream in northern Argentina and neighboring countries, this year hurt the industry by reducing the capacity of the ships that can call on some ports, thus increasing costs per tonne.
Although the situation is unlikely to affect wheat exports, it could negatively impact both the pace and cost competitiveness of maize exports.