Every Feb. 20, the Argentinean rural sector celebrates the National Wheat Fest, although this year the atmosphere was not a happy one.
Argentina is going through an "intense period of drought, which can only be compared to the one of 1952," Alberto Hack, agriculture specialist, told World Grain. In addition, the conflict between the Argentinean rural sector and the national government over export taxes seems to have no easy solution. According to a report from the Economic Studies Institute of the Argentine Rural Society, economic growth projected by the Argentinean Government for 2009 will drop from 4% to 2.4% due to the drought. This would mean Argentina’s Internal Product would drop from more than $133 million to $131 million. And this eventual result would be in agreement with the International Monetary Fund projections for the country, which predicted no growth in 2009.
According to Ricardo Forbes, president of the Grain Exchange, the 2008-09 campaign "is taking place in one of the most unfavorable scenarios in recent decades, with strong fiscal pressure, no chance to make the most of the good prices period, low credit availability, rising costs, commercial uncertainty and one of the worst droughts in Argentine history."
And consulted analysts agree that this combination of factors has had a very negative impact on production. "During 2008 there were two important changes in Argentinean agriculture: the beginning of a period of insufficient precipitations in the Pampa region and a dramatic reduction of the international prices for grains," Hack said.
"The profit margin for this activity has been reduced by an increase in production costs due to inflation in Argentina, which has been between 20% and 30%. And this, in addition to the conflict between farmers and the government due to export taxes imposed in March 2008, has had several consequences such as the reduction of the planted area for wheat – mainly because of low economic expectations for this grain — and a minor use of technology such as fertilizers."
In this adverse context, projections for Argentina’s crop production are not hopeful. In February, the World Agricultural Supply and Demand Estimates report from the U.S. Department of Agriculture (USDA) severely cut projections for Argentina’s 2008-09 wheat, maize (corn) and soybean harvests due to drought in the main productive regions of the country. For instance, estimates for the soybean crop fell from 49.5 million tonnes in January to 43.8 million tonnes in February. Maize projections were 13.5 million tonnes, 3 million tonnes less than the previous month, while wheat projections declined from 9.5 million tonnes in January to 8.4 million tonnes in February.
All of the main production areas — Buenos Aires, Santa Fe, Córdoba and Entre Ríos — have been affected by the drought. For instance, in the province of Entre Ríos water cannot be found within a meter of the soil’s surface. According to the provincial Grain Exchange, losses for maize, sunflower, sorghum and soybean plantations are about $266 million as 900,000 planted hectares of the total planted area of 1.5 million hectares have been lost in the Entre Ríos province. Maize is the most affected grain in Entre Ríos: of the 160,000 planted hectares, only 10% survived the drought, and losses are estimated at $58.6 million.
And 50% of the soybean crop that was planted early has been wiped out, which represents approximately $177 million.
In 2008, according to the Argentinean Secretary of Agriculture, Livestock, Fishing and Food (SAGPyA), the wheat harvest was 16.3 million tonnes, worth a total of $5.6 million. But on Jan. 16, the Grain Exchange estimated that the 2008-09 wheat harvest would finish with a volume of 8.7 million tonnes, a reduction of 46.7% from the previous harvest.
"Over 50% of this drop was due to the unwillingness of the producers to grow wheat," César Gagliardo, president of the cereal trader Artegran, told World Grain. He attributed this to "the rural strike during 2008, the complications for exports, the elevated implementation costs due to the difference between the local currency and the U.S. dollar, and the drought."
He said the government also played a role since the wheat price was under governmental control and there were delays in obtaining export registers.
Long-term projections for wheat are not optimistic: "We are at the limit of our domestic demand, which is 6 million tonnes," Gagliardo said. "And the carryover for next year would be 1.5 million tonnes. Therefore, if the government doesn’t offer a solution, and we have a dry fall, wheat production will fall another two to three million tonnes."
Soy, the country’s most important crop, of which 95% is exported, also has been significantly impacted by the drought. "The soy harvest was projected to be over 50 million tonnes, although if the weather doesn’t improve, it won’t reach 40 million tonnes," said Gagliardo.
In 2008, soybeans and their byproducts accounted for about 25% of Argentina’s exports. The government taxes soybean exports at 35%, which generated around 10% of its tax revenue last year.
"In this scenario of low prices and drought, many farmers will go bankrupt," said Gustavo Grobocopatel, leader of the soybean group Los Grobo, in an interview with the Wall Street Journal.
As for maize production, the USDA projected a drop from 21 million tonnes in 2007-08 to 13.5 million tonnes. Artegran predicted the crop will be even smaller, estimating a final ouput of between 11 and 12 million tonnes.
The drought, he said, is only part of the reason for his pessimistic projection.
"Corn has become a political crop, given that in the last year and a half export registers were open — with export quotas — and shut down periodically. And planted areas have been reduced," said Gagliardo.
Another important factor is that maize’s input costs rose by 50%, mainly due to fertilizers and the drought.
DOMESTIC DEMAND, EXTERNAL MARKETS
With drastic reductions in wheat, soybean and maize harvests, Argentina’s grain processing facilities could experience raw material shortage, especially to comply with their commitments to external markets. This is not a minor detail since many multinational companies have operations in the Argentinean market, such as Bunge, Cargill, Glencore, Nidera, among others, as well as local companies such as Aceitera General Deheza and Molinos Río de la Plata.
"Although the harvest has been reduced, the current grain production in Argentina is enough to cover the internal demand. The consequences would show during 2009-10. For instance, wheat exports would be reduced by approximately 84% and corn exports would fall by 41%," Hack said. In regard to soybeans, he said there was no internal demand for this product in Argentina, which is the world’s third largest soybean exporter.
Daniel Peloni, APOSGRAN board member, said importing wheat may have to occur in 2009-10 if domestic demand remains at 6.5 million tonnes and wheat ouput fails to reach that amount. Currently, the projection is for a 6-million tonne wheat crop.
"The position of farmers is clear. They’re not going to sow wheat and corn as long as the market continues to be intervened by the government," he said.
Forbes said that in this context, it is important to plan and apply strategies and instruments of economic policy that send the correct signals so that the main engine of the local economy continues functioning in a sufficient manner.
"The measures should be aligned with the existing level of urgency," said Forbes.
The Argentinean government has responded to the situation with a series of measures. Last January, President Cristina Fernández signed a decree declaring "Agropecuary Emergency" for several productive areas of Argentina.
The Agropecuary Emergency is designed to benefit producers who have seen more than 50% of their crops affected. Ten provinces have presented the necessary documents to be included in this plan, and the government is currently evaluating it. Producers in these areas would receive a delay of one year in the due date of their fiscal obligations from the profits tax, personal goods tax and the estimated minimum profit tax.
However, some provincial governments are finding it inconvenient to present all the necessary documents to be included in this emergency plan.
Meanwhile, the Buenos Aires Governor, Daniel Scioli, approved the Agropecuary Emergency plan for 84 of the 134 municipalities of this province. Therefore, rural producers in these areas will receive the mentioned tax benefits and their payments for credits with the banks Nación and Provincia will be delayed.
In the 2006-07 harvest, Buenos Aires produced 30 million tonnes of grain, onethird of the country’s production, according to the Provincial Direction of Rural Economy. In that harvest, Buenos Aires planted 4 million hectares of soybeans, 3 million of wheat, and 9,000 hectares of maize. However, now 58 municipalities of Buenos Aires are considered to be in a "disaster" situation, where more than 80% of fields are affected and therefore will be exempt from the real-state rural tax, while the 17 municipalities in which 50% of their fields have been affected will receive a delay for their payments to the Banco Provincia. The rest of the 84 fields still have to send the necessary information.
Cristina Kroll is a freelance writer based in Buenos Aires, Argentina. She can be reached at