Seeking wheat in new latitudes
June 01, 2008
by Meyer Sosland
As of late May, the conflict between local farmers associations and the Argentine government regarding the increase on floating export tariffs on rural products was unresolved. Nearly seven months of negotiations have failed to settle the dispute, which has severely limited Argentine wheat exports since November 2007.
The impasse has led officials in Brazil, which relies on Argentina for about 80% of its wheat imports each year, to take drastic measures, such as increasing its wheat imports outside the Mercosur area and implementing a financial plan to boost local production and guarantee its internal supply. Mercosur is a regional trade agreement among Brazil, Argentina, Uruguay and Paraguay.
On May 21, the Argentine government allowed the export of 100,000 tonnes of wheat to Brazil, bringing its export total of the 2007-08 crop to Brazil to about 3 million tonnes. But that’s far short of the 5.1 million tonnes Argentina typically exports each year to Brazil, which only produces about 3.8 million tonnes of wheat, or about 37% of its domestic demand, annually.
After the halt of Argentine wheat exports last November, Brazil’s International Trade Council (CAMEX) allowed up to 1 million tonnes of wheat to be imported from outside the Mercosur area without the 10% import tariff regulary imposed for this product. This measure was criticized by Argentine officials at the meeting of Bilateral Commerce Argentina-Brazil Monitoring that took place April 13 in the Ministry of Economy. They said the temporary reduction of Brazil’s Common External Fee for wheat imports, as a political signal, created uncertainty about the long-term evolution of the Mercosur.
However, associations like ABITRIGO (Brazilian Wheat Industry Association) asked the Brazilian government to increase the annual limit of tariff-free wheat from outside the Mercosur to 3 million tonnes. Since a recent rural strike in Argentina has impeded the export of grain shipments, the Brazilian government on May 8 went even further by allowing the import of two new quotas of 500,000 tonnes of wheat without applying the import tariff of 10% until June 30.
"This was a timely and correct decision from the Brazilian government, and it was due to our struggle and our actions to demonstrate the crisis generated by the halt of wheat exports from Argentina, our traditional provider," João Silvio Ferreira, ABITRIGO’s administrative and financial advisor, told World Grain. He added that, "this amount still won’t be enough to cover the local demand until the next Brazilian harvest in September, although we are sure the new quotas will be released in order to cover our needs."
The Brazilian Ministry of Agriculture on April 17 announced a series of financial measures to increase Brazil’s local production by 25% for the harvest of 2009. The increase would boost wheat production to 4.75 million tonnes a year, which represents about 46% of Brazilian demand. In the longer term, the plan aims to cover about 60% of the local demand of wheat by 2012.
To reach this goal, Brazil will increase by 33% the limit of bank credit for land crops, and all producers will be allowed to apply for a bank loan at any time, not just in the harvest period. A special credit line will be created by the Ministry of Agriculture, with interest rates of 6.75%, five points lower than the official rate. Also, the Brazilian government promised to increase the minimum wheat price for the 2008-09 harvest.
Argentine wheat exports have been shut down in order to ensure domestic supply, according to the Argentine government. Exports were scheduled to resume five times this year, but each time the deadline passed without the restrictions being lifted. Finally, on April 18, the Argentine government decided to shut down exports indefinitely, which further complicated trade relations with Brazil.
"Not only did the shutdown of exports affect Brazil, but also the continuous promises to reopen the export registry since December 2007 created false expectations and generated disorganization in the reposition procedures from Brazilian mills, almost provoking shortage."
BILATERAL HISTORY Brazil and Argentina have a long-standing commercial relationship. According to a report from the Argentinean Secretary of Agriculture, Livestock, Fishing and Food (SAGPyA), since the beginning of the Mercosur, Argentina has diminished its participation in the Brazilian agrifood market by 20% and Brazil has registered a 45% growth as an Argentinean agrifood provider. The same study indicates that between 1996 and 2002, wheat represented 48% of all agricultural Argentinean exports to Brazil and was valued at $741 million. On the other hand, wheat flour represented only 3% of the bilateral commerce, for a total of $49 million.
Argentina is the fourth largest wheat producer in the world and also one of the top exporters. In 2006-07, the country produced 14.5 million tonnes of wheat grown on 5.5 million hectares. According to the SAGPyA External Sales Sworn Statements Report, Argentina exported 8.9 million tonnes in that period, while about 7 million tonnes of the 2007-08 harvest has been sold to external markets.
Consequently,Argentina’s decision to halt wheat exports could lead to serious repercussions in global commerce. In March, the Grain Market Report of the International Grain Council (IGC) forecast a decrease in world wheat trade in 2007-08 to 103 million tonnes, because "some importing countries are postponing their purchases in the expectation of lower prices in coming months. Reductions in exports by Argentina (because of the continued closure of its export registry) and Ukraine are partly offset by increases in the E.U. and U.S., based on the recent fast-pace shipments."
The IGC report showed that Brazil imported a total of 16 million cwts of flour in 2007-08. Because of this, Argentina became the third-largest global exporter of this product, with a forecast of 1.25 million tonnes in wheat equivalent for 2007-08, according to the IGC.
This increase in wheat flour trade is explained by the price difference. "The shut down of wheat exports and the increase of Argentinean wheat flour exports to the Brazilian market have destabilized the Brazilian milling industry, which has to deal with incomprehensible competition with Argentinean flour, which has extremely low prices," said Ferreira.
Cristina Kroll is a freelance writer based in Buenos Aires, Argentina. She can be reached at email@example.com.