Low-cost grains producer maintains its reputation and role on global stage

by Mario Sequeira

Argentina has long held a reputation in the world as a big agricultural producer. While it may have built its fame on a big livestock industry, fed by the vast grasslands known as the Pampas, it is today a key player in the global grains trade as well.

Over the past 30 years, its cropping sector has grown enormously, especially oilseeds production. Argentina’s major crops are maize, wheat, soybeans and sunflower.

It has a small population of about 39 million and low domestic consumption requirements. This leaves it with sizable exportable volumes and places it among the world’s big exporters of wheat, maize, soybeans and soybean products.

With abundant land and good climate, Argentina enjoys comparative advantages in the production of crops and livestock. The agricultural sector accounts for 10% of gross domestic product and employs 12% of the working population. But agricultural exports, primary and processed, account for about 52% of export earnings.

The cropping and livestock industries are centered in the northeastern third of the country, which includes the rich fertile plains of the Pampas, an area slightly more than 50 million hectares.

The central provinces of Buenos Aires, Cordoba, Santa Fe and western Entre Rios, located in the heart of the Pampas, dominate crop production. They grow more than 90% of Argentina’s soybeans and 80% to 90% of its maize and wheat.

Argentina has about 400,000 farmers, most of whom own small holdings. But the number of larger farms has been increasing in recent years, some as large as 10,000 ha. The average size of farms is estimated to be about 475 ha.

Farmers have historically received little direct support from the government. In fact, before 1990 there were export taxes, quotas and tariffs on imports of agricultural inputs and export monopolies. Those ended with the sweeping 1991 reforms.

Late in 2001, a crisis ensued when the government defaulted on international loans. One of the effects of the crisis was a collapse of the exchange rate system, where the Argentine currency, the peso, was pegged 1:1 to the U.S. dollar.

Following a period of instability, which affected the banking and credit markets, new measures were taken, two of which had a direct effect on the agricultural sector. A new exchange rate system was introduced, which effectively devalued the peso so that a U.S. dollar was worth about three pesos, and export taxes were reintroduced.

The devaluation made exports cheaper and, with world grain prices higher, greatly increased returns to farmers. With more cash in their hands and a reduced reliance on credit, farmers were able to plan two to three years ahead.

Higher grain prices also prompted farmers to shift more pasture land to cropping. While this reduced grazing areas for livestock, producers opted to intensify grazing operations rather than cut herd numbers.

Rather than suffering from the crisis, the agricultural sector has emerged with significant gains.

While Argentina has increased agricultural production over the years, there is potential to improve. Ways to accomplish this include converting more land now covered by grassland or brush to production, improving agronomic practices and adopting higher-yielding crop varieties.

Argentina is a low-cost producer of most crops, but this competitive edge is blunted somewhat by poor transportation and inadequate storage.

Almost 85% of the country’s produce has to be transported by trucks to ports, a more expensive option than water and rail transportation, because the latter modes are not competitive.

The inland river waterways do not have the depth to accommodate the draft of big vessels. Partial loading is required at one port and topping up at another, making the exercise costlier.

Similarly, the rail network is made up of multiple gauges, requiring costly transshipments where gauges change.

Limited storage capacity at elevators and river terminals has been cited as the single greatest bottleneck in Argentina’s logistics systems. Argentina’s fixed installed storage capacity for grains last January was estimated at about 44 million tonnes wheat equivalent, whereas total grain production is about 82 million tonnes.

The country’s farmers are strong supporters of biotechnology. Nearly 90% of soybeans and 20% of maize grown are genetically modified varieties. The industry has adopted a principle of selecting GM varieties that are acceptable in export markets.

Wheat and flour milling

Argentina has been exporting wheat for more than 40 years. It has doubled its share of the world wheat trade in the past decade, during which production has grown to 15 million tonnes or higher, and exports generally 10,000 tonnes or more.

Argentina is an international player in the wheat trade because of its low prices, not necessarily because of quality. While the quality of Argentine wheat is generally good, it lacks a well developed classification system, so producers tend to concentrate on quantity rather than quality.

In 2004-05, wheat production was estimated at 16 million tonnes, up 14% on the previous year’s 14 million tonnes. Exports in 2004-05 are expected to be 10,500 tonnes and domestic consumption about 5,300 tonnes.

Argentine farmers are seen to be innovative and willing to experiment to improve production. In recent years, farmers have adopted improved French wheat varieties and have been implementing double-cropping in a season, with soybeans following wheat or maize.

Very little wheat goes to the feed sector. Consumption has been stable — around 4,500 to 5,000 tonnes — in the past five years, with the rest of production exported.

Per capita consumption of wheat products, including bread, cakes, pastries and cookies, has been increasing in the past few years and stood at 94 kg in 2004, up from 92 kg in 2003 and 88 kg in 2002. In 1976, it was 102 kg.

The flour milling industry comprises some 115 milling companies concentrated in the provinces of Buenos Aires (45%), Cordoba (16%) and Santa Fe (15%).

These companies produce close to three million tonnes of flour annually. In 2004, production was 3.8 million tonnes, out of 5.06 million tonnes of wheat ground at an extraction rate of 76%. This represents about 65% of the mills’ capacity.

The industry has a high degree of concentration, with the biggest three companies accounting for half of the flour produced.

About 75% of the flour produced is used by the 16,000 small artisan bakeries, 5% by industrial bakers and about 8% by cookie and pasta makers.

Sizable amounts of flour are available for export as well. In 2004, flour exports were estimated at 403,596 tonnes. Most wheat and flour exports go to Brazil.


The two major oilseeds grown in Argentina are soybeans and sunflower. Soybean production in Argentina really began increasing in the early 1970s, when world demand for soybeans soared. Soybean acreage in Argentina jumped from 36,000 ha in 1970 to 2 million ha in 1979 and 5 million ha in 1989.

In 2004-05, soybeans were planted on 14.7 million ha and production is estimated at a record 39 million tonnes, up 18% on the 33 million tonnes produced in 2003-04.

This huge harvest has resulted in massive logistical and storage problems. Nearly 90% of the harvest made its way to the Rosario river terminal, north of Buenos Aires. Thousands of trucks have passed through the area during the harvest and have reportedly had to wait two to five days to unload their grain.

To address this issue, the export and crushing industries have announced they will invest more than U.S.$600 million to expand crushing and storage capacity and port facilities over the next several years.

In the crushing industry, such investment is expected to increase capacity 50% by next year. Capacity would reach 160,000 tonnes a day or 45 million tonnes annually, 15% more than this year’s soybean production of 39 million tonnes.

National crushing capacity for oilseeds rose sharply from about 58,000 tonnes in 1994 to an estimated 94,268 tonnes in 2000.

More than 75% of Argentina’s processing capacity is in Santa Fe, and most crushing facilities are located at or near port facilities.

As Argentina’s crushing sector has become more modern and efficient, coupled with other conditions, the industry’s focus has shifted from soybean exports to soybean product exports, including soy oil and soybean meal.

Export of these two products has grown at about 10% annually in the past decade. Argentina has overtaken Brazil as the world’s biggest exporter of soy oil since 1995 and of soybean meal since 1997.

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