Three main factors driving Argentina’s economic uncertainty

An analysis of the current challenges in the country’s agriculture market

The sudden resignation of Argentina’s economy minister and the hasty appointment of a replacement has renewed scrutiny of the South American country’s financial health as it faces an increasingly bleak economic landscape.

Existing economic uncertainty has been further heightened by the deep global crisis unfolding and government changes in trade rules have deeply impacted market sentiment in the country.

That, in turn, has increased the tension in the sector as some investors and analysts fear that the political upheaval hints that further changes are due to come amid constant battles for power in the government.

The third largest economy in Latin America, Argentina is also a key link in global supply chains as a major exporter of agricultural commodities. Still, high levels of inflation and political uncertainty have reignited fears around the country’s strategically vital agriculture and export sector.

Fastmarkets Agricensus highlights some of the key issues ahead.

Export taxes

A constant key concern has been the export taxes currently levied on grains, oilseeds and products, which have already been pushed higher by the government of President Albert Fernandez and could prove a tempting target in the future.

Fernandez has previously threatened to intervene in the market in order to decouple domestic prices from international prices amid soaring inflation for key staples - and that uncertainty is weighing on big players in the country.

“In the last 12-15 years, Argentina has become a completely volatile origin, with so many uncertainties and variations in regulatory policies that strongly affect commercial dynamics,” Fernando Correa, LDC’s Regional Oilseed Manager, said at a seminar organized by the soybean industry group Acsoja late on Wednesday.

At the last export tax hike in March 2022, the government upped the soybean oil and meal taxes to the maximum of 33%, bringing it to the same level as soybeans in a move that was widely criticized by the farming sector - not least because the President’s constitutional powers to increase export taxes had expired at the end of December.

“There is a very high tax burden in the soybean complex which prevents the industry from growing, and the industry has lost $43,500 million by not allowing the complex to grow,” Gustavo Idigoras, the head of Argentina’s crushing industry and grain exporters lobby group Ciara-CEC, said at the same Acsoja seminar.

Increases in export taxes disadvantage producers directly, as they are unable to pass on the higher taxes along the supply chain.

Higher taxes and the ongoing uncertainty have resulted in soybean producers withholding soybean sales as farmers use the beans effectively as a hedging mechanism in an attempt to mitigate domestic uncertainty.

Latest data from the Ministry of Agriculture indicate that a total of 19.5 million tonnes of the 2021-22 soybean crop harvest has been sold as of June 26, sharply down by 18% from the same time last year.

“The slowdown in soybean farmer sales is a clear signal of the uncertainty the producer in Argentina is facing,” Jeremias Battistoni, Consultant and Market Analyst from the local AZ Group, told Fastmarkets Agricensus.

“Looking forward, the bean commercialization is likely to remain subdued in the next few months until there is more certainty in the domestic market… Bean farmers could withhold beans until the end of the year if necessary,” Battistoni added.

Export quotas

A second factor alongside the export levy is the imposition of a maximum export quota.

President Alberto Fernandez imposed what he called “equilibrium volumes” on grain exports last December, whereby an automatic ban on exports and other restrictions would be triggered when a threshold volume, determined by the Government, had been achieved.

For wheat, the equilibrium quota was set at 10 million tonnes for 2022-23, some 4.5 million tonnes below the exports achieved in 2021-22, when the country saw a record 22.4 million tonnes crop.

And it is the political uncertainty and ongoing concerns around further changes in trade regulations for key Argentine export products that have led farmers to migrate to other crops that are less exposed, such as barley.

“Many farmers have migrated away from wheat to plant barley instead in 2022, where at least the internal political issue does not affect them, as it also escapes some eventual export closure,” an Argentina-based grain source told Fastmarkets Agricensus.

Import restrictions

The final factor relates to currency and limits imposed on the US dollar that has had an impact on anyone dependent on imports - a key source of agricultural imports.

In late June, the country’s Central Bank strengthened restrictions on foreign currency access to private sector imports as it tried to keep a lid on an exit of dollars out of the country.

The measure will force importers to obtain prior financing to be able to import raw materials and other consumer and capital goods, such as fertilizers, which could impact the farming sector directly.

“The commercialization of fertilizers is on hold/restricted this week, with operators withdrawing their offers from the market owing to the lack of economic certainty,” Battistoni said to Agricensus.

The import restrictions also impact the imports of Paraguayan soybeans, which usually have a higher protein content and are imported to redress deficiencies in locally produced beans when processing them into oil and meal.

“One of the major problems I am facing now is the import restrictions in all products...and the problem will continue to be worsened by the large fiscal deficit the country has,” a local trade source told Fastmarkets Agricensus.

Argentina recently reached a breakthrough agreement with the International Monetary Fund (IMF) to restructure the country’s debt and provide further financial assistance to the troubled South American country.

But the recent change of the Economic Minister following the resignation of Martin Guzman has further increased economic worries about more changes to the economy to tackle the country’s 60% annual inflation.

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