The world’s biggest crop trading houses have a message for the next president of Argentina: Free up soy production and exports, or risk getting left behind by rival suppliers Brazil and the United States.
Officials from Cargill Inc, Louis Dreyfus Co, and China’s state-owned Cofco Corp were unanimous in their concern over the South American nation’s outlook as it heads toward a crucial election next month.
“It’s very sad for me to see how Argentina has lost influence and relevance in global markets,” Pablo Scarafoni, head of commercial operations for Cargill in South America, said last week at a soybean conference in the crop-trading hub of Rosario.
Once a dominant player in the region, Argentina has seen its agricultural sector wither under the heavy hand of the state.
“While Brazil is growing with gigantic strides helped by the political and economic framework, while the US also grows with policies like biofuel mandates, Argentina’s soy production is stagnant,” Scarafoni said.
Argentines vote in a presidential election on October 22, with the stage set for a shift away from state intervention in the economy that’s left the resource-rich country mired in crisis. Net reserves of dollars are in negative territory, inflation is running at nearly 125 percent, and about two of every five Argentines live in poverty.
Myriad government restrictions, compounded by three consecutive droughts, have particularly hurt agriculture. Farm revenues and investments have been constrained by export taxes of up to 33 percent for soy, quotas for cargoes sold abroad, and currency controls.
“Where do we want to go as a country?” Scarafoni asked. “Do we want to generate more dollars, or do we want to settle for small production, farmers who aren’t profitable, and a processing-exports industry in decline?”
To be sure, the Argentine Pampas and the nearby port complex at Rosario — where towering grain silos line the riverfront — are still an important hub of grain and oilseed exports.
But the industry has left plenty on the table over the past two decades. Now, the major trading houses are pleading the next government to draw a line in the sand — helping, rather than hindering an industry that’s Argentina’s biggest contributor of coveted export dollars.
“A ship that arrives today to load soy at Paraguaná in Brazil has to wait 65 to 70 days while Argentine ports are empty,” said Juan Jose Blanchard, head of Latin America at Louis Dreyfus. “We have a huge opportunity in our hands. But we have to act now because Brazil is a steam train and in a few years it’ll have three, four or five more ports and soy ships will sail in just five days.”
If the next leader is able to scrap a multi-billion-dollar tax bill on crop exports, as well as currency controls that further stifle revenues, it would give farmers more cash to invest in planting, especially fertilizers. That would mean more business for the traders — but also, the logic goes, more economic activity and dollars for Argentina.
“The trickle-down effect is gigantic,” said Alfonso Romero Vedoya, Cofco’s Argentina chief.
by Jonathan Gilbert, Bloomberg