Filling the void

As war affects exports, can Argentina step up its grain production?

According to the US Department of Agriculture, Russia and Ukraine represent almost 30% of the global export market for grains – much of these go to Latin America. Argentina is not far behind and is the primary exporter of the commodity to neighbouring Brazil. Last year, the country shipped 60.66 million tons of grain, an all-time high and a 7% increase on 2020. Cargill, an American food conglomerate topped the table of Argentina’s largest grain exporters followed by Chinese-owned Cofco and Viterra.

For Argentina to increase exports to fill the void caused by sanctions, the industry faces several challenges.

The partner of a grain and oilseed trading company explained, “Realistically, in the very short term it is very difficult for Argentina to fill the gap from Russia and Ukraine, because the level of exports depends on many factors. Record drought, for example, has had an enormous impact on production.”

“Realistically, in the very short term it is very difficult for Argentina to fill the gap from Russia and Ukraine.”

Partner, grain and oilseed trading company, Argentina

Other challenges persist, “If you look at the exchange rate problems (for example, the exporter of grain ends up receiving a dollar that is well below real value), export duties, logistical problems etc – these are several of many challenges,” added the partner.

Immediate-term challenges do not preclude longer-term opportunities but to do so will necessitate a change in agricultural policy. In Argentina, subsidies that have helped buoy the sector could come to an end under the terms of the impending IMF debt renegotiation deal.

On the upside, Argentina has several million tons of corn, and approximately 100,000 tons of sunflower. It can certainly increase exports to the region, but it will be more challenging to meet demand in North American and European markets where a deficit of Russian and Ukrainian imports will start to hit hard in the next few months.

Given the reality of Argentina’s dire energy infrastructure, an increase in the cost of energy will invariably consume a large chunk of the higher income derived from agricultural exports. Whilst true that what Argentina exports for cereals and oilseeds is several times what it imports for fuel, it is the government’s overly generous subsidies that make the position unsustainable in the longer-term.

How will the crisis exacerbate the longer-term effects on exports? An agricultural engineer and industry consultant explained, “Ultimately, the only way to grow and respond to greater demand is going to be through state policies that are sustained over time. Right now in congress, I don’t see that there is the political will to do this.”

“Ultimately, the only way to grow and respond to greater demand is going to be through state policies that are sustained over time. Right now in congress, I don’t see that there is the political will to do this.”

Agricultural engineer and industry consultant

“When the opportunity is there, it could be too late. I would suggest improving the exchange rate received by the exporter, via price devaluation, via reduction or elimination of export duties – whether the administration is likely to consider such policies is another matter.”

For Argentina, the opportunity to fill the void is now, given the impending global food crisis driven by developments in Europe. Drought aside, better investment in production infrastructure and a relaxation of export caps will be required to emerge from this crisis as the world’s new grain heavyweight.

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