Why You Can Keep Faith with Argentina's Agri-input Sector in Turbulent Times?

Editor's Note: Argentina's recent governmental transition has ushered in significant economic and trade policy changes, creating a complex landscape for agri-input businesses. Import restrictions, currency controls, and high taxes have strained operations and profitability. Declining international grain prices and persistent drought conditions have reduced farmer investment and downward pressure on input prices.

In this revealing series of interviews, AgroPages examines the current state of Argentina's agrochemical industry, shedding light on the challenges posed by this unfavorable political and economic environment. Our conversations with industry leaders Lucas Diaz Panizza, Strategic Marketing Manager South Region at Sumitomo Chemical; Federico Alonso-Hidalgo, General Manager at Gleba, and Sebastian Calvo, CEO at Surcos SA offer a comprehensive view of the sector's struggles and responses to these challenging conditions.

Despite the obstacles mentioned above, our interviewees provide valuable insights into how companies are adapting and even finding growth opportunities. They highlight strategies for differentiation, including cost optimization, logistics improvements, and the development of innovative technologies. 

Notably, the interviewees express cautious optimism about the future. They underline Argentina's enduring strengths: its position as a major agricultural market, world-class fertile lands, and openness to new technologies. While acknowledging short-term hurdles, they see the growth potential, particularly in emerging segments like biorational and biological products. This balanced perspective offers readers a nuanced understanding of how Argentina's agrochemical industry navigates current adversities while positioning itself for future success.

Since the new government took office last December, what changes have you observed in Argentina's economic and trade policies that affect the agri-input business?

Lucas: The recent change in government has ushered in a series of transformations that are reshaping operations for agricultural supplies companies. Companies are beginning to navigate a new operational landscape, whether domestic or multinational.

For instance, regarding imports - be it finished products or raw materials for local production - the current environment offers a much-needed relief from previous restrictions. Previously, companies were required to submit a detailed list of materials or products for import to the government, which then underwent a lengthy evaluation process. This system caused delays, as authorizations were often slow to be granted. Combined with global logistics and supply chain complexities, this made operations challenging. Additionally, in the last period of the previous administration, there were restrictions on payments in U.S. dollars abroad due to the country’s economic issues. This led to a situation where domestic and multinational companies could not pay their overseas suppliers or remit dividends to their headquarters, creating a backlog of debt that remains unresolved today. Many companies still struggle to import due to these outstanding debts.

While the new government has introduced measures to address this issue, their effectiveness has been limited, and the problem persists partly. Payments to international entities have resumed normally, and the previous import control process is no longer in effect. However, challenges remain notably the PAÍS tax - a 17.5% import tax - that continues to strain businesses by significantly increasing costs. Companies have been unable to pass these costs onto the market, leading to a substantial absorption of losses and reduced profitability. The hope is that in the coming months, the government will begin to reduce this tax and lift the remaining currency restrictions.

The economic success of the new administration will largely hinge on its ability to address these issues effectively.

Federico: The new government in Argentina has brought about significant political and economic shifts. This transition has generated renewed expectations within the agro-industry chain, hoping to mark a new era for the country and agro industrial production.

The government has implemented a plan to stabilize the macroeconomy, focusing on fiscal, monetary, and exchange rate aspects. We hope these reforms will positively impact the microeconomy, leading to lower taxes, renewed investments, and greater dynamism across all industries, including agriculture. Agricultural producers face high tax rates due to export tariffs, and we hope the new administration will gradually reverse this situation. This would cause a virtuous cycle to our agriculture production: lower taxes attract more investments, increasing productivity, exports, and foreign currency reserves - a crucial driver for sustained economic growth and stability.

It is too premature to have a final diagnostic of the impact of these initial measures on our business, but independently of the success of the new economic program, companies in our agrochemical industry must continue to focus on obtaining operational efficiencies in their local plants to offset the potential reduction in import tariffs.

What are the current pricing trends for agri-inputs in Argentina? How has this affected farmers' willingness to invest in these products?

Lucas: Recently, agricultural input prices in Argentina have seen a general decline. Although various factors influence each product, the cost for farmers has decreased in the lead-up to the next growing season. For instance, glyphosate, a widely used product in Argentina, was priced above $10 per liter two years ago, around $7 per liter last year, and is now below $5 per liter. Similar price reductions are observed for other high-volume chemicals, such as 2,4-D, clethodim, ammonium glufosinate, S-metolachlor, paraquat, and atrazine.

However, two key factors influence the positioning of agri-inputs in the sector. First, international grain prices - particularly for soybeans, corn, and wheat, which are critical to Argentina - are at their lowest levels in the past four to five years. This situation leads producers to hold off on selling their harvests until prices improve. This financial liquidity crunch results in reduced investment by farmers, who may only purchase essential inputs while deferring stock replenishment and investment in new technologies.

The second determining factor is climatic conditions. The past five years in Argentina have been marked by persistent drought, with 2022 experiencing one of the worst droughts on record. In such climatic scenarios, producers are hesitant to decide on input positioning. This hesitation can also exert downward pressure on input prices as companies seek to generate revenue and rotate their inventories.

Finally, local economic restrictions, as previously mentioned, further negatively impact the pricing landscape.

With some companies planning to exit Argentina, how do you think this trend will affect the competitive landscape in the agri-input industry?

Lucas: While there may be isolated cases of companies considering exiting the Argentine market, these are relatively few and specific. Argentina remains one of the largest agricultural input markets globally, ranking third in the Americas after the United States and Brazil. It is also a leading adopter of new technologies. The country is a top producer of various global crops, including key commodities such as soybeans, corn, wheat, barley, sunflowers, cotton, and peanuts, as well as high-value crops like stone fruits, pome fruits, citrus, and legumes.

Argentina’s agricultural sector benefits from some of the most fertile lands in the world, contributing to its strong market position. The extensive and productive agricultural land and its potential for further expansion, makes Argentina an attractive destination for agricultural input companies. Additionally, livestock and forestry are significant industries that utilize substantial inputs.

Overall, Argentina remains a vital and promising market for agricultural inputs.

What adjustments have been made to your company’s growth strategy in light of the unfavorable environment?

Lucas: In a highly competitive environment like Argentina, where intrinsic business factors and external variables play a significant role, differentiation is key to sustaining a successful business. Several strategies for differentiating in the Argentine market include cost optimization, logistics improvements, financing tools, post-sale services, and product portfolios.

In recent years, Sumitomo Chemical has adopted an aggressive differentiation strategy by launching proprietary technologies. For example, the global introduction of the innovative herbicide Rapidicil^® (epyrifenacil) represents a significant advancement in weed control. It is the first PPO herbicide to combine systemic and contact activity, uniquely targeting broadleaf weeds and grasses. This cutting-edge formulation addresses some of the most challenging weeds affecting crops. This launch, along with other strategic initiatives in herbicides, fungicides, and insecticides, positions the company as an attractive provider of solutions. Furthermore, the portfolio is enhanced with new biorational products, including growth regulators, biostimulants, and biocontrol agents. This approach combines the efficacy of traditional chemical technologies with the potential of biologically-derived innovations, offering a hybrid portfolio that meets diverse agricultural needs.

Federico: We are part of Holding Anasac, headquartered in Chile and have a presence in more than 19 countries in the region. One of our holdings and Gleba's major strengths is our regional presence coupled with a local perspective, ensuring our solutions are finely tuned to local requirements. We prioritize meeting clients' needs with tailored solutions and innovations, focusing not only on extensive crops but also on intensive crops offering both segments a wide range of formulations solutions with the highest international quality.

At Gleba, we maintain a strategic long-term perspective while addressing short-term operational needs. It is crucial to highlight that a company like Gleba, with over 70 years in the industry, has successfully adapted to various government models. This resilience stems from our deep understanding of the industry and ability to identify key drivers regardless of the local situation.

Sebastian: Being an organization that embraces innovation, overcoming challenges is essential to our development / transformational process. Learning from these processes and turning them into knowledge and insights is in our DNA.

Given the transferability and attractiveness of our technology, we are receiving very promising feedback from global commercial and innovation partners. During the last year, we have been structuring and developing our global teams and processes to respond to and manage this level of global interest. Selecting, attracting, integrating, and developing the right leadership talent to drive our global plans has been challenging.

What innovations or new technologies is your company introducing to help farmers maintain productivity and improve sustainability and efficiency despite economic challenges?

Lucas: In addition to Rapidicil^®, which was previously mentioned, we have introduced Indiflin® (inpyrfluxam), another of the company’s recently developed powerful chemical tools. This new molecule provides superior control over major crop diseases, distinguishing itself from other molecules due to its specificity and broad-spectrum control against particular pathogen groups. Both technologies are also being developed in various formulations to address different issues and crops.

We have also launched Impreza^®, the first seed treatment based on a microorganism with bio-stimulant effects and biofungicidal and bionematicidal actions. Additionally, we are introducing Sumipleo^® (pyridalyl), a novel insecticide with a unique mode of action compared to existing market solutions aimed at controlling key pests affecting crops.

Sumitomo Chemical is fundamentally a research and development-driven company. It allocates one of the highest budgets to this area and is globally recognized for introducing new products and patent filings. Innovation is at the core of our business, and we have a robust pipeline of new chemical and biorational products in development or the registration process, which will be launched in the coming years.

Sebastian: During the last decade, we have introduced a groundbreaking approach to crop protection formulation by incorporating advanced nanotechnology into our portfolio. This approach enables farmers to significantly reduce up to 70% of active ingredients needed to secure the desired pests’ control.

Additionally, our technology grants other features that bring operational, labor, and sustainability value, such as drift control, ultra-low volatility, no leaching, and high tank compatibility, which saves labor, time, and fuel during applications.

Surcos is an innovation-oriented company based in Argentina with a Global scope. Surcos develops agricultural input products with cutting-edge technologies that enhance crop protection, bio control, and plant nutrition. Our goals are to improve farming efficiency, preserve the environment, and promote healthier food systems while reducing the impact of agricultural practices.

Also, this proprietary technology applied to Biologicals can transform a product that is not commercially viable because of the large doses required to be effective into a formulation that can be used cost-effectively for farmers.

The achievement we are most proud of is treating more than 50 million in key agricultural markets such as Argentina and other South American markets. This achievement saved 1.000 tons of pesticides from being applied in the fields, 900,000 hours of labor, and thousands of liters of fuel used during the application process.

In the last three years, we have been granted over 25 patents globally, reassuring the efficacy of our technology and registering the most market-attractive formulations in each region. Currently, we are developing a global/regional network of commercial partners and tollers to join our Global Licensing Programs.

How do you view the future of Argentina's agrochemical industry? Are you optimistic about potential improvements in the business environment?

Lucas: The future of the agri-input industry in Argentina appears exceptionally promising. Despite the challenges posed by economic, political, and social conditions, the country possesses vast untapped productive potential. Positive signs are emerging as efforts are made to transform this industry into a more profitable and dynamic sector, contributing to the nation’s economic development goals. Argentina’s agricultural market remains significant globally, attracting considerable interest from companies worldwide. Moreover, there is substantial potential for growth in emerging segments, particularly in biorational products and their integration with traditional chemical solutions. This includes specialty crops and commodity production, offering opportunities for innovation and advancement. As these changes take hold, Argentina is well-positioned to enhance its role as a leading player in the global agricultural inputs market.

Federico: We are optimistic. Despite all the short-term challenges we are facing, including the industry reduction in 2024 volumes, in the medium term, we see an incremental need from our producer to maximize their production, and one of the variables they have is to incorporate more technology, including crop protection applications. 

We also visualize an increase in the use of biological products complementing agrochemicals in the near future to provide a sustainable solution.

Sebastian: Increasingly, we are seeing start-ups in the AgFood space developing innovative and promising solutions to build a stronger, more sustainable, and efficient agriculture ecosystem. Sometimes, these solutions can be groundbreaking and attractive in some aspects but are not practical to implement. Some of these innovations require farmers to heavily change routines, equipment, and infrastructure.

New technologies should bring solutions that address the strategic challenges that farmers face, but they should also be sensitive and adaptive to the long-time proven processes and routines of farmers. Innovators should keep focus on facilitating day-to-day operations for farmers so that they dedicate themselves to producing more and better, which is what they know best.

This story was initially published in the 2024 Latin America Focus. Download the magazine to read more stories.

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