Overview of Agribusiness Industry in Argentina in 2019-20

Date:08-05-2020

Updates on the macroeconomic situation

On December 10, 2019, the new President, Alberto Fernández, took office, with 48.24% of the votes, thus triggering a change from the ruling party in the hands of the opposition to the previous government's coalition.

Argentina’s Gross Domestic Product (GDP) in national currency as of March 2019 was $18,577,746 million. In US dollars, what must be taken into account is that during the first quarter of that year, the exchange rate jumped from $38.60 to $42.98. Thus, as of April 1, 2019, the GDP was US$ 432,241 million, according to the National Institute of Statistics and Censuses (INDEC). The share of world GDP is now 0.51%, when it was 0.78% two years ago. Argentina is now the 28th economy in the world according to the GDP size, but in per capita terms, a ratio that reflects productivity and average annual income per inhabitant, considering that the current total population of the country (INDEC) is 44,938,712 inhabitants, it is at reaches US$ 9,618 per year, when it was US$ 9,428 in 2009, registering just a 2% growth in 10 years. In the world ranking, it is placed in the 71st position, when in mid-2017 it was at 57. In 24 months, Argentina fell 14 positions in the world ranking of countries according to the average annual income per inhabitant.

According to INDEC, Argentina's economic activity in 2019 closed with an annual fall of 2.1%, after the recession worsened in recent months during the tenure of the previous government of Mauricio Macri. The decline is one of the worst results witnessed in the last 10 years, although it improved by five tenths compared to that of 2018. The data from December revealed that the Argentinian economy contracted that month by 0.3% compared to the same month in 2018. On a positive note, the index that measures economic activity registered an increase of 0.2% in the 12th month of 2019 compared to November, when the said indicator fell 1.6%.

In August 2019, after the primary elections, the Argentinian economy suffered a new setback as a result of the economic crisis that began in April 2018, and ended that year with an inflation of 53%, unemployment of 9.7%, according to INDEC, and a poverty index, which reached 40.8%, according to a study by the Universidad Católica Argentina. Argentina’s Ministry of Economy, led by Martín Guzmán, is in talks with the International Monetary Fund  to try to renegotiate the Argentinian debt, among which is a loan of US$ 56,300 million.

According to INDEC, in 2019, Argentina exhibited a positive trade balance of US$ 15,990 million as a result of exports of US$ 65,115 million and imports of US$ 49,125 million. The trade surplus is the largest since 2009 when a positive balance of US$ 16,885 million had been achieved. The jump in the dollar, which lowered Argentina’s cost to export, and the recession that slowed imports, contributed to this; in 2019, the value of the dollar climbed from $38.60 to $63 (+ 63.21%) and was later contained by exchange controls, which started in September and deepened toward the end of October. Exports increased 5.4% due to a 12.2% increase in quantities and a 6% decrease in prices. Conversely, imports fell 25% due to a 20.7% decrease in volume and 5.4% in prices. Thus, the exchange rate fell in 2019 by 10.2% to US$ 114,240 million. Argentina thus reversed the trade deficit of US$ 3,701 million that it had in 2018 and that of US$ 8,293 million in 2017. Foreign sales were the highest in five years, since 2014. Purchases, on the other hand, were the lowest since 2009 when there was also a recession due to the international crisis of the previous year. In December 2019, the trade balance registered a surplus of US$ 2,241, being the fourth highest monthly surplus in the last 30 years.

Dynamics of agriculture policies

The initial measures taken by the new administration included an increase in commodity export taxes called retentions. During the previous administration, they have been paying a fixed tax for each dollar invoiced abroad of $3 for industrial products and $4 for agribusiness exports. The new government made a first modification and then another one, with the current values of: 5% for sunflower (12% previously), wheat flour and oils (12% previously), polished rice (9% previously), packaged flint corn (12% previously), flour and sorghum oils (same as before) and corn pisingallo (9% previously). Wheat grains (12%), sorghum (12%) and corn grains (12%) remained at the same tax level. As for soybean, it is 30% (being 33 % for producers of more than 1000 tons per year, and values that are decreasing from 30% for producers of less than 500 tons per year). Beef is subject to a 9% retention. These taxes negatively impact the supply of the sector, contracting its production and investment in technology. If production falls, less foreign exchange comes in and the economy suffers, the prices of the products rise or internal shortages are generated. In some areas, production ceases to be viable, and the producers move to carry out other crops or activities, such as pasturing for livestock.

With respect to national regulations, the companies that commercialize seeds have been demanding that the different governments in force pass a Seed Law that safeguards their patent rights for their use. Although it was not approved in 2019, there will be grounds for its sanction in the future. At present, according to resolution 338/2006, producers can only use their own seeds on the same surface they implanted with certified seeds in the previous cycle. Producers who do not justify the legal origin of the seeds may not make their own use for free. 

At a state level, Córdoba, one of the provinces of Argentina, became the first to come up with a law of good agricultural practices. This is the first national regulation that establishes a way of producing non-refundable incentives to those producers who develop responsible and sustainable agricultural practices using a set of principles, standards and technical recommendations aimed at reducing physical, chemical and biological risks in the production, processing, storage and transportation of products of agricultural origin.

Agricultural production and commodity exports

The production data of the main crops of the Argentinian agricultural sector were as follows:

Corn

•	2019/20 campaign: 6.9 million ha is the projected area planted for commercial grain, with average yields of 80 qq/ha and an estimated production of 49 million tons for commercial grain.
•	For the 2019/20 campaign, the national yield reached 80.2 qq/ha, 5 qq above the average of the last five years. The sowing for commercial grain fell with respect to the last cycle by 1.5% and it is estimated that it would be the second best productive value, being 5% below the 2018/19 record.
•	The three provinces that lead the national level are Santa Fe with a mark of 97 qq/ha, Buenos Aires with almost 85 qq/ha quintals, and Córdoba with 84 qq/ha.
•	The corn chain contributes to the national economy, with a US$ 10,400 million to the national gross product (versus 7.3 of the previous campaign), in US$ 6,600 million in exports (versus 5.5 in the previous campaign) and US$ 2,400 million in tax collection (versus 1.6 in the previous campaign).
•	The prices of the main crops according to the market prices at term (Sep-19): wheat US$ 229/ton, corn US$ 130/ton, soybean US$ 238/ton and sunflower US$ 242/ton. Presenting the following interannual variations: wheat 15.7%, corn -11%, soybean -5.5% and sunflower -8.7%.
•	Four out of every 10 dollars exported by Argentina in 2019 was generated by corn, wheat and soy. Argentina’s exports reached US$ 65,000 million in 2019, of which 37.4% were due to the soy, corn and wheat complex (24% soy complex, 9% corn and 4% wheat complex).
•	Corn sales abroad grew 56% in 2019 to reach a record 36 million tons. This increase was greater than the growth of national corn production during the 2018/19 campaign, which was 31% higher than the previous campaign. In contrast, the average cereal export price fell US$ 16/ton in 2019, becoming US$ 164/ton, 5% below the average of the last five years.
•	Argentina began to export corn seeds to different countries across the world, to complete the shipments; the National Service of Agrifood Health and Quality had to analyze the samples to verify the requirements of importers from the Philippines, Senegal, Azerbaijan and Mexico.

Soybeans

•	2019/20: 17.7 million ha is the projected area planted. The estimated production would reach more than 54 million tons. Performance expectations are above the averages of the last campaigns.
•	The exports of the soy complex represented 43.5 million tons in 2019, 35% higher than the previous year. The main component of this increase was the recovery of soybean exports, whose sales increased by 178%, from 3.7 million tons in 2018 to 10.2 million in 2019. Exports of soy sub-products also saw an improvement over the previous year (+ 28% oil and 15% flour).
•	Although there was a recovery in the volume sold, the price decreased for the three products. The export price fell 17% for soybean flour, 14% for beans and 7% for oil, the three values below the average of the last five years.
•	In 2019, an agreement was signed with China, to open that market to Argentinian soybean flour, which would imply the possibility of exporting five million tons that would imply a level of approximately  US$ 1.600 million.

Cotton

•	Cotton planting season in 2018/19 had a planted area of 441 thousand ha with a production of 872 thousand tons of brut cotton and an average yield of 2600 kg/ha (596 net kg/ha).
•	In 2019, an objective pursued by the producers for many years was reached, the tariffs that taxed the importation of combines were lowered from 28 to 7%, and the same was set with respect to ginders.
•	In 2019, commercialization was not been simple, climatic avatars delayed the offer, which caused a firm local demand and good values that partly offset both the fall in international prices (since mid-year) compared to the previous campaign and the lack of forward sales that cushion a more depressed international market; from mid-campaign onwards, cotton of very low quality due to bad climatic circumstances began to be marketed at very low prices.

Wheat

•	2019/20: 6.6 million ha of planted area with average yields of 29.9 qq/ha (lower than those of the previous campaign, but with yields of 39qq/ha in the core zone and maximums that reached 60 qq/ha), with a production of 19 million tons.
•	Wheat exports of the 2019/20 harvest are projected at 13 million tons (against 11.3 million / ton in the previous campaign and 10 million / ton in 2018).
•	Wheat milling was 6.3 million tons (versus six million tons in the 2018/19 campaign).
•	Wheat exports rose 14% from 10 million tons in 2018 to 11.3 million in 2019. Wheat flour showed a similar pattern, increasing sales abroad by 7% in 2019.

Sunflower

•	The 2019/20 saw a campaign was planted area of 1.6 million hectares (15.8% less than the previous campaign, but 40 thousand hectares above the average of the last five years), with a projection of 3.2 million tons of production, with yields of 21.1 qq/ha (at the stage of harvesting 32% of the planted area) and area yields recorded up to this stage that are located above the average historical values. Estimates indicate an average yield of 23 qq/ha, reaching a maximum of 30 qq/ha.
•	The decrease in the area planted in the 2019/20 campaign with respect to the previous one is due not only to the water excesses present in the in the north of the country but also to a more unfavorable input-output ratio.
•	Sunflower complex exports for the first 10 months of 2019 increased from US$ 567 million to US$ 747, with an increase of 31.7%. In the case of oil, an increase of 32.7% (US$/ton 394 to US$ 523) has been verified. Grain exports rose 68%, reaching US$ 74 million, while the sale of flour grew 16.3% to US$ 150 million.

Analysis of the agrochemical market trends & changes 

In Argentina, the agrochemicals market indicates that three groups have a market share of 47.4%. The market is distributed as follows: 18.4% for Bayer-Monsanto with US$ 463 million, 17.1% for Chemchina (Syngenta / Adama) with US$ 430 million and 11.9% for Corteva (Dow- Dupont) with US$ 300 million. There are for almost a total of 20 companies to satisfy the demands of farmers. The market size remains stable with average sales of around 2,400 million dollars, showing an increasing trend. 

The Bayer-Monsanto combination presents, some opportunities in strategic and operational aspects in the market, since they consolidated a series of first-line plant protection products, a dominant position in the corn market, a leadership in biotechnological events and an advantage in the use of big data.

During the 1st half of 2019 the consumption of inputs for crop production -agrochemicals and fertilizers- grew almost 30% in comparison with the same period of the previous year. This growth was aligned with the increase in the planted areas of corn and wheat and the use of new technology tools by farmers. Wheat reached a record production and continued its growth for the fourth season.

For the plant protection market in 2018, the producer sought to buy herbicides and other inputs closer to the time of use and with financial help, due to the fact that he faced a complicated situation arising from the severe drought that year. In 2019, on the other hand, due to the good season, purchases were more anticipated, and mostly, with the grain exchange modality.

Regarding the consumption of fertilizers for crop farming, 2019 was expected to see a growth of 4,686,567 tons in comparison with 2018 when it was 4,305,443 tones. It was represented by an improvement in local production, imports and exports, mostly for sources of Phosphorus and Nitrogen.

According to a survey of 944 production establishments throughout the country, only 5% of agricultural producers use organic products or bio pesticides, and even so, the future outlook is promising, as 36% of farmers believe this trend will increase. Of those who used biological products, 85% have a positive evaluation of the product (20% say it is very good and 65% say it is good), while only 15% maintain a negative or regular result. 

The future trend for the agrochemicals market sees a decreased investment in these inputs, since agricultural technology is one of the most affected items and is used as an adjustment variable when there are increases in commodity export taxes such as those established by the current government, and which will affect the 2020/21 planting campaign. The crops that demand more fertilizers and agrochemicals will see their margins affected with lower profitability, so there will be a change toward crops such as soybean, to the detriment of grasses, mainly corn and wheat.

Changes in agrochemical policies and regulations

Through Resolution 32/2019, the National Service of Agri-food Health and Quality (Senasa) unified the numerous regulations that determine the prohibited and restricted active principles, as well as the formulations of coadjuvants and rodenticides not authorized in Argentina. The regulation has been framed in the “Good Practices in the Matter of Simplification” that seek to facilitate the user to gain knowledge and understand the regulations established by the National public sector.

The ranking of prohibited active substances, according to the pests they control, is led by insecticides with 26 substances. Second are rodenticides, of which eight active ingredients cannot be used in the formulation of chemical controllers. Third, four fungicides have been banned in the country, while within plant controllers, only two herbicides have been banned. The ranking is completed with an active ingredient of acaricides and one of antibiotics. With respect to regulated products, it is determined that there are 14 of them and they are mainly products for use in tobacco.

In addition, the regulations state that rodenticides cannot be formulated in liquid forms, soluble or wettable powders, or powdered or paste baits. Meanwhile, there are six unauthorized adjuvants and these are Phenol, Formaldehyde, Dimethylformamide, Metaonl, Rhodamine B and Malachite Green.

Latest developments to the Argentine GM market

In 2018, Argentina ranked third among the top ten countries that planted GM crops with a total planting area of 23.9 million hectares, including 18 million hectares of GM soybeans, 5.5 million hectares of GM maize and 0.37 million hectares of GM cotton, under an adoption rate approaching 100%.

Few GM crops were approved in Argentina in the past few years. However, after President Mauricio Macri took office, the pace of approval accelerated. During his administration, nearly 25 GM traits were approved, almost half of all the GMO traits approved in the past 23 years. After deregulation in 2018, Argentina’s GMO market experienced rapid development. Eight GM crop applications were approved in 2018 involving maize, soybean and alfalfa. In 2019, this number reached twelve, accounting for nearly one-third of the total number of global approvals this year, including six GM maize traits, three GM soybean traits and three GM cotton traits.

In October, Argentina approved maize event MON87427 x MON89034 x MIR162 x NK603 (Monsanto), which is the 60th GM crop approved in this country since the first in 1996.

To support the domestic cotton industry and shorten its technological gap with Brazil, the Argentinian government is committed to protecting intellectual property rights and introducing more advanced GM cotton technologies. Argentina’s National Seed Institute (INASE) has made considerable efforts to control illegal seeds, including by deterring farmers from using unauthorized traits and controlling cotton seed breeding facilities to cut off illegal seed production lines. This year, Argentina approved three new GM cotton traits. In February, the country approved a type of GM cotton that can resist glyphosate herbicide and HPPD inhibitor herbicide. In June, GlyTol TwinLink Plus GM cotton with herbicide resistant and insect resistant traits was authorized, the second GM cotton with insect resistant traits after BollGard was introduced in 1998 to combat Pectinophora gossypiella, a harmful insect that developed resistance to Bt protein and poses a serious threat to cotton crops. In August, VIPCOT GM cotton resistant to Lepidoptera insects was approved. The first two products were commercialized by BASF, and VIPCOT was developed by Syngenta and is now licensed to BASF.

In mid-October, the National Scientific and Technical Research Council (CONICET) started the official registration of the country’s first GM potato, SPT TICAR, aiming to launch a GM potato product next year. This potato virus (PVY) resistant product was jointly developed by CONICET and Sidus, a biotechnology company.

This article was initially published in AgroPages '2020 Latin America Focus' magazine. Download it to read more articles.