|
|
|
|
|
|
March 26, 2002
The outlook for the 2001/02 Argentine soybean crop is already
determined for the most part, though the crop estimate of 28.8 million tons is subject to change as
more information becomes available. Planting
decisions had been made before the financial crisis engulfed Argentina
in December of last year. Rapidly changing policies
do raise issues concerning soybean planting next season.
Farmers seem likely to
increase soybean planted area at the expense of higher input crops such as corn.
New Export Taxes
The Argentine Economy Minister announced on March 4, 2002 that the government is placing a 10-percent tax on primary product exports (wheat, corn, soybeans, etc.), and a 5-percent tax on processed agricultural products and industrial products. The regulations were published on March 5, and the tax became effective upon publication. The export taxes are in addition to any existing taxes (such as the 3.5-percent export tax for soybeans). For the oilseed sector, the measure increases the export tax on soybeans and sunflowerseed (for crushing) to 13.5 percent, and established an export tax of 5 percent for oil and meal. Petroleum products are treated differently and be taxed at 10 percent, rather than the 20 percent that was in effect prior to March 5.
The government maintains that the export levy is a temporary measure, and justifies the broad reaching export tax as necessary to generate hard currency for funding social programs. The government finds itself in a fiscal crisis following default of its debt obligations late last year, and it will face increasing costs resulting from inflationary pressures due to the declining value of the peso.
Declining Peso Value
Devaluation became
effective on Friday, January 11, when currency trading was allowed again after a
foreign exchange holiday (in place since December 21) ended.
Initially, a dual exchange rate on exports was established at 1.40 pesos
per U.S. dollar. This restriction
was subsequently relaxed in early February, and the peso is currently free
floating at over 2.50 pesos per dollar.
While a blow to the agricultural sector, the new taxes are not so large as to offset the financial gains from the decline in the value of the peso. According to information available in February, when the exchange rate with the US dollar was approximately 2-to-1, even with the export tax, returns per hectare for soybeans were greater than 100 pesos (US$50) per hectare higher than before the devaluation of the peso. With the further decline in the value of the peso, returns per hectare are even greater.
Dollar Debts Converted to
Pesos
The government also decided that dollar debts for purchases of agricultural inputs (an estimated US$3 billion) will not be converted into pesos at a one-to-one rate as previously announced. The new regulation was published on March 5, and does not affect the decision to convert dollar debts to banks into pesos at a one-to-one rate. Under the resolution, dollar debts for the purchase of seed, fertilizer and agro-chemicals will be repaid at the free market exchange rate. This avoids major losses for agricultural input suppliers , including seeds, fertilizer and agro-chemicals, but has not been well received by farm groups, which will likely work to reverse the decision. Input suppliers have been a major source of short-term credit for the agricultural sector. Prior to this announcement, input suppliers appeared likely to suffer large losses on outstanding loans, and as a result had stopped issuing new credit.
This conversion scenario
will likely make credit more available for input purchases for the upcoming crop, and is a favorable development for sunflower and corn,
which both have relatively high input use. This growing season, observers have reported fields to be
more weedy than normal with “lots of insects”, while other observers have not
seen increased insect problems. Reduced
pesticide use is arising from the high cost and lack of
availability of credit, and because prices of imported pesticides have
risen. Glyphosate, a major
herbicide for soybean production is produced domestically, with only a small
chemical component used in the production of glyphosate being imported.
Additional Crushing
It is still early to fully
assess the impact of the export tax and the decision on credit, particularly
since these decisions could be revised in the future.
Initial analysis suggests, however, that the export tax will encourage
additional crushing of soybeans in country.
Argentina traditionally crushes most of its production, due to the tax
structure, but exports of soybeans were rising, largely because of Chinese import
demand. Argentina may also produce more soybeans as a result of the more
favorable tax treatment for oilseed products (5 percent) relative to corn and sorghum
(10 percent).
Spongy Prices
A factor tending to reduce
farmers' incentives to produce crops is uncertainty
whether they will receive a fair price
for their product. The futures
markets were closed for a time starting December 20, but are now open again.
The government announced in early March that it will allow the futures
market to operate in U.S. dollars, which is preferred by international traders.
Volume as of March 1 at the Bolsa Rosario was approximately half that of
a year ago in the spot (cash) market, leading to a thinner market.
Pasture Land Conversion
It is unclear if farmers
will take land out of pasture to put into crops, as they did when commodity
prices were high in the middle 1990’s. Cattle
are a relatively low cost-farm enterprise, relying less heavily on
purchased inputs. Furthermore,
measures have been put in place to control foot-and-mouth disease, and
with the January approval for limited volumes of Argentine beef sales to the
European Union, beef production becomes more attractive.
The lack of credit availability also works against
the development of pasture for crop production.
On the other hand, if the decline in the value of the peso raises the
domestic price for soybeans (an export commodity) high enough to make
them very profitable, farmers may cultivate grazing land
in order to plant more soybeans.
Value-Added-Tax
Reimbursement
One item causing concern among exporters,
while increasing price risk for producers, is the
uncertainty of receiving reimbursement for value-added taxes.
The government is scheduled to reimburse exporters approximately US$600
million in installments for value-added taxes already paid, with the first
installment due March 25. If the
government is unable to meet these commitments, exporters would feel less sure
of receiving sufficient remuneration for their product, and this would reduce
the competitiveness of Argentine soybeans on the world market.
Argentine soybean farmers
are likely to benefit from the devaluation of the peso, but the benefits will be
offset somewhat by the establishment of the export tariff on their products,
likely reduced availability of financing, increased costs of imported inputs,
and a less transparent and liquid commodities market.
Implications for Corn
The current 2001/02 corn
crop is in the harvesting process with an estimated production of 12 million
tons, down 3.5 million from the previous year, mostly due to reduced area,
though these estimates may change as more information becomes available.
Harvested area is estimated to have fallen by almost 600,000 hectares to 2.15
million, while the sum of the three other major crops--soybeans, wheat, and
sunflowerseed--went up by 1.2 million hectares, totaling 19.9 million.
For the central and northwest parts of Argentina, where most of the
soybeans and corn are grown together in rotation, soybean area has trended
upward while corn area has declined (with the exception of 1999 which showed
growth in both corn and soybean acreage).
Information as of February, when the exchange rate was 2.0 pesos per U.S. dollar
showed the cost of production for corn
to be more than double the cost for soybeans
(US$200/hectare versus US$60-70/hectare for soybean). This difference will
be greater now that the exchange rate is more than 2.5 pesos per U.S.
dollar. Some farmers plan to use
corn only as a break in their crop rotation every fourth year.
For the 2002/03 crop
production, cash-strapped grain farmers will face expensive inputs as a result
of the decline in the value of the peso and inflation within the country.
Corn acreage is more sensitive to the decline in the
peso’s value because of the additional imported inputs it uses compared to
soybeans.
In 1988, when
corn was produced more cheaply and used fewer inputs, Argentina had entered a
similar situation with economic problems and accelerated inflation. Corn acreage was down
by almost a third in 1988/89 compared to the previous year.
Acreage continued to be small the following year as well (in 1989 the
Argentine currency spiraled into a 5000 percent hyperinflation).
Argentina has a history of uncontrolled inflation, and this year,
consumer price inflation ratcheted up to 2.3 percent in January and 3.1 percent
in February. Facing a relative cost
disadvantage for corn, and fearing inflation, farmers will want to reduce their
costs and are expected to plant a corn area in 2002/03 similar to this year's
very low level.
For more information, contact Paul
Provance at (202)720-0881 or Michelle
Greenberg at (202)720-7339
with the Production Estimates and Crop Assessment
Division.
