After a severe drought of 2009-2010, Argentine corn farmers have to contend with another drought summer in the southern hemisphere. Though less severe than the 2009/210 one, it’s imperiling the livelihoods of many corn farmers. Not only do farmers have to cope with climate risk, but also the unpredictability of government intervention, which continues to affect prospects for the sector.
The Buenos Aires Cereals Exchange estimated that the current harvest will be down 27% (24 million tons compared to the 33 million tons that could be expected without drought). This could reduce the number of Argentine farmers.
“Working capital is going to be an important issue next season,” says Santiago del Solar, president of the Argentine Association for Maize and Sorghum (Maizar). Farmers in some regions lost a lot of money, with those who rented land to plant corn in the hope of making a profit the worst off. There will be fewer players in the sector next year, he says.
“Farmers are also liable for export taxes of 20% and export restrictions, as the government aims to keep domestic prices low,” adds del Solar. “The minimum volumes necessary for domestic consumption are determined each October; and the granting of export licenses is often arbitrary, creating great uncertainty.
"Soybeans are cheaper to plant, and up to now there has been no intervention in that market,” says del Solar. “More and more farms are turning to soybeans. Obviously, this is bad news for our agricultural sustainability. It really needs to change.”
According to Néstor Roulet, president of Cartez, market intervention will result in the transfer of over $1.4 billion away from corn farmers to other sectors of society this harvest season. The reduced profitability is making it difficult for Argentine corn famers to stay in the sector.
The new minster for agriculture, Norberto Yauhar is considering a proposal to allow a certain percentage of corn to be targeted for the domestic market and the remaining 60% free for export, making the system more transparent. “It would be a good start and give more certainty to farmers” says Rubén Bergero, president of the Córdoba Cereals Exchange.
In the short term, the U.S will reap benefits from the Argentine drought as the U.S. exporters fill the gap. Unless there is less uncertainty in the market in the form of Government intervention, we may see many exiting the sector, giving U.S. exporters opportunities in the long run, too.
This is part of a series on agriculture in Argentina by John Kennedy, a writer and economic consultant. You can contact him at [email protected].