Thanks to the widespread use of no-till farming, precision agriculture and efficiencies from contracting, some claim Argentina has been able to maintain a competitive advantage over the U.S. and other producers. But there are increasing signs that this may come to an end.
The recent collapse in soybean prices has caused great concern in Argentina. Before the slump, against a backdrop of rising prices, importers looked to Argentina for cheaper imports of soybean oil and meal, which damaged U.S. processors. Although prices have started to rise again, the sector is becoming alarmed about its erosion in competiveness, which could dent the country's reputation for being a super-efficient producer.
One of the main worries for Argentine farmers is the continued rise in labor and input prices. Galloping inflation, estimated at 25%, is causing a big strain in the sector. “Labor costs have risen in line with inflation, and in some cases even more. Similar increases have occurred in fertilizers such as triple super phosphate, says Fernando Nazar, an ag consultant and producer in Buenos Aires province.
“Land rental costs are high in Argentina, and many farmers took out leases when soybeans were above $14/bu. These costs are now locked in, compounding the situation. With falling soybean prices, farmers’ profit margins have fallen substantially,” says Nazar.
Transportation costs are also up. Some estimate that Argentine freight costs have jumped by a whopping 70% in the last year alone. With harvesting about to begin in the next couple of months, teamster and other trucking-industry groups are already seeking to raise prices for transporting soybeans to processors and ports.
“A key ingredient in rising freight costs is the poor state of the road infrastructure,” says Arturo Navarro, former president of national farming group, the Argentine Rural Confederation (CRA).
“The road network has not kept pace with the massive increase in soybean and grain production in recent years. More roads need to be able to accommodate nine-axel trucks, and only 20% of trucks nationally are under 10 years old, so there are huge fuel inefficiencies, too.
One way Argentina could overcome its competiveness decline is through value-added processing for the food sector. However, less competitive manufacturing costs and less experience in marketing and research were cited by one food-industry executive as challenges to this. He is Alfredo Rojas Lagarde, director of food-processing company Pop Argentina, who spoke recently at the Mercosoja conference in Rosario.
With no access to the capital markets since the default in 2001, sufficient finance isn’t available to upgrade the road network to meet the requirements of soybean producers. And inflation is unlikely to fall, as long as the current government remains in power. Argentina’s beleaguered soybean growers may even see their competitive position worsen. In a world of lower prices and lower Argentine competiveness, U.S. farmers may reap the gains.
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]