AGD Consulting
An opinion piece about Argentina’s efforts to return to their former beef market glory days. My emphasis is in bold with my comments in italics.
November 30th, 2016
The current wave of agricultural reforms in Argentina could help the country recapture the global beef market share it has lost in recent years, says Valoral consultant Roberto Viton in an interview with Agrimoney.
Viton sees a brighter future for Argentine beef since the election of Mauricio Macri in 2015. Still, the process will take significant time and effort (I recently talked about the need for patience in Argentina in a recent blog post. Bottom Line: it will take time to change many years of poor economic management, so patience is in order) among producers who are looking to first improve their margins before expanding their production. In the first half of the year, there was much greater retention of cattle by Argentine producers with the goal of building back their herds over time (This is an indication that the local farmer sees future value in cattle and therefore is willing to forgo the immediate revenue in order to build equity in their farms through larger herds. This is a good sign).
Recovering market share lost to neighboring countries like Brazil, Uruguay and Paraguay will take time in terms of volume, price and quality. At the same time, Argentina will have to regain the confidence of foreign investors and prove to them that “the reforms are truly hear to stay.”
In summary, “I would say that the history of cattle is a history of patience,” says Viton. (I couldn’t agree more).
Earlier this month, we talked about Uruguay’s trade dealings with China. Today, we’ll look at how Uruguay and Argentina have come to a consensus on how to approach future trade deals with China. My emphasis is in bold with my comments in italics
Macri said that his government understands Uruguay’s need to have access to other markets and to be open to the worlds’ second largest economy.
Argentine president Mauricio Macri promised his Uruguayan peer Tabare Vazquez to look into the draft of a Uruguay/China free trade deal, and expressed their deep concern about political events in Venezuela suggesting that under the current circumstances the Nicolas Maduro government cannot be considered a member of Mercosur (Things in Venezuela are not looking good. Drastic shortages of food, medicine, electricity and other necessities are causing small riots. Organized crime and extrajudicial police killings have given the country a frighteningly high rate of murder and violence. Runaway inflation means that from March 2015 to 2016 a basket of basic goods for a family of five became 524 % more expensive).
During a meeting on Monday midday at the Olivos presidential residence in Buenos Aires, Macri said that his government understands Uruguay´s need to have access to other markets and open to the world’s second largest economy.
“China is an option for Uruguay. With Vazquez we ratified the need to speed up this deal, in principle from inside Mercosur, but anyway I promised an open attitude and to look into what Uruguay is requesting”, said the Argentine leader. (Mercosur, which translated means Southern Common Market, was created in 1991 as a trade agreement aimed at providing free circulation of goods, services, and productive factors within member countries (Brazil, Paraguay, Venezuela, Uruguay, and Argentina) through the elimination of obstacles to regional trade).
“We understand that Uruguay produces food for ten times their population (A population of only three million people currently feeding 50 million) so it is only natural they should look for markets, but the ideal situation would have been for the issue to have been presented by Mercosur as a block, as we are doing with the European Union” emphasized Macri (Earlier this year, the EU Trade Commissioner and the Foreign Minister for Uruguay, who currently holds the rotating presidency of Mercosur, discussed the next steps in the negotiations on an EU-Mercosur trade agreement. The EU and Mercosur agreed to exchange market access offers specifying ways to increase mutual openness to each other’s goods and services, including access to public tenders. Those discussions also resulted in the adoption of a road map for talks during the rest of the year).
Vazquez underlined the very generous attitude of Macri and thanked Argentina for having such consideration.
“We coincided in advancing in a free trade agreement with China through Mercosur. But [we need to take] into account that Beijing came up with the possibility of such a deal six years ago and Mercosur did not reply, it would be positive that at the next Mercosur meeting we address the issue”, indicated Vazquez.
“In the meantime Uruguay will continue to explore the way to advance in a free trade project with China. We’ve already presented the road map for such a treaty and the extent planned. China has not replied yet but when they do, it will be shared with all Mercosur members”, he added.
Regarding Venezuela, both presidents agreed that under the current situation, “we are deeply concerned with the political problems, and we shared the opinion that under these circumstances they can’t be members of Mercosur. The Maduro administration must be condemned and disavowed by all American countries since there is no respect for human rights” (As another point of context, in May of this year, Uruguay prepared to pass the president-pro-tempore seat to Venezuela by the end of June. However, Argentina, Paraguay, and Brazil fiercely opposed this. Their arguments against Venezuela’s new role cited the country’s failure to follow the union’s rules as well as concerns about the government’s stance against its opposition).
Vazquez went further and said concern, regrettably, grows by the minute and “we are looking forward to a peaceful solution to the controversy, to dialogue between the Venezuelan government and the opposition. We also talked about the mediation from Pope Francis”.
Macri and Vazquez added that during the next Mercosur meeting whether to apply or not the democratic clause on Venezuela will be considered, since that is the correct place to consider such option.
“Uruguay will be attending the meeting and demand respect for peoples’ right to express their opinions and be respected. That is the essence of democracy and the direct participation of peoples”, added the Uruguayan leader.
Other issues considered by the presidents were drugs and crime, pollution in shared rivers and water ways, natural gas sales and the possibility of building another bridge across the River Uruguay that acts as a natural border between the neighboring countries.
Finally Vazquez, who never had a good relation or chemistry with the Kirchner couple, was most grateful with Macri and his hospitality. “I am profoundly grateful for his hospitality and friendship, with the Argentine president we have found ample paths of understanding”.
An excellent article about the need for patience with the unfolding political and economic situation in Argentina. My emphasis is in bold with my comments in italics
President Mauricio Macri is making the right economic moves, but that is hardly enough to prevent the next crisis.
It’s been almost one year since President Mauricio Macri shocked the world by winning Argentina’s presidential elections, and the country is in a state of flux — hovering in an uncertainty characterized by hope, anxiety, fear and just a few whiffs of the dreaded stench of failure.
Besides displaying a shocking lack of political PR and taking on a few petty wastes of time, this government is doing most things within its power correctly to right the course of a vessel that seemed destined to crash. (This includes eliminating a parallel exchange rate from the previous administration, completing an oversubscribed bond sale, and eliminating export taxes on many agricultural commodities like corn and wheat).
Despite these positive steps, one sinister question looms: Has the Macri government managed to avert the looming economic crisis entirely, or is it merely kicking the can down the road? It’s scary, but Argentina is in uncharted territory. Rather than boom, the economy is in a prolonged recession that could be heading for an all too familiar outcome — bust.
Yet this time, the question really isn’t about economic fundamentals. The real variable threatening Macri isn’t economic at all — it is time. (To me, this says that many potential foreign investors recognize Macri’s attempts to repair some of the underlying fundamental economic issues facing the nation. I believe, based in part on the oversubscribed bond sale, that there are many more foreign investors waiting on the sidelines to see if a resilient Macri administration and patience from the international community can allow these economic changes to positively affect the foreign investment climate of Argentina) Time, that fickle mistress, is persistently stalking Macri’s administration and is not on his side. And Argentines aren’t exactly famous for patience.
Now that Argentina is back on the world stage, there seem to be no shortage of Argentina investment-themed symposiums, conferences, forums, delegations, road shows, panels, seminars, and other names they give to the indistinguishable gatherings of hundreds of white men in suits assembled in windowless spaces to watch powerpoints and exchange business cards over mediocre coffee and stale snacks. (While I don’t necessarily agree with all of the author’s points here, I appreciate both her sarcasm and perception, especially the part about windowless spaces and mediocre coffee).
In the past, representing Argentina at these business rituals meant repeating some variation of the tagline, “Argentina: it’s not so bad!” Now the conversation invariably veers first to new opportunity, but then quickly pivots to the question of Argentina — same old risk?
People love to say that “Argentina has a crisis every ten years.” A nice round number, except it is 2016 and the country’s last real crisis was in 2001 (no, the 2009 global downturn doesn’t count). The truth doesn’t follow simple formulas. (This saying may actually be more applicable to the US market with the collapse of the dot com bubble in the early 2000s, the Great Recession in 2008/2009, and the unstable economic times of today.)
To understand the situation, let’s think of economies like dinner plates, spinning atop sticks. Balance is essential.
A poorly balanced plate will wobble dangerously and even crash to the floor from external conditions. Take a look at Argentina’s neighbors. Chile was thought to be as stable as they come, but a sudden drop in world copper prices have caused the country to wobble. Brazil was the next big thing in biofuels, technology, renewables — you name it. But a plunge in oil prices spun out the endemic corruption and tipped that plate right over.
So what do spinning plates and susceptibility to external crises have to do with Argentina?
From a purely economic standpoint, Argentina is just about the most stable, well-balanced, solid plate there ever was. The economy and the geography are large and diverse (One of the few countries in the world with the ability to be completely self-sustaining, hosting an abundance of natural resources, an educated population, and of course, famed agricultural land covering nearly 55% of the country). Argentina was resilient through the global economic crisis of 2009. Sure, soy is important piece of the pie but even when soy prices took a nosedive in 2014, Argentina’s plate wobbled a bit but kept on spinning. The good news is that despite more than a decade of Kirchnerism, during which Cristina Fernández de Kirchner and her band of merry thieves administration carried out a heist worthy of its own Netflix series, the plate was somehow able to keep spinning.
Macri’s government has acknowledged systemic flaws and is leading the country to come to terms with uncomfortable and unpopular realities, such as that 30 percent of Argentines live in poverty. The administration has acknowledged persistently high inflation and taken painful steps to bring it down. It has dismantled the capital controls that created a de-facto dual currency system (RIP Blue Dollar), settled with the holdout creditors (aka “vulture funds”) and are setting clear rules for doing business (To further highlight the points I made earlier).
Perhaps most laudable, the administration has forced the population to acknowledge that energy subsidies for both electricity and gas are unsustainable and has launched a clear plan for prices to rise to meet generation costs. It’s not easy being Energy Minister Aranguren, the public face of these unpopular hikes. The man basically looks like he needs a hug all the time.
Yet that analysis misses a fundamental point of Macri’s challenge: to succeed, he won’t just have to right a plethora of economic distortions and rise above a mire of tragicomic corruption, he must also change a culture (This will take time, patience, and resilience on Macri’s part, but I think it can be done).
If Argentina’s economy is a plate, its next crisis won’t be caused by an external shock that throws an overweight area off balance. Argentina’s next crash will be caused by its people, who run from one side of the plate to the other, like an emotionally charged herd. Call it passion, color, soul, whatever you want — but we in Argentina are opinionated, loud, and most importantly impatient.
And without political patience, Macri will fail.
The key test will come next year, when the midterm elections will serve as a de facto referendum on his policies, many of which while are unarguably necessary albeit damningly unpopular.
Macri’s real challenge is not only to convince the world that Argentina can change; rather, he must lead his own people through a painful recession and politically maneuver entrenched powerful interests to restore an attractive labor market and an unsubsidized energy matrix.
There is no doubt he is dedicated, but the question looms as to whether it is possible to convince a country of fiery, passionate Argentinos to endure a recession without throwing a tantrum and inexplicably sprinting off the edge of the plate (It is easy to understand that Argentines are looking for quick evidence of progress, as I’m sure many Americans will on the heals of our US elections, but after over a decade of systematically taking apart the economy, it will take time to fix the country’s inflation and poverty problems).
An article from the China Daily about recent trade discussions between Uruguay and China and how these discussions are impacting neighboring countries in LatAm. My bold and comments in italics:
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Chinese President Xi Jinping (R) shakes hands with his Uruguayan counterpart Tabare Vazquez during their talks at the Great Hall of the People in Beijing, capital of China, Oct 18, 2016. [Photo/Xinhua] |
BEIJING — Chinese President Xi Jinping and his Uruguayan counterpart Tabare Vazquez on Tuesday agreed to establish a strategic partnership based on respect, equality and mutual benefit. (Vazquez also signed infrastructure investment and technical agreements that will pave the way for greater agricultural exports to China)
The two heads of state made the decision during talks in the Great Hall of the People in Beijing following a red-carpet welcome ceremony.
Xi urged China and the Latin American country to maintain high-level exchanges and enhance communication at all levels to promote mutual understanding and trust. (Uruguay’s bid for a free trade agreement, however, is not without controversy. Uruguay is one of the five full members of MERCOSUR, along with Argentina, Brazil, Paraguay, and Venezuela. Argentina’s President, Mauricio Macri, said on Oct 20th that any China-Uruguay free trade agreement negotiations should be conducted through MERCOSUR. According to the bloc’s rules, full member states cannot negotiate free trade agreements with non-members without consent of their MERCOSUR peers. Vazquez responded to Macri by saying that Argentina and Brazil have been pushing for more flexible rules that would allow members to negotiate bilateral trade agreements)
China appreciates Uruguayan support for the Belt and Road initiative, and hopes both sides will strengthen integration of development strategies to upgrade economic and trade ties, said Xi.
China is willing to encourage more investment in Uruguay, channelled toward infrastructure projects, Xi stressed, adding that the country is also looking forward to expanding cooperation in agriculture, clean energy, communications, mining, manufacturing and finance.
In addition, Xi called on both sides to promote people-to-people exchanges and lift ties in culture, education, science and technology, Antarctica, tourism as well as football sport.
As for global affairs, Xi said that China is ready to strengthen collaboration with Uruguay in climate change, economic governance, UN’s 2030 Agenda for Sustainable Development, peace-keeping and South-South cooperation.
On China-Latin America relations, Xi stressed that China is a strong supporter for Latin American stability, unity and development. China is ready to work with Latin American countries to forge a community of shared future. (The other side of this argument was articulated by Argentina and Brazil when they voiced that China was the major exception to their pro-trade rhetoric. Both governments are under pressure at home that a China-Uruguay free trade deal would exacerbate their manufacturing sectors, particularly that Chinese imports could outcompete their local products. For example, Brazil wants to negotiate a trade deal that makes it easier to export the higher-value goods it produces, such as aircraft, but is reluctant to allow more Chinese imports into its borders).
Echoing Xi’s remarks, Vazquez said that the establishment of a strategic partnership will begin a new chapter of Uruguay-China ties. Uruguay welcomes more Chinese investment in the country and is willing to negotiate a free trade agreement with China.
Uruguay supports the one-China policy and backs China’s reunification, according to Vazquez.
Speaking highly of China’s significant role in global affairs, Vazquez stressed that Uruguay was ready to work with China to push forward Latin America-China relations and enhance coordination on international and regional issues.
Macri and Vazquez met on Oct 24 in Buenos Aires to further discuss Uruguay’s potential deal with China. More on that shortly
Below is an article from WorldFolio about the growing agro-industry in Uruguay and how it’s driving their economy forward. My bold and comments in italics.
The Minister of Agriculture wants to see the nation of 3 million people produce food for as many as 50 million in the next 15 years. But as Uruguay continues to increase the quantity of exports and reach new markets, it aims to maintain the high quality for which its agricultural and meat products are renowned (I think this will be the biggest challenge for Uruguay in their efforts to meet this goal: scale accordingly while maintaining high quality standards; something they’re world-renowned for).
Financial experts have long been bullish over the state of Uruguay’s economy, praising the nation for developing a strong institutional framework that has helped it weather external shocks.
Last year the World Bank categorized Uruguay’s macroeconomic policy as “prudent,” though the global finance overseer expressed concerns over “relatively high” debt and an export system that is based largely on connections to other countries in the region ( It should be noted that Uruguay’s national debt decreased by nearly $500M USD from Q1 to Q2 2016. This connection with other countries in the region doesn’t have to be seen as a completely negative characteristic, especially since Uruguay is the world’s 4th and 6th largest exporter of rice and soybeans respectively. Their beef products also export to over 150 world markets, speaking to their reach beyond LatAm). With this in mind, officials in Uruguay have expressed a desire to widen the reach of its agriculture industry outside of its neighboring states.
“Uruguay is a country that in 2005 produced food for 9 million people, and we were a country of 3 million,” says Uruguay’s Minister of Agriculture Tabaré Aguerre. “Today we produce food for 28 million people, and we are still 3 million. My goal is to produce food for 50 million people in 15 years.” (That’s a 3x increase in food production in just 11 years. All they have to do to reach 50 million is double again in 15 years. I think this is absolutely feasible).
According to Mr. Aguerre, 55% of Uruguay’s industrial output is made up of agro-industries, along with 47% of all industrial sector jobs. The agriculture minister explained this relative leg-up on the competition was due in part to Uruguay’s place in the world and a wide range of recent changes in Uruguay’s economy.
“In the same way that investment have increased, the rate of exportation has also increased from Uruguay. Uruguay tripled the value of its exports, not in volume, but rather in value. We are a country that exports close to $10 billion in goods and services, with 80% of those being goods. And inside of that 80%, 78% of the exports are agriculture or livestock or agro-industry,” Mr. Aguerre says.
“Uruguay has comparative natural advantages, but beyond these, we have developed intelligent competitive advantages by improving genetics, the production system, research […] the national seed certification program [or] the national quality fertilizer program.” (This tells me Uruguay is doing more than just resting on the laurels of their God-given agricultural land. They’re innovating and adapting; a sign that their success in agriculture will continue).
Originally made agriculture minister in 2010, Mr. Aguerre has made a career as an agronomist researching everything from rice cultivation to cattle breeding in Uruguay. He was recently reappointed to the role in 2015 by Uruguayan President Tabaré Vazquez.
“That is how we are taking advantage of the window of opportunity that the decade from 2005 to 2015 gave us. [It has been] a time of great structural transformation in the world, particularly in the world of food production.”
Mr. Aguerre also highlighted an accelerated process of economic convergence during that time period, when “the growth rate for developed countries [was] less than the growth rate for developing countries.” (Once this gap closes, maybe completely, many international investors will begin to realize the underutilized value of agricultural land in Uruguay and LatAm, writ large. When that happens, expect land prices in Uruguay to rise with a growing investor sentiment. Get in early while prices are still good).
Because of that, he said, “the gap between the two is continuing to close.”
Executives in Uruguay have also pointed to the agricultural industry as a source of advantages in the world of business and economics.
“A few years ago, after several attempts to identify which would be the economic sectors that would push Uruguay to development, it was reconfirmed that the agro-industry was an extremely important for the economy of this country. The sector is not seasonal, gives activity the whole year and also invigorates other complementary sectors such as transport, or retail,” says Gastón Scayola, Vice President of Frigorífico San Jacinto NIREA S.A., a meat producer and exporter located in Montevideo. (Uruguay’s predictable, year-round rainfall, geographic location above the world’s largest aquifer, the potential for two crops per year growing cycles, developed land rental market, and limited government intervention also characterizes the strength of Uruguay’s agro-business market).
Left: Tabaré Aguerre, Minister of Agriculture | Right: Álvaro Silberstein, General Manager, Paycueros-Sadesa
“We have a great responsibility in terms of employment and the sector is the answer for most of the growth in the last few years (An understanding of the nation’s responsibility to its people). Obviously other activities such as the financial sector and tourism are also key activities for Uruguay, but our livelihood is agriculture for the long-term bet. In a world where much food will be needed over the coming years, this area of South America is destined to produce more and better.” (The world’s population is expected to reach 9.7 billion people by 2050. That equates to about a 60% increase in food production. I believe Latin American agriculture is poised to not only support this growth trend, but profit from it.)
Frigorífico San Jacinto has billed itself as a producer of high-quality beef products. In September 2015, the company made its first shipment of naturally produced Uruguayan beef certified by the US Department of Agriculture as “Never Ever 3” grade. This marking denotes that the meat is free from antibiotics and growth hormones, a fact which has reportedly helped to consolidate Uruguay’s exports in a market where demand for naturally raised and processed meat is growing steadily. (This is especially true as the demand from US consumers for quality, grass-fed beef continues to rise, e.g. Verde Farms, who get a good portion of their beef from Uruguay).
Mr. Scayola has also lauded Uruguay as a hub of traceability, a system whereby animals are monitored via a microchip attached to their ear. These microchips tell agricultural experts the dates when the animals passed inspection, the place they came from and where they are going. (Uruguayan beef is 100% traceable, meaning every piece of meat from an animal can be traced to its originating farm).
He explains that only a country as small as Uruguay could maintain such a close eye on their cattle and adds that his company has been the recent benefactor of a US decision to allow ovine (sheep) meat on the bone to be exported from Uruguay.
“The United States enabled us [to export] boneless meat a few years ago and now [they] have just approved the entry of meat with bone, thanks to the separation of sheep and cattle in the fields,” he says.
“With regards to sheep, we [have] 30% market share. We are the leading company and the one that has been the most aggressive in developing new markets and producing premium meat. San Jacinto are the only US enabled sheep plant.”
“It means a lot to get into the United States. [We can] enter the US market and fight with Australia, but also, once the United States approves the original mechanism theme compartment, immediately there is a high probability that Canada and Mexico [will also start accepting our goods], and that process can also open Europe. So we have many fronts and the United States is the first step of many.” (They understand the importance of needing to reach beyond the markets in their immediate vicinity into the global stage).
Executives elsewhere in Uruguay also highlighted a need to make the nation a more lucrative player in international trade. Álvaro Silberstein, General Manager of Paycueros-Sadesa, a leather exporter based Paysandú in western Uruguay, says that the country must specifically focus on agro-industry productivity.
“We have always considered that Uruguay should grow by relying on its export sector,” Mr. Silberstein says.
Founded in 1948, Paycuwas created with a “vision” that would advance exportation. As a part Sadesa, one of the leading group of tanners in the world, the company specialized in high-quality leather production for some of the “most prestigious” companies around the globe.
Mr. Silberstein explains the factors behind the quality of the hides the company uses.
“Meat companies operating in Uruguay are the largest exporters. Many also sell in the local market but they are basically exporters. Therefore, they are very technologically up to date. That makes the extraction of hides very precise – all machining and no knife. The hides are removed very healthily and that is also very important for us,” Mr. Silberstein says.
“In addition, because of the type of pasture we have and the type of production that is done, hides do not suffer as much as in tropical areas, where problems can affect the value of the material. That makes Uruguayan and Argentinian hides a sought after commodity in the world.”
Today the company boasts offices on five continents and a global export network that spans from South America to Asia. (Again, a global reach)
“Our vocation is as an exporter. In the case of hides, Uruguay does not have a market of significant consumption, and therefore the strategy is to add value to domestic raw materials and export them to the world.
“This new situation of slower growth should be seen as a new opportunity to re-look at export markets, and how to create the conditions for growth based on those exports. We have the conditions to do so because we have raw materials that will continue to be demanded around the world, and the ability to convert and add value that may be appropriate for the country through exports.” (China is also a strong market for Uruguay’s sheep and beef products)
However, others have urged an element of caution in Uruguay’s long-term export strategy. According to a study by the Observatory of Economic Complexity, Uruguay’s annual exports amount to more than $9 billion, with agro-industry staples like bovine meat, rice and soybeans being the largest export earners. The main importers of these Uruguayan goods are neighboring Brazil and Argentina, along with the US and China.
Industry insider William Johnson says this dependency on importing nations makes keeping a wary eye on economic activity outside of Uruguay crucial. (Agreed, but not a limiting factor, especially if Uruguay can continue to build their quality leather and sheep-meat markets up to the current levels of their beef products).
“Our goal is to eventually get to a point where we are not only exporting [material], but we want to add value [too],” he adds.
“We are a services country and we have to be tied a bit to the forces that guide the world.
“When Argentina goes off the rails, we have to look to our side to Brazil. When Brazil goes off the rails, we have to look to our side to Argentina. And when both are off the rails, it’s when we suffer big problems. We can’t export so much and then let sales and production fall. Because we are such a small country it’s difficult to compete in the rest of the world without the support of Argentina and Brazil.”
Below is an article written by Monica Ganley, the principal at Quarterra. Quarterra is a Buenos Aires-based consulting firm offering international strategic planning, research, and business development services to organizations and individuals in the agriculture and food space who are global or considering becoming so. Excellent insight into Argentina’s shifting investment climate, particularly in the agricultural sector. Find my areas of interest in bold and comments in [].
Since taking office on December 10th of last year, president Mauricio Macri has made a concerted effort to restore Argentina’s relevance on the global stage. Unlike his most recent predecessors, who attempted to insulate the country from international competition and shunned interaction with certain nations, especially the United States, Macri rapidly implemented a number of policies and measures designed to reinsert, and amplify, Argentina’s role in global commerce.
Many of these measures were well publicized. A few months after taking office Macri famously reached a settlement with the vulture funds that held Argentine debt left over from the country’s economic collapse in 2001. Shortly thereafter Argentina completed a vastly oversubscribed sale of $16.5 billion in government bonds, which according to the Financial Times was the largest bond sale ever from an emerging market [ I believe this speaks to how foreign investor sentiment is beginning to change for the positive towards Argentina. According to the Wall Street Journal, Argentina’s new 10-year bonds will yield 7.5%, compared with an average yield of 6% for the J.P. Morgan Emerging Markets Bond Global Diversified Index]. In addition, Macri has rid the country of its parallel currency exchange market and has generally taken measures to reduce bureaucracy and improve efficiency [When I was there in mid-2015, the difference in exchange rate between the official and the “black market” value was nearly 40%. That gap has now all but disappeared].
The agriculture sector has of course been the beneficiary of many of these changes as well. A reduction or elimination of the retentions (essentially export taxes) on key commodities has dramatically shifted Argentina’s possibilities for participating in global agricultural trade. As a result, many are feeling more optimistic than they have in recent memory and the general sentiment is that the country will now begin to move toward reclaiming its global prominence in everything from beef to row crops [In April 2016, Argentina’s beef exports were up 25% from the same time last year, likely due in large part to the USDA’s lifting of a 14-year old hold on the importation of Argentine beef products].
To further prove that Argentina’s attitude toward the world has fundamentally shifted, in mid September Macri’s administration hosted the first Argentina Business and Investment Forum. The event was attended by over 2,000 global business leaders and featured prominent speakers from both the public and private sector. The forum was very professionally produced and went a long way toward showcasing the seriousness with which Argentina is approaching the desire for increased foreign investment. Macri even opened the meeting by giving a greeting in English, a move that his predecessor would certainly never have even considered [While this may seem like a small gesture, I believe it was a powerful one that speaks to Argentina’s commitment to helping restore a level of comfort in Argentina for many US investors].
As one of the country’s key growth engines, agriculture formed a cornerstone of the event. Speakers included representatives from Brazil Foods, AgTech Innovator S4, Syngenta, Adecoagro, and Grupo Los Grobo, among others. One presentation that I found to be particularly poignant was that given by Juan Luciano, Chairman and CEO of Archer Daniels Midland. He said,
“I would say that [I look to the future] with a lot of optimism…There is a clear message from President Macri and the administration to reinsert Argentina into the global context…Companies like ourselves are always seeing Argentina and its possibilities. In the past maybe when conditions weren’t so supportive of investment one thought about investments from the point of view of efficiency. Now one begins to think more in terms of opportunities for growth in Argentina and how to add value.”
Mr. Luciano’s comments perfectly capture the sentiment of the moment. Many people are beginning to pay more attention to the opportunities that Argentina has to offer. However, there is still a long way to go before investors will have their faith in the country fully restored. From my point of view there are several key issues that the Macri administration will have to thoughtfully address if they hope to continue marching toward increased acceptance from the global investor community. These issues include:
Transparency
A lack of transparency has long been one of the complaints waged against the prior administration which was notorious for manipulating statistics on everything from inflation to the percent of the population living in poverty. Macri and his team have already made some important changes when it comes to transparency. For example, they have rebuilt the national statistics bureau and have been regularly producing inflation estimates that are even more aggressive than independent industry experts. In addition, new tools have been introduced to monitor statistics specifically within the agricultural ministry [The government also plans to submit to economic monitoring by the IMF. While this is generally normal for members of the fund, Argentina has refused it since 2006].
While the changes to this point have been significant, it will be critical that the administration continues to emphasize transparency as a key element in future policy developments. While the government has managed to maintain a relatively strong reputation to this point, that will rapidly be undone if it is discovered that information has been misrepresented.
Follow Through
While Macri undoubtedly uncovered a bigger mess than expected once he took office, if he hopes to restore investor confidence, it will be very important that his actions align with his words and that promises made come to fruition. One area of concern related to follow through at the moment is related to the soybean export tax.
One of Macri’s first agricultural policies was to eliminate the export tax levied on corn and wheat. The soy tax, which originally stood at 35% was to be stepped down by 5% each year, in order to ease the transition of its elimination. However, there has been some noise recently of the government’s intention to reverse this decision and delay the next export tax reduction.
Although these rumors haven’t been substantiated, I feel that it is very important that the administration continue with the planned export tax deductions. While the absolute tax level is perhaps not that important, what is key is demonstrating the government’s resolve to be a consistent player [I believe this relates directly to the previous point about the need for transparency. It’s not enough to have one without the other]. Choosing to backtrack on this policy decision at this point will undermine the government’s attempt to demonstrate that they are a fixed variable in investment decisions.
Rule of Law
Ensuring that the country’s laws and institutions are respected will be very important for restoring investor confidence in Argentina. In the agriculture sector in particular many of these laws revolve around intellectual property. The most famous case of late is that of Monsanto whose proprietary, GMO seeds have become a magnet for intellectual property disputes. For a company such as Monsanto, that is making materially important investments in the country, the concern is whether the laws that exist will be applied in a fair and consistent manner. Macri’s administration will have to ensure that this is the case if they hope to bring additional dollars into the economy.
Resilience
For the purposes of this article, being resilient means staying the course, despite potentially extraordinary pressure from different stakeholder groups. This is perhaps one of the most difficult demands on the administration, as many of the country’s agricultural groups have become accustomed to making a fuss until their demands (usually a subsidy of some kind) are met [While perhaps one of the most difficult, I would argue that it’s the most critical aspect for a successful restoration of Argentina to her former glory days]. Similar to the other points, staying strong in the face of intensifying interest group demands will not be easy, but it is the only way if the government hopes to maintain its credibility.
Infrastructure
Finally, it is well known that Argentina’s infrastructure is sorely lacking. The proper and efficient movement of agricultural inputs and production are disrupted to a great extent by a lack of adequate transportation options. Investing in infrastructure is one way the government should get involved in the agriculture economy and this action can send a powerful signal. Producers will interpret the investments as a type of support while foreign investors can view such infrastructure investments as proof that the government is a true partner and is putting their own ‘money where their mouth is.’
Undoubtedly Macri’s administration is facing incredible competition for funds coming from a variety of sectors. However, I truly believe that making nominal investments in infrastructure improvements will instill new confidence in Argentina’s agricultural economy and will make a powerful statement to potential investors.
As the new president of Argentina who is trying to help the country shed its populist skin and adopt an attitude of interaction and collaboration with the global community, Mauricio Macri has an incredibly difficult role. While the job he has done has been largely commendable to this point, he and his administration cannot rest on their laurels. If they hope to continue restoring investor confidence and promoting the opportunities that the country offers, it will be imperative that they continue to emphasize Transparency, Follow Through, Rule of Law, Resilience, and Infrastructure.
Source: South America Crop Report for September 26, 2016
https://www.agriinvestor.com/top-5-mistakes-new-investors-make-in-latam-agri/