By: Manuel Sanchez, U.S. Grains Council Manager of Global Trade
The runoff election victory in Argentina of Mauricio Macri on Nov. 22, 2015, marked the end of a 12-year regime of Presidents Cristina Fernandez and her late husband Nestor Kirchner before her. As a candidate, Macri promised to strengthen his country’s institutions, introduce more pro-business policies, structure deals with foreign creditors and realign Argentina’s foreign policy to be closer to that of the United States. He also vowed to jumpstart the economy by lifting many tariffs, lowering taxes and attracting foreign investment.
In less than two months, new President Macri has implemented these changes that could have a significant impact on agriculture both domestically and in international markets. On Dec. 17, just one week after officially taking the office, the newly-established government of Argentina eradicated currency controls and eliminated the practice of having both an official exchange rate and a black market exchange rate. The elimination of this multiple exchange rate system represented an almost 45 percent devaluation of the Argentine peso, which will undoubtedly boost the competiveness of Argentine agricultural exports.
Over the past few months, producers have waited for such an adjustment to occur before they began liquidating their inventories, including stocks of corn of 1.1 million metric tons (43.3 million bushels), according to U.S. Department of Agriculture estimates. The government also published an official resolution reducing the export tax on soybeans and its by-products by 5 percent annually over the next seven years and completely eliminating export taxes for all other commodities, including corn.
If those changes weren’t enough, on Dec. 29, the new government eliminated the export permit system known as the Register of Export Operations (ROE) for grains and oilseeds, replacing it with a reporting mechanism to track exports through affidavits of foreign sale. While the ROE system officially existed to track exports, the export declarations were informally allotted based on discretionary government quotas like permits or licenses. These quotas were created by the previous administration as a way to de-link the local price of food from rising world prices by limiting export sales, particularly of corn and wheat. Especially for those crops, the system reduced the price farmers received by as much as $40-50 per ton below what global markets indicated.
The new macroeconomic situation will likely make Argentine agricultural exports much more competitive and improve the returns for local agricultural producers. However, infrastructure challenges still exist, and initial estimates on the returns for wheat, corn and soybeans indicate that the impact for the 2015/2016 season will be limited as wheat and barley are already being harvested and corn and soybean plantings are well underway.
Producers are expected to benefit from greater returns due to the elimination of export taxes and will encounter lower production costs, especially for inputs denominated in pesos, as a result of the devaluation. In the long term, these shifts should encourage higher production of corn and wheat and potentially lower soybean production.
The U.S. Grains Council is monitoring the changes in Argentina closely to assess their impacts on world markets and potential U.S. exports. Council members will hear directly from Argentine corn industry leaders on the impact of these changes and what can be expected in the coming crop seasons at the coming USGC winter annual meeting in February.