COMMODITIES-ARGENTINA: Farmers Jittery Over Slumping Prices

By Marcela Valente Reprint | | Print |

Marcela Valente

BUENOS AIRES, Sep 1 1998 (IPS) - Argentina’s agricultural sector, which has enjoyed solid performance in recent years, is yet another victim of the international financial crisis. Demand has plunged, prices for farm products have taken a nosedive and the cost of credit is climbing.

The Chamber of Exporters forecasts that Argentina’s exports will grow no more than five percent this year, a far cry from the 16 percent projected by the government. While the projections cover all exports, the weight of the rural sector is decisive, with a full 60 percent of goods sold abroad produced in the countryside.

That means even the most remote financial turmoil can deal a lethal blow to some agribusiness sectors.

In the view of agribusiness analyst Daniel Miro, today’s prices indicate that although production will be down in 1999, prices will not rally because the slump is due to a contraction of demand, especially in Asia, rather than overproduction.

Asia, which absorbs a full 60 percent of the world’s corn production, some 40 million tonnes, was fast becoming one of the biggest buyers of Argentina’s agricultural commodities. Argentina accounts for 10 percent of the region’s corn imports.

Brazil, the leading client for Argentina’s farm products, is also indirectly suffering from the fallout of the Asian financial crisis. Thirty percent of Argentina’s exports go to Brazil, which bought eight billion dollars of local goods last year.

According to official figures, Argentina posted around one billion dollars in losses in the first half of the year due to the roughly 20 percent fall in the prices of food products and commodities caused by the global financial crisis.

Since the turmoil first broke out in southeast Asia, the price of corn has dropped 22 percent, wheat has fallen 30 percent and soy crashed 38 percent, to among the lowest levels seen in the past 20 years.

Alberto Rodriguez, a leader of the business association of producers of cooking oil, told IPS that the price of a tonne of soy flour plunged from 220 to 120 dollars since the crisis broke out. “Since it goes into livestock feed in Asia, when consumption of livestock falls, demand for flour falls too,” he explained.

High levels of production in Argentina, Brazil and the United States have further contributed to driving prices down.

But vegetable oils are in a different situation. “Since offer is insufficient, prices are more stable,” Rodriguez added.

He admitted, however, that Russia was an important market for bottled, refined oil. And although that product accounts for a low percentage of the industry’s total production, the devaluation of the Russian rouble dealt a severe blow to several companies which sell cooking oil.

The rise in interest rates means farmers will also see the cost of credit, an essential tool for farming, go up, said Rodriguez.

The “vodka effect” from Russia could also hurt payments on around 200 million dollars in imports of Argentine produce, mainly fruit and grains. In the first quarter of the year Argentina placed more than 15,000 tonnes of fruit in Russia, a 100 percent rise from 1997.

In spite of an unprecedented harvest of more than 60 million tonnes, producers are not resting easy because nothing that occurs in the financial sphere today can be observed with detached interest.