Effects of the economic crisis: what are the three problems that most affect the countryside

After the legislative elections of last Sunday, the leadership of the field will demand solutions to the problems that affect the producers.

The field will seek in the coming days to reestablish the link with the Government to find a way out of the different problems that limit its potential. This week the leaders of the Mesa de Enlace presented a request for a hearing to the Minister of Agriculture, Julian Dominguez,, which until now has not summoned them.

On the agenda of topics that the leaders will raise, the total liberation of beef exports and the reduction of the tax burden are highlighted. Added to these are rural insecurity, the new Biofuels Law and the Hidrovía, among others. In recent days, members of the Board of Directors of the Argentine Agrarian Federation emphasized the need for both the government and the opposition to understand “The urgency” to restart a common work agenda, “in the framework of a complex economic and social situation, which requires the effort of all sectors to move forward.”

The representatives of the small and medium producers expressed that the problems faced by the countryside and the agro-industry are solved with public policies to stimulate production. For example, to the regional economies, potential generators of employment, today depressed, that it is necessary to reactivate.

Meanwhile, the president of the Argentine Rural Confederations, Jorge ChemesHe said in radio statements that the field is willing to dialogue with the Government to find a way out of the problems in the sector. “There are many issues that afflict us that are not on the agenda of national officials today, and we must work to change that situation. Today we feel more listened to by the Minister of Agriculture, Julián Domínguez, and there is another will, but we producers need concrete facts, ”said the Confederate leader who will seek his re-election on Wednesday, November 24.

Ezequiel de Freijo, economist at the Sociedad Rural Argentina.
Ezequiel de Freijo, economist at the Sociedad Rural Argentina.

To learn more about the main problems of agricultural producers, Ezekiel de Freijo, chief economist of the Sociedad Rural Argentina, prepared a paper in which he argued that the economy shows symptoms of weakness, such as the growing need to resort to monetary issuance to finance public spending, despite the growing tax pressure, the growing Exchange controls, which affect the availability and prices of imported intermediate-use goods, and by the effect of the anchors implemented to temporarily curb inflation.

Argentina’s economic problems are causing the following problems in the production and agribusiness sector.

– Lower income for producers

In this context Argentine producers are not capturing full price, as a consequence, in the first measure, by the tax pressure. In this sense, the export duties generate a discount of the direct international price of 33% in soybeans, 12% in corn, wheat and the rest of cereals, and 9% in meats and powdered milk, etc. What’s more, there is an effect of the appreciation of the official exchange rate, which since February 2021 on average increased 1.8% below what inflation increased. With this panorama, currently the soybean producer receives 40% of the international price and the same happens in the case of corn. This does not happen in the case of countries that compete with Argentina: in Uruguay, Brazil, Paraguay and the United States, producers receive a full price for the merchandise they sell.

But also there is an effect of formal and informal official interventions in agricultural markets. The Rural economist pointed out that the formal ones, is the case of the administration of the exported balance in meat, while the informal ones are those that were implemented in recent months in corn and wheat, where the way in which the Affidavits of Foreign Sales generated a deterioration in price signals, which deviated from what happened in terms of prices in the reference markets.

In the case of beef, whose marketing to the world remains restricted until December 31, Jorge Chemes pointed out that “closing exports will not lower the price of meat to the consumer, which is affected by inflation, logistics costs and distribution, and also because of the high tax burden. The Government could collaborate to lower prices, alleviating the tax burden ”.

– Competitiveness affected

There is a problem of competitiveness in strategic inputs for the field, with a double negative effect: on the one hand the exchange rate gap that generates a fall in the purchasing power of the producers’ technological package, with respect to what is happening in competing countries, which are taking advantage of this moment to introduce new technologies and modernization. And on the other hand, Exchange restrictions impact the availability of strategic supplies and spare parts in a timely manner. “Something that is key for the times of sowing, cultivating and harvesting that do not allow delays, “added the SRA economist.

Regarding the exchange gap, exchange control affects the normal supply of spare parts, phytosanitary products and fertilizers, and with this the normal functioning of the market. A very notorious case is the lack of tires for trucks and agricultural machinery, wire and during the last month there have been complaints of lack of phytosanitary supplies. According to Ezequiel de Freijo, since the gap exceeded 40% in May 2020, 19 months have passed, in that period the prices of the main strategic inputs increased in dollars. It should be noted that in the cases of fertilizers and glyphosate, a part of these increases can also be attributed to particular causes in global markets.

As a consequence of these price increases, direct costs in soy rose 36% and in corn 52% in said period (May 2020 to November 2021). This situation can be further accentuated by the global effects that have been seen for a few months, as a result of increases in global freight costs, delays in delivery times in supply chains and increased energy (gas), all costs that at the moment would not have been fully internalized in local prices.

– Lack of adequate credit

Due to the monetary policies tending to mitigate the consequences of the monetary issue, the financial system has less lending capacity to the private sector. According to data from the Central Bank of the Argentine Republic (BCRA), for example, loans to the agricultural sector fell from an average 5% between 2011-2014 to 2.9%, of the total of what the financial system has as a financial asset. This clearly shows how credit to the agricultural sector was effectively reduced.

“Today the producers should be projecting the steps to follow in many aspects, but with the signals that are not clear from the Government, everything is very complicated to move forward in that sense. It is necessary in many aspects to have clear rules of the game and predictability ”, concluded the economist of the Sociedad Rural Argentina.



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