For 20 years the soybean has been at the heart of Argentina’s agricultural boom. From 1996 to 2014 soybean production increased from 11m tonnes per annum to more than 60m tonnes as global demand for the versatile product grew rapidly. However, over the last decade the continued expansion of soybean cultivation has taken place at the expense of other key staples, such as maize and wheat.
Under the governments of President Néstor Kirchner and President Cristina Fernández de Kirchner, between 2002 and 2015, soybeans were the only major agricultural product to escape export quotas. The 35% export tax on the soybean became a central pillar of government revenue collection, accounting for a third of all government spending. Lower export taxes on soy products, including oil, meal and biodiesel, encouraged the growth of value-added industry. Today, Argentina supplies 60% of the world’s soy biodiesel and 40% of its soybean oil. However, the liberalisation of the agriculture sector under President Mauricio Macri means the Argentine soybean industry may have reached a temporary peak, which could be a positive sign for the sector as a whole.
Slowdown
In February 2018 the Buenos Aires Cereals Exchange estimated total production of 51m tonnes in 2017 – a 5.5% reduction compared to the 54m tonnes produced in 2016. The total seeded area saw a similar reduction of 6.3% to cover an estimated 18m ha. Shortly after assuming office, President Macri eliminated the export quotas that had distorted the market and displaced wheat and maize production. A report from the US Department of Agriculture’s Foreign Agriculture Service (FAS) expects production to move towards the historical mean, with wheat, maize and sunflower seeds accounting for a growing percentage of cultivated land.
A liberalised market will also promote healthy crop rotation. “Soy can significantly degrade soil quality and is best sown in combination with other crops such as maize, which are profitable under certain conditions,” Santiago Paz, the executive director of Ecolatina, a Buenos Aires-based consultancy, told OBG. “Another alternative is wheat, which is less profitable than soy, but can be harvested in the second half of the year, providing vital cash flow in preparation for a capital-intensive soy season.” Such a strategy could be best utilised in some of the more marginal growing regions of the country, Paz added.
Tariff Reduction
In addition to benefitting from greater opportunity for crop rotation, soy growers will see margins improve on the back of falling tariffs. Shortly after coming to power, Macri dropped the soy export tax from 35% to 30%. In January 2017 he announced that the rate would fall by 0.5 percentage points per month before stabilising at 18% for raw beans and 15% for byproducts by the end of 2019.
However, lower tariffs could encourage a habit of hoarding crops. In 2015 the country’s tax collectors estimated that $13bn in agricultural products had been hoarded in the Kirchner years of high inflation and falling exchange rates. Farmers are expected to store a portion of their harvest in silo bags to await lower tariffs, according to the FAS report.
Further Afield
While soy will lose some of its dominance, it remains a vital export crop. In November 2017 the China National Cereals, Oils and Foodstuffs Corporation forecast that Chinese imports of soy products in the 2017/18 season would surpass the 100m-tonne mark for the first time, outstripping estimates by the Ministry of Agriculture. While three-quarters of Argentine soybeans are crushed for oil and meal, 90% of whole beans are sent to China. Closer to home, the expected recovery of the domestic cattle industry means local demand for the animal feed soymeal is expected to grow to 2.9m tonnes. Boosted by local and international demand, and a more competitive fiscal regime, Argentina’s soy industry looks likely to enter a new period of abundance.
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