A LONG awaited change of government in Argentina last year opens the prospect for South America’s second-largest-country to once more arise as a major player in global wheat markets in coming years.
Less than a week after the country’s new president, Mauricio Macri, was sworn into government on December 10, 2015, a series of dramatic changes were implemented. The new government eliminated a 23 per cent tax and quotas which had been applied to wheat exports – enabling the crop to be shipped unimpeded from the country.
The peso was also allowed to float, prompting an immediate 40pc devaluation, and substantially improving the competitiveness of Argentina as a place from to grow and export wheat in the process.
The removal of export restrictions and improved competitiveness will generate strong incentives for farmers to revive wheat production in Argentina.
While excessive rain has limited the prospects of a strong rebound this year, Rabobank projects Argentinian wheat production to rise by 74pc to 19 million tonnes within a decade.
Planted area will rise, better crop rotation will improve soils, and multinationals will likely invest more in developing seeds specifically adapted for domestic conditions.
Limitations on domestic requirements will likely see much of this additional wheat pushed into export markets in future. Domestic demand for wheat from local flour mills has been stable for several years now.
While there will be some fluctuation in domestic feed use, the growth prospects of the industry will remain mainly dependent on achieving export market penetration.
Outgoing shipments are likely to rise by about 5.4 million tonnes by 2025-26.
With Brazil – Argentina’s traditional export destination – in trouble, Argentina will be looking outside South America for market share.
Brazilian demand for flour has dropped during the current recession, while the depreciation of the real has also reduced the purchasing power of Brazil’s importers relative to those in many other markets.
Argentina will face some challenges in rebuilding its wheat exports.
It will need to overcome its reputation as an unreliable source of product, due to drastic variation of export shipments in recent years.
It will also need to improve the consistency of the quality of its product.
But finally Argentina has another chance to meet its full potential as a wheat exporter. And, the rise of Argentina would mean another major producer shipping to market at the same time of the year as Australia, so the Australian industry will be well served to keep an eye on its progress.
