Third year of drought threatens grain exports from Argentina

Third year of drought threatens grain exports from Argentina

Walter Malfatto, 59, lies in his chair on his ranch with his arms crossed as he stares out the window. Clouds form in the sky, but hopes of what they may bring fade as the hours pass.

“It’s not going to rain today,” he said, resigned to another dry day. With his wife, Malfatto farms 770 hectares in Bragado, 220 kilometers southwest of Buenos Aires, in the heart of the Argentine countryside. “This time of year, I should be up in the air tending to my crops,” he says, referring to his spreader. But the operation is stalled. The harvesters and seeders are stowed and the spray plane remains in the hangar.

“It has now been almost five months with little or no rain. Even my father, who is 86, doesn’t remember anything like that. This year he has lost his entire wheat crop to drought, he says, and fears a similar fate will befall maize and soybeans, which he will not plant until the rains come. . “I don’t take risks anymore”

In the regions of the Pampas, a vast strip of fertile land that is the cornerstone of Argentina’s agricultural economy, there are many cases like Malfatto’s. Several farmers said they had lost their crops due to persistent dry weather, which lasted three consecutive years and particularly deteriorated this year. This jeopardizes the country’s ability to supply global food markets and increases pressure on a fragile economy with low foreign exchange reserves.

The country is a major player in the global food market. Last year, Argentine production accounted for 8% of world wheat exports, 18.5% of corn exports and 40% of soybean oil and meal exports.

Burnt wetland in the Parana River delta © Marcelo Manera/AFP/Getty Images

It produced 22.15 million tonnes of wheat in the 2021-22 season, of which 16.25 million was exported, almost as much as Ukraine’s 18.8 million.

But the widespread effect of drought this season has led to steep reductions in estimates. The US Department of Agriculture now forecasts production of 15.5 million tonnes, while local exchanges predict as little as 11.8 million.

“The sector is preparing for one of the worst agricultural campaigns in the last 20 years,” said Cristian Russo, agronomist at the Rosario stock exchange. “The water reserves are like fuel for these crops, and we start the agricultural campaign with an empty tank.”

Earlier this year, President Alberto Fernández touted the country’s agrifood exports as a potential solution to the global food problem. But in many cases, poor quality wheat is thrown away or fed to animals, while dry weather delays the planting of other essential crops.

“Argentina’s wheat harvest is now unrecoverable,” said Enrique Erize, who runs agribusiness consultancy Nóvitas. “What’s at stake now is corn and soybeans. And the prospects are not good.

For three consecutive years, the country has faced exceptionally dry conditions associated with a triple “La Niña” effect. The global climate pattern is defined by strong winds pushing warm Pacific Ocean water away from South America, resulting in drier and cooler weather.

Farmers are frustrated that they missed an opportunity to serve global markets. “These chances are lost,” said Fernando Rivara, who operates a farm in the province of Buenos Aires and is president of the national federation of grain storage companies.

In addition to the drought, farmers say there is a lack of long-term economic policies to help exports. Foremost among their complaints are export levies of 12% on wheat and corn and 33% on soybeans. In addition, an 80% gap between the official exchange rate for exporters and the black market rate discourages investment, farmers say.

In September, the government opened a 26-day window for soybean growers to export accumulated stocks at a better rate, leading to massive sales. But this one is now closed.

“With a good harvest, the government is advocating for the collection of more export taxes,” Rivara said. “But when farmers lose money, it’s like screaming in the middle of the desert.”

Finance Minister Sergio Massa last month announced a subsidy of up to 20,000 pesos per hectare for small-scale soybean and maize growers to spend on seeds and fertilizers. “We are facing a unique drought with three years of lower water levels than we were used to,” he said. “It creates risks and obstacles for us.”

A government spokesman said that while officials are “aware that one measure is not enough”, they hope it will help farmers to “invest more”.

A smaller wheat crop could be a problem for Argentina’s trade balance. According to Fernando Baer, ​​an economist at consultancy Quantum, there is a “high degree of fragility” in the economy as reserves are depleted. The combination of lower world prices and lower production will result in a wheat harvest worth $5.5 billion, down 36% from the $8.6 billion in the previous season.

Massa introduced import controls to preserve scarce dollars. The central bank does not report net international reserves, but private estimates put them at around $5 billion.

Economists fear that if drought conditions continue into Argentina’s summer, it could affect those crops as well.

“The soybean growing season is long, but dry weather is delaying planting and could reduce acreage,” said Paul Hughes, chief agricultural economist at S&P Global Commodity Insights. “A short harvest that reduces the amount of soybeans Argentina has to process threatens global trade in these essential products.”

In Bragado, Malfatto pulls barley from the ground, the dry earth slipping from his hands. He has 70 tons of soybeans ready. In recent days, some rains in the region have revived hopes that the pace of plantings may soon pick up. “We thought this season was going to be an opportunity. But despite everything, I have more faith in the climate than in our own governments.

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