The Argentine government is scratching the bottom of the pot. He desperately needs dollars to bolster his international reserves, and this Wednesday he sought them in the only place he can find them: the countryside. To encourage exporters to settle their currencies with the central bank, the Casa Rosada this Wednesday introduced an “agricultural dollar,” an expanded version of the “soybean dollar,” which was in effect between September and December last year. The agribusiness gets 300 Argentine pesos for every dollar, significantly less than the 392 it would receive on the black market but more than the 218 of the price set by the state. The aim is to encourage producers who, according to the government, are holding their dollars abroad while waiting for the local currency to depreciate.
The “agrodollar” is intended to apply primarily to soybean exports, but will be extended to other products such as citrus, fruit and wine in this third version. The idea is that the benefits reach regional economies that create jobs. In return, producers must guarantee affordable prices on the domestic market and guarantee supplies. At the same time, the program will punish export companies that, according to the government, withhold around $3.6 billion from their sales abroad through irregular maneuvers. If they do not do so within the next 30 days, their tax identification will be suspended and they will not be able to trade in the foreign exchange market. “They are harming not only Argentine companies and the economies that work, produce and export, but also the credibility and strength of Argentina’s currency,” Economy Minister Sergio Massa said.
The program is an emergency exit from the commitment to accumulate reserves that Argentina has agreed with the International Monetary Fund for 2023. This week, the organization reduced the target it set for the year-end from 9.8 million to 8,000 million because it felt it was unattainable. We’ll have to wait until December to find out if the aid will be enough. The start to the year could not have been worse: Argentina’s central bank has lost $3.4 billion since January to meet demand and stem the peso’s slide.
As the dollars flow out day by day, very few come in. The South American country is experiencing its worst drought in 60 years and will lose around $20,000 million, almost half of its debt to the fund, on agro-industrial exports alone. Massa said the soybean program “improves the price for the producer who has less volume today due to the drought.” The government wants to “reduce losses, but also promote Argentine exports and strengthen reserves”. The minister also announced the suspension of “tax and bank foreclosures and tax advances” for 69,000 drought-hit producers.
The lack of water, a product of three consecutive years of the La Niña effect, has shattered all harvest forecasts made earlier in the season. The Buenos Aires Grain Exchange estimates that production will fall by 45% in the 2022/2023 campaign, with 9% less acreage and a 34% drop in yield – the average tonnes produced per hectare. It will be a very hard blow for the foreign market: Wheat sales will fall by 55% and corn sales by 21%. Still, the Chamber of Oil Industry and the Center for Grain Exporters said in a statement they expect to contribute about $5,000 million from the soybean complex to the treasury. The government estimates that number can reach 7,000 million when the rest of the producers are added.
Not everyone agrees with the new “agrodollar”. The dairies that fatten farms or feed poultry and pigs know that a rise in the price of soybeans will affect their costs and drive up farm rents. What they are demanding is the unification of the exchange rate and a cut in export taxes, the instrument by which the state keeps a piece of the export pie.
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