Drought affected 21.7 million cattle EFE/ Juan Ignacio Roncoroni 02/25/2023
The drought affecting Argentina’s agricultural production, the worst in 60 years, is already impacting the country’s economy, with exports falling and tax revenues falling.
The lack of rain has been felt on the fertile and vast Argentine fields since mid2022, a year 12.8% drier than average, in a climate that ended this summer with the most extreme temperature records in six decades and severe frosts stops .
According to the latest report from Argentina’s Drought Monitoring Board, there are significant yield losses in agricultural activity, delays and a decline in final corn and soybean acreage, in addition to the phenomenon also having a major impact on livestock.
Inadequate rainfall affects 172.5 million agricultural hectares, with 8 million hectares managed by moderate to severe drought and 21.7 million cattle at risk, a difficult scenario for one of the world’s major food producing and exporting countries on which much is based its economy on the sector.
LESS EXPORTS, LESS SALES
Analyzes and forecasts on the effects of the drought on the already ailing Argentine economy are on the agenda among economists.
“From a macroeconomic perspective, tax collection will be lower. And from the point of view of the regional economy, when the country is not working, consumption is falling, you are not investing and you are not spending,” said Leonardo Piazza, to EFE, director of LP Consulting.
Incidentally, the effects can already be seen in the trade balance and the financial balance sheet.
In January, exports fell 11.7% from the same period last year, driven by lower sales of wheat, biodiesel, corn and sunflower oil, showing the impact the drought was already having on last year’s crop.
Also in January, the budget deficit skyrocketed, with real tax revenues on agricultural exports falling due to the drought.
According to calculations by the Institute for Studies on Argentine and Latin American Reality (IERAL), part of the Mediterraneo Foundation, Argentina’s agricultural exports will be around US$37.8 billion in 2023, down from a decline of US$8.4 billion 2022, although the drop could be $6.5 billion if the drought eases or $10.1 billion if the weather worsens.
On the fiscal front, Argentina would spend $7.6 billion on agricultural export rights this year, $2.05 billion less than in 2022, but that could be $1.5 billion if climate change conditions improve , or $2.4 billion if they deteriorate.
BAD NEWS
“The 2023 macro economy will not see higher earnings or major foreign exchange inflows in the agricultural sector,” predicted Juan Manuel Garzón, chief economist at IERAL.
This is bad news for a country that has to meet ambitious targets for reducing the budget deficit and accumulating foreign reserves this year, which were pledged in the deal signed in 2022 with the International Monetary Fund (IMF).
Experts agree that the drought will affect Argentina’s economic activity, which has been showing signs of slowing since the last months of 2022.
“By 2023, we expect activity to be negatively impacted first by the drought itself, but also by the decline in FX generated by lower exports, which would correlate with less FX availability for imports,” he said consulting firm LCG in a report predicting that Argentina’s GDP will contract by 2% this year.