January 23, 2018
Sunday, August 31, 2014

Argentine trade opportunities with Russia healthy but no panacea

Argentine President Cristina Fernández de Kirchner shakes hands with her Russian colleague Vladimir Putin at Government House in Buenos Aires on July 12.
By Guillermo Háskel
Herald Staff

President Putin’s ban on US and EU food import amid Ukraine conflict can help but won’t solve major problems, say pundits

A ban which Russia clamped last month on food imports from the United States and the European Union as a retaliation for Western sanctions over its support for rebels in Ukraine, is providing a good opportunity for breadbasket Argentina, which rushed to send a trade mission to Moscow.

But it is unlikely to be a panacea for trade difficulties Argentina is facing.

Separately, economists talking to the Herald were split on the possibility of punishment by the US or the EU.

Before clamping the ban, Russian President Vladimir Putin in July made a six-day visit to Cuba, Brazil (where he attended the 6th BRICS trade bloc summit and a summit of the UNASUR South American Nations Union) and Argentina, where he declared that Moscow has a “strategic” relationship with the administration of Peronist President Cristina Fernández de Kirchner.

Two weeks ago Argentine Industry Minister Débora Giorgi led a trade mission to Moscow which also included private businessmen.

Giorgi highlighted that Argentina is the world’s seventh-largest exporter of powdered milk, the ninth-largest of poultry and the sixth-largest of wine while during over a decade under the late Néstor Kirchner and his successor Fernández de Kirchner, Argentina has doubled its dry pasta exports to US$300 million.

Giorgi invited Russian companies to invest in the energy sector in Argentina, a country which has some of the largest reserves of shale gas in the world.

“The potential of our reserves is unique. The whole region is importing goods to exploit those resources for US$75 billion and, in line with that, we are seeking to facilitate investment in the sector,” she said.

Daniel Funes de Rioja, the head of Argentina’s COPAL private food lobby, who was part of the mission, said that Argentina has a “sensational” opportunity to supply the Russian market, highlighting that in 2011 Argentina exported to the world US$30 billion in industrialized food. He added that that figure has now declined and that, as a result, the country has exportable surpluses now. The EU had been selling to Russia more than US$12 billion and the US an additional US$5 billion, he said, adding that Argentina was offering meal, olive oil, dairy produce and fruit.

The Argentine mission is scheduled to return to Moscow this month to attend a large food fair there.

During the August visit the head of the Russian Fitosanitary agency Sergei Dankvert said that Moscow wanted more Argentine dairy goods and beef.

The economists talking to the Herald were also at odds over the availability of the products Argentina has to offer Russia.

Félix Peña, an international economic relations pundit, said: “That there are countries interested in buying Argentine goods is always good news. The question is whether Argentina has them available, and what are the concrete economic terms.”

Orlando Ferreres, who was deputy Economy Minister during the tenure of the neo-conservative Peronist President Carlos Menem (1989-1999), said: “This may contribute to a more even trade balance, with Argentina selling cars and food and Russia selling Argentina energy. But it is no panacea.”

Economist Raúl Ochoa agreed.

“Within a context of loss of competitiveness and declining prices for its food commodities, the possibility of selling more to Russia is very good. It will help to mitigate the difficulties. But in no way it will be a solution,” he said.

Argentina is facing a clear loss of competitiveness, for instance, in the beef market, mainly due to bad government policies which force slaughterhouses to sell to the domestic market one out of every three tonnes they produce, he said.

He also said that Argentina will suffer in 2015 a steep fall of at least US$7.5 billion as compared to the 2013/2014 season.

“We are talking about soybean falling to US$400 from US$520. That is, a difference of US$120 per tonne. Multiplied by 54 million tones you have a US$6 billion decline. Maize in 2013/2014 was over US$200 a tonne and for next year it is expected to be between US$140 and US$150, which means a difference of between US$600 and US$700 million.”

Furthermore, the environment for agricultural contracts in Argentina is changing, Ochoa said.

“In the past, producers paid the landowner a rent. Now, the whole system has turned to percentages as nobody wants to run risks in the midst of such a hard price situation.”

Regarding beef, he added, Argentine ranchers will have to slaughter more cattle because otherwise they would have to reduce domestic supply and, as a consequence, figures are very tight. However, it has good potential to increase the poultry supply in three to six months, always providing the government starts relaxing controls on the beef market.

Regarding competitiveness vis-à-vis other breadbaskets such as Brazil, Ochoa said that Argentina, which has declined to 13th place as beef producer from having been in the 4th or 5th place, can hardly compete with its giant Brazilian neighbour which, although having a product of inferior quality to Argentina, is the world’s largest beef exporter, Ochoa said.

“There are markets for every cut, including the premium, and Argentina is not even properly serving its premium markets.”

Ferreres, for his part, highlighted that Brazil is facing difficulties ahead of October’s presidential election after the World Cup fiasco, with an economy almost in recession and an inflation somewhat over six percent “which is the maximum tolerated.” However, he added, although it is a much larger producer, it also has a much larger domestic market, with 200 million residents versus 40 million in Argentina, and, as a result, they have more or less the same surpluses, he added. He also said that the two countries were more or less on an equal footing regarding beef price and quality.

Separately, he said, Argentina could suffer some trade retaliation from the US and the EU for supplying the Russian market. However, he said that potential sanctions would not be likely to be harsh, considering that presidential elections are due next year and hence the new government could be given “an opportunity to make changes.”

Ochoa and Peña, for their part, did not see Argentina suffering retaliation.

“I don’t think so. Argentina’s trade participation (in the Russian market) would not be that significant for the US and the EU from the trading point of view,” Ochoa said.

“I don’t see any reason for them to punish Argentina, or any other supplier such as Brazil or Egypt,” Peña said. “This is a problem between Russia, on the one side, and the US and the EU on the other.”

As for the possibility of the giant Gazprom Russian energy monopoly coming to invest in Argentina’s Vaca Muerta shale gas fields, some experts said that Gazprom may choose instead to continue developing Russia’s mammoth conventional oil and gas reserves which are much cheaper to exploit than shale oil and gas.

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