The effects of the drought in the 2022/23 farming season will be one of the greatest challenges for the Argentine economy this year. The latest projections from the Buenos Aires Stock Exchange anticipate that exports from the main grain complexes could fall by between US$9.2 billion and US$14.1 billion. This represents a GDP drop between 1 and 1.8%. In terms of tax collection, the State would lose out on between US$3.1 billion and US$4.7 billion.
The devastating drought currently affecting soybeans and corn has already halved the wheat harvest, which ended at just over 12 million tons, and no significant rainfall is currently expected to mitigate the scenario. That is why the moderate scenario suggests that income from exports would fall by US$9.2 billion at a minimum and US$14.1 billion at most. This last value may be quite realistic, taking into account that the weather forecasts at the moment are not very encouraging.
The institution analyzed two possible scenarios based on the figures presented in the launch of the 2022/23 gross campaign. The first one is defined as moderate, presenting estimated projections for soybean, corn and sunflower production of 41 million, 44.5 million and 3.7 million tons, respectively. The second one is a pessimistic scenario (a more pronounced drought), with 35.5 million, 37.8 million and 3.5 million tons.
Meanwhile, if the initial production estimates presented in September last year were met, they would have implied a drop in the Gross Agroindustrial Product (PBA) of US$4 billion compared with 2021/22 . However, a worse climatic situation results in larger drops, around US$11 billion under the first scenario, and US$15.7 billion in the second (with a greater drop in production). Therefore, the drought’s negative impact against the September projections equals 1.1% or 1.8% of the GDP, depending on the scenario. The key fact is that these figures do not measure interactions with other sectors, such as their multiplying effects, for example, or other macroeconomic variables, which may worsen these results.
“The soybean value chain would present the largest drop in its contribution to the economy. Regarding the baseline scenario, their contribution would drop between US$3.3 billion and US$6.3 billion, depending on the final scenario. While, in the same line, contributions from corn would drop between US$1.4 billion and US$3.1 billion”, sources within the Buenos Aires-based organization highlight.
Also, the unfavorable climatic context in the current 22/23 farming season is prompting expectations of a significant impact on production, which would lead to fewer exports. That is why, according to projections, foreign sales of wheat and barley would be around 5.8 million tons and 2.19 million tons, decreasing by 47% and 35%, respectively, in relation to what the scenario looked like at the beginning of the season. For corn, if either the most benevolent or most dreadful scenario takes place, exports could be around either 28 million tons or 21 million tons, a decrease of 16% and 36%. Finally, in the case of the soybean complex, the estimated sum of the exported volume when compared to the projection results in a drop of between 16 and 28%, which translates into 6.4 and 11.4 million fewer tons.
In this context, sources at the Buenos Aires Grains Exchange highlight: “If the drop in production levels occurs and we find a downward trend in international prices, these will aggravate the consequences at the microeconomic and macroeconomic, due to the agroindustrial sector’s contribution to the whole Argentine economy. We should point out that, according to the latest data on the exchange balance published by the Central Bank, there was an input of US$53 billion in the official exchange market during the last 12 months, where the agro-industrial sector contributed 77% of the total. This way, in the face of a complex landscape with a drop in agricultural production and exports, this could cause a lower supply of foreign currency”.
In closing, the institution details: “In sum, lower production numbers in a context where prices remain constant will trigger less activity that will in turn impact the different links in the chains, and affect other economic activities. Likewise, production losses can leave consequences in the next seasons, since the resulting financial weakness of the producers can bring about lower levels of investment and, therefore, productivity rates in subsequent campaigns”.