Regional economies, pending structural reforms

They have the potential to generate real dollars and become major drivers of development for the country, but beyond the specific problems of certain productions, they all suffer from rising internal costs, in some cases exceeding their price, and the high tax burden; which sectors are lit in green, yellow or red and why

Regional economies together contributed USD 6618 million in 2018, thanks to the export of 3 964 000 tonnes of products. This figure, which at first glance is beneficial for the country, triggers two long-term central readings: the positive results support the fact that these activities are part of the projects for which they can enter dollars in Argentina, while the negative allows us to conclude that, in a well-functioning economy, these sectors could multiply numbers and become real drivers of their areas of influence.

Some problems affect all activities across the board, such as lack of funding and high tax burden. And there are others that have a specific impact on some of them, such as climate problems that reduce the production or fall of international prices that reduce profitability, among other problems.

As can be seen from the report entitled "The semaphore of regional economies" prepared by the Confederation Intercooperativa Agropecuaria Limitada (Coninagro), many productions are affected by rising costs. "In terms of the component that badyzes the internal activities of the 19 economies studied, the increase in costs accumulated over the last twelve months was greater than that of prices in 10. Negatives and divestments, even in production who in May (last month badyzed) have improved their prices to the producer, "says Silvina Campos Carlés, Coninagro's Economic Advisor and author of the study.

In the badysis of the market, in the meantime, inter-annual decreases in domestic consumption appear in the case of six productions, which has a negative impact. "In addition, on the foreign sales side, 12 activities improved their export performance compared to the previous year (it was not until May 2018 to May 2019), confirming that the external market is today strategic as a protagonist of the profitability of the sector, "says Campos Carlés.

To the government, which, even against their convictions and for fiscal reasons, had to reimpose the savings that had been withdrawn from them, they are aware of the situation. As a result, on Wednesday, March 10, a rebate reduction was announced (3 pesos will be paid for every dollar exported, instead of $ 4). "That means reducing the tax burden by $ 2,200 million a year – it's a concrete measure that gives many products the competitiveness they need to reach a gondola with better prices." "said Luis Miguel Etchevehere, secretary of Agroindustria de la Nación.

In addition, Etchevehere says the withholding tax will go back to zero. "They already have a due date next year, because our space does not consider them as a tool of economic policy, but as a bad tax, we had to impose them last year. because of the worst drought of the last 50 years, but they have an expiry date on December 30, 2020, "he says.

Even then, this alone is not enough to revitalize economies that require much deeper action to take off permanently. The economist Aldo Abram, director of the Libertad y Progreso Foundation, believes that structural reforms are needed. "The only way for these sectors to exploit their potential is to solve the country's fundamental problems, which implies, in principle, tax and labor reforms," ​​the economist said.

But this is not enough, according to Abram, because these economies are capital intensive and require many investments to become more competitive. "It is crucial to reduce the country risk because otherwise investors will turn to the fast and the safe, which are agri-food products of the wet pampas, and will continue to leave aside the regional, more uncertain and requiring longer term, planting soybeans rather than vines is not the same thing, on a temporary basis, "he says.

According to Abram, what has condemned the regional economies is that, historically, there has been a transfer of revenues from all these activities to the industrial sectors that are concentrated in the big cities. "This situation has led to these areas having more difficulties to be effective and the typical areas of these regions have not prospered as they should have done," concludes the economist.

In the report of the Coninagro traffic light, it is noted that six productions are in red; five in yellow and eight in green. According to Fields Carlés, there is still activity in the ranges of green, compared to the previous month. Nevertheless, more than half of the items are red or yellow.

In the pear and apple sector, concentrated in the upper Río Negro Valley, the impact of the tax factor on profitability raises concerns. "Until last season, we had a return of 8.5% on the FOB value, but this amount was reduced to 4.75% .In September, the export duties were applied, which represented between 9 and 10% of the FOB value.The tax factor was therefore hit hard, as we went from + 8.5% to -5, a difference of 13.5 points of tax effect ", badysis Germán Barzi, director of Humberto Cbade.

Regarding international markets, according to Barzi, it was necessary to explore less traditional destinations, such as China, India and some Latin American countries, because the historical destinations (United States and European Union ) have an excess supply, a product that has been very successful. "These new buyers are paying a little less in dollars, but this is offset by the fact that a very good campaign has allowed us to have a better qualification in terms of packaging and fewer rejects. "said Barzi.

The pear and apple business, which exports to 60 countries, has 2,400 producers, employs 47,000 people and covers 250 cold stores. With regard to the destination of production, 42% are destined for the internal market; 36%, juice, and 22%, to export fresh products.

With 20 factories spread across the country, generating 15,000 jobs and 1 billion euros in exports a year, the groundnut sector has become better known in the last three years, but always been powerful in the south of Córdoba. In this case, the "red light" is yellow because of international prices, the weight of retentions and the difficulty of finding suitable land, as it is necessary to rotate and force planting in areas further away from the plants. , with which the freight becomes more expensive.

Elvio Cerutti, head of the peanut department of the Cotagro cooperative, recounts his problems. "Planting peanuts is more expensive than planting soybeans or corn, so the investment is huge, and today, holdbacks account for 7% of what is exported, which is a huge advantage because we are in competition with countries that do not have retention, but they grant subsidies to produce, this year we have a good harvest, but with this tax regime, the margin will decrease, because the balance of the rented field is not enough to cover costs, "he laments.

As has been said, the question of land is another challenge, because we must find an optimal place. "The south of Córdoba is ideal, but we have to rotate, so we had to go looking for other fields, such as San Luis, north of La Pampa and north of the province of Buenos Aires, which are further away from our factories, which makes logistics more expensive, "said Cerutti.

Among all the regional economies, that of wine is still cited as an example, because of the great reconversion undertaken in the 90s and completed in the 2000s. Bearing a high competitiveness, the same vitiviniculture appears in red in the fire Coninagro signaling, particularly because of rising internal costs and the impossibility of transferring all of these price increases.

Francisco Do Pico, vice president of Bodegas de Argentina, pointed out that the present and the future of wine, it is export, since world consumption has stagnated since 2000, while the trade worldwide grew by 6.5% a year. "Therefore, Argentine wine exports need to be strengthened by free trade agreements, international promotion, investments in logistics and a reduction of the tax burden." In this sense, the Mercosur-European Union agreement means less work, "he said.

With regard to the domestic market, Do Pico notes that in the last five years, 15 to 20% of this cake has been lost, even though the calculation has been done since 1980, the loss being above 75%. %, since 80 liters were consumed and now 18 years old. "So there is no problem, given the internal market, it is with foreign competition that the local consumer who asks for 75% of generic wine is extremely conservative and attracted by foreign products," he says.

Meanwhile, the pig activity shines bright green. According to Daniel Kindebaluc, advisor to two cooperatives badociated with the production of pigs in Entre Ríos, this contributes a lot to the increase in Chinese demand, caused by swine fever which has forced to sacrifice millions of animals in the Asian giant. "This opens up an interesting opportunity in foreign trade, but we need to develop our local production," he said.

Juan José Uccelli, consultant and referent of the pig sector, says that it follows the growth of the local consumption, with forecasts to close this year to 19 kilos per inhabitant (at the beginning of 2000, they were only 4 kilos) . "In addition, we have increased exports and reduced imports," says the specialist.

Of course, the green sector does not save it from the general problems discussed at the beginning. "Investments are slowing down because of the lack of logical credits and VAT on investments, which represents a new cost of 21% that does not recover." If these two problems are solved, the sector could grow between 20 and 25%. year, with more offering in the local market and greater participation abroad, "said Uccelli.

Reasons for each color

As a conclusion, Campos Carlés proposes a summary with an explanation of what happens in each color of the fire. "In those we refer to as red, that it is wine, sweet citrus, pears and apples, afforestation and rice, their state is mainly explained by costs higher than their prices, affecting a large part of their production in the internal market or have stagnant consumption and exports that do not rebound, "says the economist.

Among the five cities in yellow, we notice the case of cotton, because it was good, but there was a change of trend due to flooding in the north of the country, which began to be felt now.

In the case of the eight green light sectors (poultry, livestock, cereals, milk, cbadava, vegetables, pigs and yerba mate), the price rebound is saved in some cases. "The milk production is in this color because it shows a positive evolution for the fourth month, but its links do not cover the years of debt and have been red," said Campos Carlés.

Indispensable to the people around them, generators of labor and great revenue generators, the regional economies continue to present enormous potential, while continuing to bear the burden of the country's structural problems, which prevent them from becoming what they should be: the drivers of Argentina's development.

A traffic light showing his own problems and general obstacles

The 19 economies badyzed suffer from specific problems related to their activity or region, such as bad weather or falling prices, but they also suffer from the weaknesses of the Argentine economy in general, such as inflation, the tax burden or the lack of credit lines. funding

Source: Coninagro.

YELLOW

Cotton

The climate against

The evolution was favorable, but the consequences of the floods in the north of the country, now obvious, complicated the situation.

peanuts

Quality production

It is a very competitive sector, which sells in the best markets but is affected by the structural problems of the Argentine economy.

Honey

Up and down

Replace good and bad, because it reaches good quality, but suffers the fall of exports and begins to worry about importing imported honey.

Pope

Acceptable conditions

Producer prices are in line with inflation and, in addition, exports rebounded slightly. They suffer from the general problems of the country.

The tobacco

Low consumption

There was an acceptable harvest, but exports are still down. It must be taken into account that in 10 years, tobacco consumption has decreased by 30%.

RED

Rice

Low production

This production remains red for the third month in a row, mainly due to rising costs, bad weather and lack of funding.

Sweet citrus

Emergency

The reduction of refunds and deductions make this production less competitive. Its exports could fall by half this year.

forestry

Commercial Backslide

He suffered the last time a decline in foreign trade; something that adds to an annual decline in prices, which is about 7%.

sheep

Price down

Prices fell by 3% in May compared to April (proportional meat and wool) and have accumulated over the last 12 months (May 2018 / May 2019) with an increase of 34% in pesos, which is insufficient.

Pears and apples

High pressure

The tax burden and withdrawals are high. Outside alternative markets are sought after because there is overabundance and saturation of traditional markets.

Wine and must

Heavy costs

It is a competitive sector, thanks to the great conversion that it did two decades ago, but which is now suffering from the increase in internal costs that it can not transfer at reasonable prices.

GREEN

Birds

Inside and outside

Although suffering from the general problems of the economy, the activity is based on very good internal consumption (the highest in history) and improved exports.

Livestock

Recovery

After losing 12 million head between 2003 and 2015, the sector started to recover. The decline in domestic consumption is worrisome, but exports are increasing.

The grains

Competitiveness

There are fine margins in rented fields and prices in pesos lower than inflation, but productivity and competitiveness are high.

The vegetables

Best prices

The values ​​are better than last year, but imports that have diverted the market from local producers have also been reduced.

Milk

Good indicators

Prices, exports and production are "rising". The only factor is that consumption shows a worrying reduction.

Cbadava

L & # 39; optimism

It follows the good spirit that saw this activity a few years ago, because of the boom in consumption, good production and the best business climate.

Pigs

Strong demand

Good export prospects due to swine fever that affected China; in the local market, annual per capita consumption continues to grow (19 kilos)

Yerba mate

Good time

The scenario is positive because the market for this product is going through a good period, while prices are improving.