South America Calling

Sitting in the back of a cab in Buenos Aires, an advert for Dow Agrosciences came on the radio.

It's a curiosity to find ag advertising on talk radio in a conurbation of 13 million people, but it just goes to show how important the sector is to Argentina.

Defaults, savings confiscation and command economics means investment opportunities for Argentines are restricted. Grain farming, one of the country's few globally competitive industries, represents one of those opportunities and urban cash has moved into farmland and farming pools.

Farming is also vital to the Argentine government's efforts to pay off its budget deficit, accounting for around 5% of tax revenues and contributing around $10 billion in export taxes.

But economic uncertainty and rising costs mean margins will be squeezed and risk is going through the roof this year for Argentine farmers, as I explain in the first story of my current series on Argentina. (See "Argentina Crop Outlook - 1" in Recent Features.)

That means fewer opportunities, and many farm leaders feel 'the Argentine model,' where pools rent large areas and seek to improve margins by scale and contracting services, will cede space amid the uncertainties to traditional farmers planting their own land.*

In part, that is because landowners and renters are struggling to agree on prices as owners seek to protect themselves from inflation that will likely accelerate from the recent 20% to 30% level, while farm management groups seek lower rents to reflect falling margins.

"The best chance of profits next year is through farming your own land," said Edmundo Nolan, head of agriculture at Adecoagro, a corporate farm, in southern Santa Fe province.

According to Pilu Giraudo, vice president of the Aapresid, the Argentine No-Till Farming Association, it's not just next year. Owner farming has been more profitable than renting for 15 of the last 16 years, she says. But of course that needs capital, a scarce commodity in Argentina.

Meanwhile, after years of renting out the homestead, it is not easy for farmers to gear up to plant again.

The pools will be loath to pull out of farming completely as they have to disband their team and miss out on the technical developments in a year.

"We will likely see pools and big renters reduce area next year but not that radically," said Ricardo Negri, chief agronomist at the CREA farmer group.

*In 2012-13, it is estimated that 60% to 70% of grain area was rented.

(AG)

© Copyright 2013 DTN/The Progressive Farmer. All rights reserved.