Competition heats up for Asian markets after Argentine president eliminates beef and crop export taxes
SINGAPORE/BUENOS AIRES (Reuters) — After years of being sidelined by punitive taxes, Argentina’s agricultural exporters are back with a vengeance and ready to steal market share, particularly in Asia.
The country’s farm sector has been dealt a good hand by new president Mauricio Macri. Since taking office in December, he has axed most crop and beef export taxes and allowed the peso to depreciate 40 percent, giving agricultural shipments a big advantage in an amply supplied world market.
The country’s exporters have responded aggressively. Australian traders are already feeling the heat in the highly competitive Middle Eastern wheat market, where Argentina’s supplies have been priced below most other origins.
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Argentina has even sent cargoes to the United States, a net exporter of wheat, which industry sources said underscores the potential for a more intense price competition in the months ahead.
“Argentina is going to go full throttle. We are already seeing them making very aggressive offers,” said Adam Davis, head of commodities at Merricks Capital, an Australian fund that manages $350 million.
“They have sold wheat to the United States, which is having difficulty in cutting its own stocks.”
The next target for the South American country is Asia, which is home to half the world’s population and a traditional stronghold for Australia.
Argentina expects to ship six million tonnes of wheat to countries other than Brazil as soon as it expands planted areas, said David Hughes, president of the local wheat industry chamber Argentrigo. It would be equivalent to 35 percent of Australia’s annual exports.
The two countries will also face off in beef shipments.
Argentina is set to ramp up beef sales to a record high this year, a think-tank formed by the country’s grain exchanges said.
The prospect of higher Argentine exports has already contributed to lower global prices, with Chicago wheat futures plumbing five-year lows in January and beef hitting two-week lows after sinking 16 percent last year.
The problem for Australia is it relies on sales of the same farm products as Argentina but lacks the renewed momentum as tax rates remain stable and its currency holds steady.
Australian traders cannot even boast of a freight advantage be-cause global shipping rates have plunged to record lows, making it easier for Argentina to reach distant markets.
Argentina’s wheat exports are expected to more than double to 9.8 million tonnes in the year to June 2017, said the Institute for International Agricultural Business.
Wheat exports were cut in half from 2007-15 under the previous government because of prohibitive taxes.
“We expect Argentina to get back its former market share,” Hughes said.
“We are expecting a huge growth in wheat acreage.”
Australia, which has just finished harvesting an almost 25 million tonne wheat crop, fears it will lose share in Asia.
“Indonesia is looking at Argentina for wheat exports,” said an Australian trader at a grain trading house.
Argentina could sell 500,000 tonnes to Indonesia, chipping away at Australia’s exports to a country that typically buys 3.5 million tonnes, the trader added.
Argentina is also expected to aggressively export beef this year, with the think-tank forecasting a five-fold jump in sales to an all-time high of 1.3 million tonnes in 2016.
“Argentina is now free of foot-and-mouth disease, so we can enter Asia as soon as we increase our herd,” said one Buenos Aires-based analyst.
“Argentina has approved sanitary protocols with China in meat and dairy products. This will be direct competition for Australia and New Zealand.”
Australia is expecting its first decline in beef sales since 2013 after slaughtering nearly 30 million head of cattle in the last few years as a severe drought wilted pastures.
“Argentina has great scope to increase beef exports,” said Phin Ziebell, an agribusiness economist with the National Australia Bank.
“With currency devaluation, South American supplies are now very attractive.”
