A federal government economist says the political and economic chaos
unleashed in Argentina could have a severe and long-lasting dampening
effect on Canadian grain prices.
Four years of recession, 18.3 percent unemployment and plummeting
living standards in the South American country sparked a wave of
strikes, riots and violence that prompted the resignation of president
Fernando de la Rua.
The country’s new interim government has already stopped payment on
Argentina’s crippling $132 billion US debt and is moving to abandon a
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decade-old policy of pegging the peso to the American dollar on a
one-to-one basis.
Analysts predict the country will devalue its currency.
That would be bad news for Canadian farmers, said Pierre Charlebois,
chief economist of Agriculture Canada’s economic analysis section.
Argentina is one of the top five grain exporting nations in the world
and a devalued currency would make its exports more desirable.
Charlebois used a forecasting model to determine the impact of the
devaluation on Canadian grain prices over the next five years.
Under the worst case scenario where the free market would dictate the
value of the peso, it could lead to a $8.98 a tonne decrease in
Canadian canola prices, a $3.22 a tonne decline in wheat prices and
$1.09 a tonne drop for barley.
That’s just for one year. Similar price declines would happen in the
other four years of the forecast.
If Argentina pegged the peso to the U.S. dollar at a new level, say 1.2
pesos to one U.S. dollar, the worst year of price declines in the next
five years would amount to $3.45 less per tonne for canola, $1.16 for
wheat and 57 cents for barley.
“It’s just one other piece of bad news,” said Charlebois.