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In Western Argentina, Rising Energy Costs Worry Some Olive Growers

As Argentina's energy minister deregulates the sector and electricity costs shoot up, olive farmers are feeling the effects.

Jul. 18, 2018
By Daniel Dawson

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As Argen­tine olive grow­ers enter an off-year after a record-set­ting har­vest in 2017, some oil pro­duc­ers are becom­ing more wor­ried about ris­ing pro­duc­tion costs.

It is seri­ous because the way of charg­ing elec­tric power has changed, today the gov­ern­ment wants to charge it with­out sub­si­dies.- Julián Clusel­las, Rio de la Puerta olive oil com­pany

Increas­ing costs of elec­tric­ity, which is required by many olive grow­ers in the more arid provinces of San Juan and La Rioja to power water pumps, have shot up by 200 to 600 per­cent. In a region that does not receive much rain­fall, but ben­e­fits from deep-lying under­ground aquifers, these pumps are vital to crop pro­duc­tion.

These huge increases to farm­ers’ elec­tric­ity bills have largely come from reforms that are cur­rently being made to the energy sec­tor, along with increases to national, provin­cial and munic­i­pal taxes.

Javier Igua­cel, Argentina’s new energy min­is­ter, told Bloomberg News that the dereg­u­la­tion of Argentina’s energy sec­tor was nec­es­sary to con­form with the Inter­na­tional Mon­e­tary Fund’s demands for the gov­ern­ment to bal­ance its books.

We’re going to get out of the cur­rent sys­tem,” he told Bloomberg News. Gen­er­a­tors will buy direct from pro­duc­ers, and large-scale con­sumers and dis­trib­u­tors will buy direct from gen­er­a­tors.”

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Julián Clusel­las is the pres­i­dent of the Rio de la Puerta olive oil com­pany. He said that while other fac­tors, such as labor costs and a fluc­tu­at­ing global mar­ket are impact­ing the company’s bot­tom line, the elec­tric­ity hikes are hurt­ing the most.

What impacts us most in costs is elec­tric­ity,” Clusel­las said. It is seri­ous because the way of charg­ing elec­tric power has changed, today the gov­ern­ment wants to charge it with­out sub­si­dies.”

These ris­ing costs come at an incon­ve­nient time for west­ern Argen­tine grow­ers. Olive and olive oil prices have not increased recently and the poten­tial for a free trade agree­ment between the Euro­pean Union and Mer­co­sur also threat­ens the sec­tor.

Many olive farm­ers and oil pro­duc­ers are con­cerned that no pro­vi­sions for the pro­tec­tion of domes­tic olive mar­kets have yet been made in talks that are likely to begin wind­ing down soon. They worry that newly tar­iff-free Span­ish, Greek and Ital­ian olives and olive oils will soon flow onto super­mar­ket shelves, com­pet­ing with domes­tic prod­ucts.

Cut­ting pro­duc­tion costs is the log­i­cal way to remain com­pet­i­tive, but many farm­ers sim­ply can­not see an easy way of doing so. Low­er­ing labor costs is one option, but many argue that wages are so low that this would drive those who do work on olive farms to find other work.

“[Olive cul­ti­va­tion requires] a lot of fixed and spe­cial­ized man­power to maneu­ver the machines and the field, but also tran­sient [labor] to prune,” Clusel­las said. The impact of labor is already a lot and we can not reduce labor because peo­ple earn lit­tle.”

Since cut­ting labor costs is out of the ques­tion for many, the next option becomes decreas­ing the amount of water that is pumped out of the ground for irri­ga­tion. How­ever, farm­ers who have already tried this say it leads to lower olive yields of infe­rior oil qual­ity.

By low­er­ing the vol­ume of water received by the olive tree, we directly affect the olive grove,” Fabián Famar, a con­sul­tant at the San Juan olive cham­ber, said. And know­ing that if we reduce irri­ga­tion, we also decrease pro­duc­tion and qual­ity.”

Clusel­las agrees that less irri­ga­tion sim­ply will not work for the region. Tech­niques that are used in other arid olive-grow­ing regions, such as Andalu­sia, may be the alter­na­tive. He acknowl­edged that drip irri­ga­tion could be a solu­tion.

We can not irri­gate less because our pro­duc­tion would fall and we would har­vest crops below the equi­lib­rium point,” he said. In our region olives must be grown with a high rate of pro­duc­tion to sus­tain the farm­ers, which means that it must be above 10 tons per hectare per year.”

Due to the off-year, this year’s pro­duc­tion in the region is going to be far less than that. How­ever, many olive oil pro­duc­ers and exporters are opti­mistic that next year will lead to yet another record year of pro­duc­tion. Depend­ing on the out­come of the EU-Mer­co­sur trade agree­ment, some pro­duc­ers believe this will be enough to keep olive farm­ers afloat.

We expect a very good crop for 2019,” one pro­ducer and exporter from the region said.

How­ever, Clusella believes that farm­ers must not make deci­sions based on pre­dic­tions. This is ulti­mately why he sees increas­ing energy prices as the main issue for olive grow­ers in the region.

He also thinks that regard­less of the 2019 crop size, inter­na­tional mar­kets will be dif­fer­ent and olive grower prof­its will not be as high.

I do not think [the prof­its from next year’s har­vest will com­pen­sate for this year’s losses] since the 2018 cycle ben­e­fited from inter­na­tional prices above 30 per­cent of the cur­rent price due to the fall of pro­duc­tion in the North­ern Hemi­sphere,” he said. I do not think that this can be repeated. So that the income in 2019 will be less than the amount of 2017.”





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