Potential of Major Changes in Argentina Provide Hope for Producers, Exporters

The election of a conservative government has provided some producers with hope that Argentina’s economic situation – along with their own – will begin to improve.

President Javier Milei of Argentina (AP)
By Daniel Dawson
Feb. 19, 2024 17:09 UTC
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President Javier Milei of Argentina (AP)

Since tak­ing office in December, President Javier Milei has wasted no time act­ing on his promises to foment a rad­i­cal change in Argentina.

Within weeks, he had issued a range of exec­u­tive decrees and sent an omnibus bill to Congress. The orig­i­nal pro­posal changed more than 300 laws, with the goals of dereg­u­lat­ing labor laws, pri­va­tiz­ing state-run com­pa­nies and plac­ing restric­tions on protests.

Our pro­duc­tion costs will become much more expen­sive, and the sit­u­a­tion may worsen in the medium term. However, Argentina needed a change.- Julián Clusellas, pres­i­dent, Valle de la Puerta

While the decrees come into force – result­ing in a rapid deval­u­a­tion in the cur­rency as the Argentine peso fell from its arti­fi­cially pegged value closer to the actual mar­ket value – the omnibus bill failed to pass an ini­tial vote in Congress, and nego­ti­a­tions are ongo­ing.

Olive oil pro­duc­ers and exporters inter­viewed by Olive Oil Times are cau­tiously opti­mistic – some are even bull­ish – that President Milei’s reforms will help the sec­tor. However, sig­nif­i­cant chal­lenges are expected in the short term.

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The prob­lem con­tin­ues to be infla­tion, the tax bur­den and non-wage labor laws,” said Mario Bustos Carro, the gen­eral man­ager of the Chamber of Foreign Commerce of Cuyo. But there is great con­fi­dence in the gov­ern­ment of President Milei. His laws and decrees need to be approved to be able to say that we can begin to move for­ward.”

He cited the Milei government’s pro­posed reforms to non-wage labor laws and to reduce pub­lic spend­ing as poli­cies that would help the olive oil sec­tor. While tax reforms were dropped from the orig­i­nal leg­is­la­tion, Bustos Carro added that they would have helped make olive oil exports more com­pet­i­tive.

Guillermo Kemp, the com­mer­cial direc­tor of Solfrut and a board mem­ber of the Argentine Olive Federation (AOF), told Olive Oil Times that pro­duc­ers and exporters need to wait and see what changes are made to the omnibus bill in Congress.

While the gov­ern­ment has pro­posed a 15 per­cent tax on some agri­cul­tural exports to help close a sig­nif­i­cant fis­cal deficit, olive oil was not included.

Kemp said the omis­sion would con­tinue to encour­age pro­duc­ers to export, espe­cially as the gap between the offi­cial peso‑U.S. dol­lar exchange rate and the unof­fi­cial exchange rate, known as the Blue dol­lar, has fallen from more than 120 per­cent to around 20 per­cent.

The dis­crep­ancy between the two was a sig­nif­i­cant chal­lenge for exporters, who had to repa­tri­ate for­eign sales made in U.S. dol­lars and Euros at the much lower offi­cial exchange rate while pur­chas­ing many pro­duc­tion inputs – often in dol­lars – at the higher Blue dol­lar exchange rate.

This markedly improves the sit­u­a­tion for exporters,” Julián Clusellas, pres­i­dent of Valle de la Puerta, a sig­nif­i­cant exporter, and an AOF board mem­ber, told Olive Oil Times.

He agreed that no new taxes would help the sec­tor. However, other cost-cut­ting mea­sures will raise input costs for grow­ers and millers.

Clusellas warned that pro­duc­tion costs would dou­ble after the gov­ern­ment removed elec­tric­ity sub­si­dies, result­ing in a price rise of up to 150 per­cent, and will be felt most acutely by farm­ers depen­dent on irri­ga­tion.

Electricity costs will become much more expen­sive in Argentina once the gov­ern­ment removes all the sub­si­dies,” he said. As a result, our pro­duc­tion costs will become much more expen­sive, and the sit­u­a­tion may worsen in the medium term. However, Argentina needed a change, and I hope they improve the coun­try.”

While it is still too early to tell how the decrees and pro­posed leg­is­la­tion will work to tame infla­tion – which reached a new high of 254 per­cent year-on-year in January – and set the Argentine econ­omy on the road to recov­ery, Clusellas is opti­mistic.

He agreed with Bustos Carro that chang­ing employ­ment laws would make it eas­ier for man­agers to hire and fire work­ers. Under the cur­rent sys­tem, busi­nesses usu­ally must pay gen­er­ous sev­er­ance pack­ages, lim­it­ing their abil­ity to hire a replace­ment.

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Meanwhile, the pri­va­ti­za­tion of the state-owned rail­way com­pany could open the door for much-needed invest­ment to improve logis­tics and trans­port effi­ciency in the coun­try – some­thing the largest olive oil pro­duc­ers have long advo­cated.

There is a lot of work to do on rail­road infra­struc­ture to lower trans­port costs to the port,” Clusellas said.

With plans to build a bi-oceanic cor­ri­dor con­nect­ing Argentina with major Chilean ports stalled indef­i­nitely, vir­tu­ally all of Argentina’s olive oil exports – esti­mated by the International Olive Council at 26,500 tons in the 2022/23 crop year – travel roughly 1,200 kilo­me­ters from the north­west and west of the coun­try by road or rail to the ports in Buenos Aires.

Supporters of the cor­ri­dor believed it would facil­i­tate Argentine olive oil exports to lucra­tive East Asian mar­kets, such as China, Japan and South Korea. Most exports are des­tined for Brazil, Europe and the United States.

While there is opti­mism about the sec­tor’s prospects, no one denies that plenty of work still needs to be done to improve the eco­nom­ics for olive grow­ers and pro­duc­ers.

Much more is needed, such as improve­ments to infra­struc­tures – routes, ports, com­pet­i­tive means of trans­port – stim­u­la­tion of regional economies and pro­mo­tion of [Argentine extra vir­gin olive oil],” Kemp said.

It won’t be easy,” Bustos Carro con­cluded.



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