Producers in Argentina Grapple with Inflation Ahead of 2023 Harvest

Summary

Producers in Argentina are fac­ing the high­est rate of infla­tion in three decades, with annual infla­tion reach­ing nearly 95 per­cent in 2022 and pre­dicted to rise to almost 98 per­cent in 2023. The eco­nomic cri­sis has impacted all sec­tors, includ­ing olive oil pro­duc­tion, lead­ing to increased pro­duc­tion costs and dif­fi­cul­ties in export­ing due to the par­al­lel cur­rency mar­ket and exchange rate dis­crep­an­cies. Despite these chal­lenges, pro­duc­ers are find­ing ways to keep the olive oil flow­ing and are opti­mistic about the upcom­ing har­vest, with pre­dic­tions for a robust pro­duc­tion year.

With the start of the 2023 har­vest less than two months away, pro­duc­ers across Argentina have been fac­ing the high­est rate of infla­tion in the past three decades.

According to data from INDEC, Argentina’s national sta­tis­tics agency, annual infla­tion in 2022 reached nearly 95 per­cent. Analysts con­sulted by the coun­try’s national bank pre­dicted that this fig­ure would rise to almost 98 per­cent in 2023.

A pro­longed eco­nomic cri­sis has plagued South America’s largest olive oil pro­ducer due to a mas­sive debt bur­den, exces­sive deficit spend­ing and ram­pant deval­u­a­tion of the local cur­rency, the Argentine peso.

The ongo­ing cri­sis has impacted every eco­nomic sec­tor, includ­ing olive oil pro­duc­tion. However, pro­duc­ers have learned to live with ram­pant annual infla­tion, which has exceeded 50 per­cent in three of the past four years.

“Living in a coun­try with such a large infla­tion­ary impact, such as Argentina, makes peo­ple entre­pre­neurs and their com­pa­nies com­pletely change their sav­ings and cap­i­tal­iza­tion strat­egy,” Gabriel Guardia, the gen­eral man­ager of Mendoza-based Olivícola Laur, told Olive Oil Times.

“We know per­fectly well that the peso is a cur­rency that can­not be trusted or saved,” he added. ​“Therefore, there is no other option than to invest, spend it… or save in dol­lars. There is no other alter­na­tive.”

However, the Argentine gov­ern­ment has imposed strict lim­its on the amount of dol­lars that pri­vate cit­i­zens and com­pa­nies can buy. As a result, an ille­gal par­al­lel mar­ket, known as the blue dol­lar, has emerged, which is about 50 per­cent lower than the offi­cial exchange rate.

The par­al­lel exchange rates have com­pounded the impacts of infla­tion, espe­cially on locally-sourced inputs.

“The inter­nal costs of elec­tric­ity, fer­til­iz­ers, phy­tosan­i­tary prod­ucts and trans­porta­tion per­ma­nently increase every month or two,” Guardia said.

Julián Clusellas, pres­i­dent of the Valle de La Puerta olive oil com­pany and a board mem­ber of the Argentine Olive Federation, told Olive Oil Times that the cost of labor and fer­til­izer had dou­bled since the start of last year.

He added that the cost of phy­tosan­i­tary prod­ucts and elec­tric­ity, which is required to power the mills and irri­ga­tion sys­tems upon which nearly all of the coun­try’s olive groves rely, had also risen sig­nif­i­cantly.

Guillermo Kemp, the com­mer­cial direc­tor of Solfrut, added that infla­tion and other exter­nal fac­tors have made pur­chas­ing other nec­es­sary inputs, such as bot­tles, caps and labels, an addi­tional com­pli­ca­tion.

“These prob­lems com­pli­cate our pro­duc­tion plans, which are con­stantly adjusted to meet all the pay­ment com­mit­ments that the com­pany has,” he told Olive Oil Times.

Due to the increase in pro­duc­tion costs, olive oil sold domes­ti­cally also has to increase in price every two to three months.

According to Clusellas, this has resulted in many local pro­duc­ers for­sak­ing the domes­tic mar­ket and stick­ing to exports, mainly to the United States, Europe and Brazil.

“What has saved us this year is the inter­na­tional price that is very high, 40 per­cent more than it was last year,” he said.

However, the com­bi­na­tion of infla­tion and the par­al­lel cur­rency mar­kets means that not all exports are prof­itable.

“The great bat­tle is with the inter­nal costs since the inputs increase their value in par­al­lel dol­lars,” Guardia said.

Often, pro­duc­ers pur­chase goods and ser­vices for the blue dol­lar (about 380 pesos) while con­vert­ing their rev­enue from exports at the offi­cial rate (about 190 pesos).

“This gap strongly harms the com­pet­i­tive­ness of exports,” Guardia added. ​“Our export mar­kets have prac­ti­cally col­lapsed by 90 per­cent since we can­not com­pete with the most sta­ble pro­duc­ing coun­tries, such as Spain and Portugal.”

Clusellas agreed: ​“The exchange rate dis­crep­ancy is killing us like it is with all pro­duc­ers who export.”

Despite the chal­lenges posed by infla­tion and Argentina’s cur­rency cri­sis, pro­duc­ers con­tinue to find ways to keep the olive oil flow­ing.

For exam­ple, Solfrut con­tin­ues to cre­ate economies of scale and improve effi­ciency to lower the price per kilo­gram of olives grown and liter of oil pro­duced.

“Our strat­egy is to con­tinue increas­ing pro­duc­tion lev­els as new olive groves are incor­po­rated into the pro­duc­tion scheme and, on the other hand, to improve pro­duc­tiv­ity through bet­ter water man­age­ment (irri­ga­tion) and prun­ing, as well as the incor­po­ra­tion of new renew­able energy in irri­ga­tion and pro­duc­tion sys­tems,” Kemp said.

Guardia added that con­stant deval­u­a­tion of the peso means that the most eco­nom­i­cal thing for pro­duc­ers to do is con­stantly re-invest.

“Companies gen­er­ally end up rein­vest­ing the profit in fixed assets,” he said. ​“Argentina has the motto that what we see today as expen­sive is cheap tomor­row.”

“This is why we fre­quently see that in moments of cri­sis, invest­ment increases, the pur­chase of machin­ery increases, the expan­sion of indus­tries that found a return despite infla­tion increases,” he added. Industries that do not invest and can­not beat infla­tion die out.

As in other coun­tries, infla­tion in Argentina peaked from June to August and has decreased ever so slightly since. This offers a slight reprieve to pro­duc­ers, as do pre­dic­tions for the upcom­ing har­vest, which begins next month.

Clusellas said he thinks Argentina will pro­duce about 30,000 tons of olive oil this year, in line with the rolling five-year aver­age of 33,200 tons. He based his pre­dic­tion on many pro­duc­ers enter­ing an ​‘on-year’ in the nat­ural alter­nate bear­ing cycle of the olive tree.

Kemp said that Solfrut would begin its har­vest in the mid­dle of next month and pre­dicts a slightly higher yield this year than in 2022.

“In some of our farms, such as Chilecito, we will have a year of high pro­duc­tion, higher than 2022,” he said. ​“Regarding our farms in San Juan, the expected pro­duc­tion lev­els are sim­i­lar to 2022.”

Meanwhile, in Mendoza, Guardia also expects a robust har­vest.

“The trees are well-loaded with olives, and we have had a fairly dry cli­mate so far, which could favor a good lipo­ge­n­e­sis if every­thing remains the same,” he said. ​“We hope to con­tinue the year with­out cli­matic incon­ve­niences.”

“And if this hap­pens, the har­vest will be quite good,” Guardia con­cluded. ​“It’s not all bad news.”

• Buenos Aires Times
• Reuters