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Can Argentina’s Economy Overcome Monsanto’s Suspension Of Crucial Soybean Technologies?

By | [email protected] | May 25, 2016 1:23pm

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On May 17th, Argentina’s vital soybean industry was dealt yet another significant blow in a seemingly never-ending series of setbacks. Crops have suffered catastrophic damage due to flooding so far this year, and now US agrochemical giant Monsanto has decided to suspend future technologies in the country following an argument with its government over inspections of its genetically modified crops.

Argentina is the world’s largest exporter of soybeans for livestock feed — and the third largest producer of raw beans for export — yet now its farmers will not have access to Monsanto’s Xtend technology, which has for several years been the key to the success of the crop in the country. In essence, the technology genetically alters soy plants, making them immune to glyphosate herbicides which can then be used to eradicate other weeds found among crops. Farmer Pedro Vigneau told Reuters that no other company offered the same technology.

Monsanto had sought guarantees that shipments could be inspected to ensure that royalties had been paid, but were told by the Argentine government that any such examination must receive their approval. A spokeswoman for Argentina’s Ministry of Agriculture said the ruling was designed to “guarantee free trade and property rights.” In reply, Monsanto’s statement expressed its “disappointment” at the lack of a resolution following talks.

So, will this latest setback in the soybean sector stall President Mauricio Macri’s ambitious plans for economic reform?

Firstly, it is essential to bear in mind that agriculture accounts for 10.5 percent of Argentina’s GDP (although figures of course vary). According to 2015 estimates, soybean exports accounted for 5.5 percent of total GDP and 10 percent of Argentina’s tax revenue, while crucially it is also the country’s main source of foreign currency. Its importance, therefore, cannot be understated.

In December last year, President Macri stood in front of a group of farmers having fulfilled one of his key campaign promises: to remove taxes on some agricultural products as part of a series of belt-loosening measures — including a 35 percent tax on soybeans — a staple of Kirchnerite economic policy. That tax was cut to 30 percent, with an annual five-percentage-point drop promised from then on. “We can double food production in Argentina,” he told the crowd.

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This good will was not to last long, and now the forecasts make for grim reading. The Buenos Aires Grain Exchange has predicted a harvest of 56 million-ton crop this year, although this estimate has already been cut from an initial 60 million tons due to widespread flooding, an already marked reduction on last year’s harvest of 61.4 million tons. Another estimate by consultants Globaltecnos predicts that Argentina’s soybean exports will fall by 25 percent as a result of flooding. Furthermore, the trade price of soybeans has fallen by half a percent to US $391.14 per ton in recent weeks due to poor export performance in the US. These statistics were released even before the Monsanto affair, so signs are not good.

As if to rub salt into the already raw wounds, Monsanto has expressed intentions to change its focus to Argentina’s competitor Brazil as its key soybean market. President Brett Begemann told investors at the BMO Capital Markets conference in New York that Brazil is “the real opportunity” for growth in South America for Monsanto’s Xtend technology. Brazil is already the world’s biggest soybean exporter and accounted for US $1.73 billion in Monsanto’s net sales in 2015 — nearly 12 percent. Dealings in Argentina, by comparison, amounted to just 5.8 percent.

All of this means that President Macri and his Agricultural Ministry are playing a very dangerous game. They can ill afford to let their soybean exports stagnate; and will be even less keen to lose the industry-controlling input of Monsanto to their Brazilian rivals altogether. This latest episode comes at a particularly sensitive time on the back of destructive flooding — Santa Fe Province alone has lost nearly 910 million hectares of soy crop.

But this should be a motive for compromise to be sought with Monsanto — and quickly. The days of combative and aggressive negotiation on the part of Macri’s predecessor Cristina Fernández de Kirchner should have taught him a valuable lesson, yet it seems that where the key soybean sector is concerned at least, the past has not left its mark.

So, can Argentina’s economy overcome Monsanto’s suspension of technologies?

Yes, certainly; but the way to do that is to make the relatively small concession that the US conglomerate asks and allow inspections, meaning that the crucial technologies can be retained in future. Argentina’s soybean industry is in too delicate a state after the flooding to not play ball with Monsanto — and the company is all too aware of this fact.