Skip to main content

Estimate: Drought to Shave 0.5% from GDP

By | [email protected] | March 23, 2018 11:53am

soySoy plants are seen in a drought-affected farm near Chivilcoy, Argentina February 28, 2018. (Photo via REUTERS/Martín Acosta)

Agricultural losses due to this summer’s drought could shave 0.5% from the GDP and reduce the value of exports by US$3.3 billion, according to estimates released today by the Buenos Aires Grain Exchange.

The report studies the reduced production of corn, wheat, sunflower, and soybean as a consequence of the drought and the corresponding shifts in prices and exports.

As such, given what the Grains Exchange calls “one of the worst droughts in recent years” and high temperatures coming on the heels of excessive rainfall in the previous year, estimates for the production of corn have been cut from 41 million tons to 32 million – a 22 percent reduction. Soybean output has been projected to be 39.5 million tons, down 27 percent compared to the planting season’s projections. Overall, some 54 million tons of grains are expected to have been lost to the drought.

Impact Drought Argentine Grains 2018 by The Bubble on Scribd

The loss in GDP as a result was estimated by the Grains Exchange to be in the range of US $3.436 billion. The value of this year’s harvest will be roughly 11 percent smaller than the output expected in October 2017, before the drought set in. That loss will amount to 0.5 percent of the GDP according to estimates, but the Grains Exchange warns that “this analysis only considers direct effects, and as such the final macroeconomic impact will be much higher if the interactions with the other sectors in the economy are considered.”

In terms of fiscal impact, the writers of the report estimate that the state can expect to see its tax receipts fall by US $1.174 billion.

However, some of the losses have been offset by an increase in the prices in the agricultural products that Argentina has exported. Without the increase in prices (the price of corn is up 20 percent, soybean up 9 percent, soybean up flour 24 percent, and soybean oil down 1 percent compared to October 2017 levels) the fall in the value of agricultural production would have been 18.7 percent less than the October 2017 projections.

While grain production is down, the Grains Exchange is nonetheless predicting that the reduction of export of processed agricultural foods – soy flour and soybean oil – will be proportionally smaller. As such, the estimates are such that “36.6 million tons of soybean will be processed, 4.9 million less than in the previous harvest. That is explained, in part, by less exports of unprocessed grains, which will amount to only 4 million tons (45 percent less than last year), along with a fall in the stock of grains of 2.8 million tons and an increase of soybean imports, especially from Paraguay, to be processed in Argentina.”