POLITICAL HISTORY HINDERS ARGENTINIAN DAIRY INVESTMENT

pexels-photo-236010.jpeg

Milk price fluctuations are a continual headache for British farmers, but imagine if you had to battle inflation and huge interest rates on finance at the same time. Historically, for Argentinian farmers, this has been a day-to-day reality.

When global milk prices dropped through the floor in 2016, Argentina was experiencing inflation rates of 40%. The country has struggled to control inflation for many years due to a variety of complex reasons linked to a turbulent political environment.

In the eighties, inflation hit an eye-watering 5,000%. Last year they were at 21.6% (median), whilst in February this year, they were 25.4%. At the same time, wages haven’t always kept up.

Agricultural strategy consultant from Quarterra, Monica Ganley tells me that Argentinian consumers are used to prices going up and down on supermarket shelves. However high costs have impacted on dairy product sales, and particularly fresh products like yoghurts.

Input costs

At the same time, the inflation story has affected farm input costs. Maize and soya prices have been fairly protected due to their link to the US dollar, but other inputs, such as medicines have escalated.

Over a coffee in her home of Pilar, to the north of Buenos Aires, Monica said things were picking up, but a couple of years ago, farmers were in “really rough shape.”

“Argentina has some incredible (cattle) genetics and a really great climate for making dairy, but nobody has had the capital to invest in their milking facilities for example,” she explained. “If you go to Santa Fe, which is the crib of milk production here, people are milking with such little technology just because they haven’t had the money available to them to invest.”

Monica Ganley

Monica Ganley (above) explains how inflation and a lack of access to credit has hindered dairy development in Argentina.

A lack of access to credit adds to the challenge. Monica tells me that historically, to buy a house in Argentina, cash has been the only option – so it has almost been a case of turning up to the sale with several suitcases of pesos! Today, things have improved slightly, with the government introducing mortgage options.

Looking back to 2012, Monica cites her own experience of trying to buy a car, where she was quoted a finance interest rate of 25%. You can imagine the huge prohibitive cost of investing in a new milking parlour!

Labour

Monica tells me that the low level of investment in Argentinian dairying is in stark contrast to other, more stable South American countries such as Chile and Uruguay.

She says: “I went to a dairy conference in Chile – not last year, but the year before – and there was a guy there with a 200 cow Jersey farm with robotic milkers. You would never in a thousand years see a robotic milker here (Argentina) and that’s crazy because labour is such a problem.”

Apparently the issue with labour in Argentina isn’t due to supply, but is instead linked to employee “rights.” This stems from the country’s populist political history and large number of worker unions.

For example, employers have to pay thirteen month’s worth of salary a year! Firing an employee is also extremely difficult, whilst workers also have to receive very generous medical and maternity support.

Uplift

However, it’s not all doom and gloom. In recent months, things have started to improve for Argentinian dairy producers. This is largely linked to the global uplift in milk price, but also the overall improvement in Argentina’s economic situation since the election of a new government in 2015 (more to come on this).

Monica says economic improvements have been slow and not as dramatic as everyone would like. However, consumer confidence has improved – something which has not yet translated into a substantial uplift in purchasing of dairy products. “I think things are getting better and that’s affecting dairy farmers as well,” she adds.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s