Argentina. The country of beef, maize and soybeans. And, in the future, the country of pigs as well. The public sector has been encouraging pork consumption, to liberate beef for export. But there are more interesting features in the pig sector in Argentina. What is driving the developments in this country of meat production?
By Frederik Vossenaar, agricultural counsellor, Dutch Ministry of Agriculture, Nature and Food Quality, Buenos Aires, Argentina
Those who plan to start business in the Argentinean agriculture sector will soon come across export taxes. Export taxes on agricultural products from Argentina have existed for a considerably long time. From a World Trade Organization (WTO) perspective, these regulations have been regularly and heavily criticised, but a serious attempt to abolish them has never been made. It is doubtful if they will ever be abolished since the taxes have a fundamental role to play in financing state expenses and redistribution of income policies from rural areas to the cities.
The Argentinean authorities encourage customers to consume more pork. This way, more beef can be exported.
Partly installed to make sure that the domestic market is always saturated, export taxes and the way they are structured determine the choice of producing certain types of agricultural products and export possibilities. Exports of soybeans, Argentina’s most important product in agriculture, are taxed 35%; maize is taxed 20%; soy oil 32% and biodiesel 20%. Since biodiesel is made from soy oil, the 12% export advantage will keep biodiesel production in Argentina as well.
Escaping the tax burden
Beef exports are another example of a heavily regulated product. In order to keep supplying the local market at low prices, export taxes for beef amount to 15%. Still, 2007 exports amounted to almost 500,000 tonnes – of which 28,000 for the lucrative Hilton-quota – but in 2008, restrictive measures have increased rapidly, leading to a situation in which even Uruguay exported more beef than Argentina.
In short: constant tax increases compel Argentinean farmers to continue innovating and become more efficient. One option for decreasing the export tax burden and to profit from a tariff structure is to expand into pig and poultry production. To start with the latter: poultry exports do not suffer from quota restrictions and are only taxed by 5%. This has lead to a quick growth in the poultry sector, dominated by well-organised vertical integrations. In 2007, production amounted to 1.15 million tonnes, with exports of 150,000 tonnes. Exports increased by 25% in kg and 50% in value.
Consume a pig
Global-scale competition from Argentina however is to be expected in pork production. Export taxes for pork are also only 5%. A world map of dominating pork production regions however, will not highlight Argentina, as in 2007, a total of 3.2 million pigs were slaughtered – and the country does not have a great reputation when it comes down to exports – in 2007 only 2.2 tonnes were exported.
If, however, that same map would show growth figures and opportunities, a different picture becomes apparent. In 2005, a total of 2.5 million animals were slaughtered and three years prior to that, the number was even below 2 million. The sector grew especially rapidly in 2007 with the central government encouraging pork consumption. The philosophy is that this will boost beef exports, as domestic beef demand will come down with increased volume of pork consumption. Still, in 2007, an additional 40,000 pigs had to be imported to meet demands.
Argentina is now considered one of the countries that will be successful in the middle and long term when it comes to pig production. To start with, this is because nowhere in the world are feed supplies in abundance as in Argentina, facilitating livestock producers to have their maize and soybeans a lot cheaper (20% and 32% respectively) than their counterparts abroad.
Additionally, there are no veterinary restrictions; the country’s infrastructure is good; supplies of both water and space are not a problem. Argentinean sources claim they work cheaper than their Brazilian colleagues, and as with the poultry sector, large integrations are willing to construct the whole chain efficiently. This allows them to reassure the government that they will continue to meet domestic demands in exchange for low export taxes. All these elements cause an existential difference between poultry and pig production on one hand – and beef production on the other.
The OECD-FAO Outlook, that was published in 2008, acknowledges the role that Argentina will play in global meat production: “Continuing investment, capacity building, better infrastructure and the dissemination of improved production technologies, are the main factors spurring such growth in meat and meat products, particularly in the more dynamic developing economies such as China, Brazil and – for pork and poultry predominantly – also in Argentina.”
In 2007, roughly 200,000 sows were kept and that number is going to increase in percentage terms by the ten-fold. Adeco Agro, a company in which successful businessman George Soros invested in, announced in early 2008 the building of a farm to accommodate 50,000 sows. Several other companies are constructing facilities for 5,000 to 6,000 sows – and there are rumours of additional mega-projects, involving companies such as Cabaña Argentina, Paladini, Vicentin and Carpane.
It is expected that the production in 2008 will grow to 350,000 tonnes and in 2015 to 600,000 tonnes. Existing smaller farms have also started to invest in better housing and feed technology. Even for the meat processing industry the Argentinean surge offers opportunities. Slaughter and processing plants usually do not meet the sanitary requirements as indicated by buyers.
To conclude, apart from additional export restrictions, export taxes of 35% on soybeans and 20% on maize encourage domestic usage. On pork or poultry meat however, there is only an export tax of 5% and no quantitative export restrictions are in place – quite on the contrary, producers can even be subsidised for using maize.
Both sectors work in an organised way, and on top of that they do so efficiently and with knowledge. Nowhere in the world, can pigs be produced as cheaply as in Argentina, even if political situations were to change and export taxes would disappear. Production and exports do not currently amount to much, but whoever looks closely at the country’s opportunities can only draw one conclusion: future pigs will hail from Argentina.
This article was translated from Berichten Buitenland, issued by the Netherlands Ministry of Agriculture, Nature and Food Quality.
Argentinean agriculture at a glance
Soybeans are the most important product in Argentinean agriculture. More than half of the surface dedicated to crop production is used for the culture of soybean; in 2008 this was 16.6 million hectares. The vast majority of this is destined to go abroad, as only a small portion of the 46.5 million tonnes this year was used for domestic consumption. Production of maize, another prominent product of Argentina, increased 6% to an area of 3.2 million hectares in 2007-2008. This yielded 24 million tonnes of maize, an amount however which was influenced negatively by drought. Unlike soybeans, maize is used for the domestic livestock market.
• Beef is Argentina’s most important meat – consumption amounts to 70 kg annually per capita. In addition, poultry meat is also a popular choice, which is consumed for 28 kg every year per capita. Pork consumption is still relatively low, but it is increasing rapidly: in 2007, consumption was 8 kg per capita. Five kg of consumed pork was fresh, double the amount of the previous year.