The unexpected presidential primary success of a libertarian economist has introduced an added element of drama to the already high degree of uncertainty surrounding Argentina, a key agricultural producer long hampered by a turbulent political economy.
Though Javier Milei’s victory in the forthcoming October general election is by no means assured, his rapid ascent to becoming the frontrunner in the race – he was a political unknown until 2020 – is a reminder of why investors have largely stayed clear from Argentina despite its enormous agronomic potential. The country is the world’s biggest exporter of soymeal and soy oil.
Whatever its persuasion, any new government in Buenos Aires will have to review the Bunge and Viterra merger, which would hold a dominant share of soy processing capacity in the country. Argentina’s soybean producer Vicentin presents another concern, with the business eyeing its own merger with Bunge, which would represent a lifeline given its ailing fortunes. Nationalization of Vicentin was mooted again as recently as June 2022.
On the ground, the USDA’s April report said severe drought hampered yields in the 2022/23 marketing year, with NYSE-listed Adecoagro reporting a 27 percent year-over-year reduction in total production in its Q2 results. USDA noted drought has placed many of Argentina’s farmers in a poor financial position and most analysts expect the government will change in December.
“Many farmers look forward to a government more amicable with the sector. Whoever becomes elected will be in serious need of generating revenue and will most likely encourage the largest [wheat] exports possible, always securing a good supply of wheat in the domestic market,” wrote analyst Kenneth Joseph. “If the opposition were to win these elections, farmers may hold back grain [corn] with the hope the government would reduce export taxes and end currency controls resulting in a devaluation.”
The potential for a revival of Argentina’s agricultural sector was among the topics addressed in a mid-year overview from advisory Valoral Advisors. Founder Roberto Viton, who is from Argentina, told Agri Investor while the country’s politics have rendered the market largely un-investible for all but a few strategic players for much of the past two decades, the upcoming potential change in government does bring about the possibility of positive developments.
“In this country – which is so productive and efficient in the agricultural sector and has such a massive scale – a change in government, which can bring new policy and improve conditions for businesses and investors, this can actually trigger a new investment wave,” he said. “At least you can imagine there will be some new funds or existing funds re-focusing on the country.”
Viton said recent developments in neighboring countries including Brazil and Uruguay suggest prices for prime farmland in Argentina could rise dramatically under a more business-friendly regime. Still, he added, investors have been conditioned to see Argentina’s risks as on par with those in countries like Venezuela and foreign investors will need confirmation the country is moving in the right direction.
A key issue to watch, said Viton, will be the status of Vicentin, which announced plans to be acquired by Bunge in mid-2022 that has since seen progress on closing the sale reportedly slowed by the lack of a necessary ruling by a provincial judge. The particularly strong role played by provincial authorities in governing Argentina’s natural resources is just one of many obstacles facing any investor tempted to use Milei’s potential election as an opportunity to reassess risk in the country.
Some disruption to the status quo is clearly needed to create more space for private capital within Argentina’s agricultural sector. The country’s upcoming general election is a chance to take the first step towards creating that change.