Foreign investors cautiously eyeing Argentine agri

Macri's pro-market rhetoric is drawing interest in the country's fertile agri sector, but cash could be slow to follow.

Investors are keeping a keen eye on Argentina’s agriculture sector following centre-right Mauricio Macri’s defeat of former president Christina Fernandez de Kirchner this weekend.

The founder of an advisory firm specialising in South American agriculture ventures, Roberto Viton told Agri Investor: “I’ve been getting calls every week from North American and European investors.”

He said firms are waiting to see whether the political shift will spell a quick end for 12 years of protectionist policy and agricultural tariffs.

Viton said controls, topped with restrictions to capital flows, have driven Argentina’s cattle, corn and wheat stocks down in recent years.

Macri made boosting Argentine agriculture a central part of his campaign.

Changes to the agricultural sector would reverberate through the Argentine economy. Agribusiness accounts for 25 to 30 percent of Argentina’s GDP and 50 percent of its exports, according to a Rabobank report published this year. But an overvalued peso, high agricultural export taxes and price controls have been blamed by Macri’s party and farmers for stifling the agricultural industry.

As well as vowing to roll back protectionist measures, Macri promised a rail project called Belgrano Plan to connect wheat farms in the Northern provinces with the ports of Buenos Aires up to 1,000 kilometres away.

Replacing trucks with trains is one long-term measure that would reduce costs and improve the competitiveness of Argentine grain on the international market, said Viton. However, the advisor added that even if reforms happens quickly, most foreign investors are likely to shy away from the country until it becomes clear that the changes are durable.

“Foreign investors are more cautious about investing in Argentina because of the things that have happened in the past,” he said. “This is not something that can happen from one day to another.”

Other firms and consultants have also told Agri Investor that they will remain wary of Argentina while monitoring rising opportunities there. “It’s long-term political risk,” said one senior investment consultant at a global firm with a small percentage of their portfolio in agri. They continued to class Argentina with Eastern Europe and African countries: “There is opportunity, but we are not now advising our clients to invest in these regions right now.”

Viton noted Argentina has already missed out on a chapter of rising commodity prices and hefty investment in Latin America that ended while the country maintained its protectionist policy regime.

“[Other Latin American Countries] were able to take advantage of high commodity prices and foreign investment in the region. The country missed this opportunity,” he said. “Now, investors are not as open to risk because they see asset prices going down.”

However, Viton argued the potential of Argentina’s agriculture sector could make it a strong long-term play in a more favourable political climate, pointing to the strength of the sector in the face of steep barriers. Despite taxes of 20 to 32 percent on exports of corn, wheat and soybean products, Argentina is the largest exporter of soybean meal and soybean oil in the world and Latin America’s second-largest exporter of agricultural goods.

Elimination of export taxes and quotas and an expected devaluation of the Argentine peso would make Argentine exports more attractive. Hedge funds and banks, Viton said, might step in with financing options to bring improvements to the country’s processing sector. Meanwhile, asset-backed lending for working capital and project finance will gradually increase as risk goes down.

Viton said the removal of “macroeconomic distortions” would also spur production of wheat and corn, which Argentine farmers have abandoned in favour of lower input-cost soybeans in recent years. Rabobank predicted in September that a reduction in export restrictions and an improved exchange rate would drive meat and dairy production upward.