The social cost of a devaluation jump in Argentina at this moment would be very significant. It would dangerously intensify the already perverse inflationary dynamics, it would accentuate the real and dollar deterioration of Argentine income, it would further increase the painful levels of poverty that afflict us.
However, holding a trailing real exchange rate is not free either. Among other effects, it reduces the competitiveness of national products abroad and, consequently, the possibilities and convenience of exporting from Argentina. The advantages of international trade constitute a law that applies to all countries, but even more so in those whose domestic market is relatively small. Such is the case of Argentina.
Fruit growing in Río Negro and Neuquén was conceived as an export activity that generates foreign currency, and continues to be so today. Therefore, fluctuations in the real exchange rate are a variable that considerably affects the sustainability and profitability of the sector.
Fruit growing in Río Negro and Neuquén was conceived as an export activity that generates foreign currency, and continues to be so today.
The implementation of a differential exchange rate for the export of pears and apples from Río Negro and Neuquén was a measure long demanded by local producers, until it finally came. Under the name of the export increase program for regional economies, or better known as the agricultural dollar, the national government set the exchange rate for sales abroad from regional economies at $300 per dollar. In particular, for fruit growing in the Alto Valle, the measure became official in mid-April, but the process of registering exporting companies, submitting affidavits until authorization to liquidate takes a few weeks.
So, May was the first month with full force of the agricultural dollar, and the National Agrifood Health and Quality Service (Senasa) published data on fruit exports for that period. With them it is possible to make a first evaluation of the effects of the policy. Likewise, we consult industry leaders to find out what is behind the figures.
$300/U$S 1 It is the differential exchange rate established by the National Government for the exports of some regional productions.
Null effect on volumes
The quantities of fruit exported from the Alto Valle did not exhibit performances worthy of celebration in the month of May. In particular, in the fifth month of the year the regional export of pears reached 36,787 tons. Although the figure is 10% higher than that registered in May 2022, the increase is not attributable to the export increase program. An example of this is that the interannual increases in the volume exported in the two previous months, when the agricultural dollar was not yet in force, were more than double. As seen below, Russia is a key element behind these figures.
The panorama in the case of apples is discouraging, whose exports from Río Negro and Neuquén in May fell by 14% year-on-year, giving continuity to the trend that began several years ago. The attached graph shows this situation.
A renowned businessman from the sector in the region explained that “the quantities exported are more or less the same because we work with a sales program that does not change from one day to the next, the volume to be exported is predetermined”. By the way, he considered that the measure was extemporaneous, because “left very on timethe programs were already very advanced”, and added that “if the agricultural dollar had come out in January, the story would surely have been different, predictability is required”.
In line with the latter, the president of the Argentine Chamber of Integrated Fruit Growers (CAFI), Mr. Nicolás Sánchez, pointed out that “the peak of exports is in February-March-April, and then by May-June-July it begins to decline ”. The measure, far from meeting the needs and specificities of regional activity, is rather an improvised attempt by the national government and Sergio Massa to accumulate international reserves in the coffers of the Central Bankgiven the still pressing shortage of dollars in the economy.
-14% It is the year-on-year drop in the exported volume of regional apples in May.
There are other data that support these claims. The proportion of local production that was exported in May 2023 did not increase compared to May 2022. In the case of pears it remained at 58%, while in the case of apples it fell from 25% to 17%.
The businessman consulted explained to Diario RÍO NEGRO that the regional production of pears is very similar to that of apples, but that the latter is much more in demand in the domestic market and, therefore, the percentage destined for export is lower in comparison. “In Argentina, 4 times more pears are produced than what the domestic market consumes, it is a production that is designed to be exported, to generate work and foreign exchange in the country”, he indicated.
It is pertinent to repeat that the official name of the agricultural dollar was “export increase program for regional economies”. In light of the first data, fruit growing did not achieve an export increase with the differential exchange rate.
However, the references consulted agree on something: the farm dollar was a relief. They do not speak of a substantial improvement in the income statements, but rather of a “compensation”.
Sánchez elaborated and contributed that “there has not been a very great profitability with the fruit dollar; We haven’t seen the impact yet, but the simulations we did indicate that the improvement will be between 4% and 6% or 7%, or perhaps less”. He ends his balance by saying that “the effect ends up being like a refund, which is not minor, but not extraordinary either.”
Along the same lines, the fruit businessperson consulted indicates that “it is not an improvement in profitability, but rather compensation for costs, which increase due to the gap we have, because a large part of the inputs are priced at blue, and due to the ban on imports current”. However, he acknowledges thatit is better to have that exchange rate than the one we had before”.
The effect of the agricultural dollar ends up being like a refund, which is not minor, but not extraordinary either.
Nicolás Sánchez, president of CAFI.
Regarding this last point, it is appropriate to provide a piece of information. Due to the acceleration in the rate of daily devaluation of the official exchange rate (crawling peg), the differential that the agricultural dollar “pays” has been reducing very significantly. To illustrate, on April 21, the date on which the inclusion of pears and apples in the regime was made official, the difference between the official dollar and the agricultural dollar was $75 per dollar. At press time, that spread had already shrunk to less than $28..
And let’s remember: the measure will be in effect until August 31, and until then the gradual devaluation of the official dollar will continue, and the gap with the parallel exchange rates can change significantly, considering that the PASO elections will be held in the middle. It should be mentioned, however, that the annual export curve of fruit growing is already in its downward phase, so the impact of this exchange rate gap would not be so relevant.
The measure, far from meeting the needs and specificities of regional activity, is rather an improvised attempt by the national government to accumulate international reserves.
In addition to the exchange rate, another key factor in determining profit margins is the export price. In this regard, the businessman interviewed stated that “The pear is at low prices, it is going through a complicated cycle in terms of prices”. Regarding apples, he indicated that “there is a drop in supply in the world that helps maintain prices.”
Finally, it should be remembered that Companies that have registered are obliged to adhere to the Fair Prices program, and must supply the domestic market with a guideline of monthly price increases of no more than 4%.. This, in a context of inflation above 7% month by month, has an impact on profit margins.
“If the agricultural dollar had come out in January, the story would surely have been different, predictability is needed.”
Renowned fruit entrepreneur in the region.
Russia and the weather
To understand the current situation in the sector, there are issues that are unavoidable, such as the war that has Russia as the protagonist, one of the main export markets for fruit growing in the Alto Valle.
Perhaps the biggest drawback that the sector went through in 2022 was the drop in external sales destined for the Eurasian country for the aforementioned reason. This year the war continues, but the volume exported partially recovered.
Between January and May 2023, 45,764 tons of pears were exported to that country, a value still below the historical averages but 55% above that registered in the same period last year. This makes it possible to explain the higher volumes of this fruit exported to which we refer in the first section.
45,764 tons It was the volume of pears exported from the Upper Valley to Russia between January and May 2023.
Apple shipments to Russia totaled about 1,449 tons in the first 5 months of this year. This is 11% more than what was sold in the same period of 2022 but it is barely a fifth of what was sent between January and May 2021.
The impact that last year’s late frosts, drought and high temperatures had on the regional fruit campaign should also be mentioned. The referents consulted coincided in pointing out that the main effect of such inclement weather occurred more on the quality of the fruit than on the volume harvested..
There is a quality issue because the heat and drought greatly affected the conservation and condition of the apple; Those are factors that may have gravitated in the volume exported.
Nicolás Sánchez, president of CAFI.
“This year’s harvest was similar to that of previous years, but the packaging yield was reduced,” said the interviewed fruit businessman, adding that “the frosts at the end of October and the heat waves greatly impacted the quality of the productionand the packaging volume was less.”
“There is a quality issue because the heat and drought greatly affected the conservation and condition of the apple; Those are factors that may have gravitated in the volume exported”, said Sánchez in this regard.