Drought generates productive and economic losses, and affects all sectors related to agriculture
The historic drought that affected our country and caused a productive disaster not only dealt a severe blow to the agricultural sector but also to countless activities associated with, dependent on, or related to agriculture. Not only does the lack of rain, early and late frosts, and heat waves have an impact on crops and other productive activities, but also what this means for storage, transportation services, and the agricultural machinery industry, to name just a few. some cases.
The 2022/23 agricultural campaign was catastrophic. The wheat harvest, the first of the cycle, ended at 12.4 million tons, almost 45% less than what was obtained in 2021/22, while in summer crops it is estimated that soybean threshing will end in 25 million tons, the worst in more than two decades, and that of corn at 36 million tons, 16 million less than the previous cycle.
Counting only the main grains, the Buenos Aires Grain Exchange (BCBA) estimated that 46 million tons will be lost compared to the previous season and that export losses will reach USD 20,811 million. If this is extrapolated to activities linked to agriculture, the economic impact becomes more forceful, but difficult to measure.
Wheat was one of the crops most affected by adverse weather conditions
According to a study by the consultant Ernesto Ambrosetti, the drought will produce a drop in the sales of fertilizers, agrochemicals, agricultural machinery and its spare parts, veterinary products, poles, wire fences, mills, fuels, lubricants, and various services, among many others, and that “the multiplier effect and the economic dynamism that agriculture generates in all the towns and cities of the interior, will be seen strongly deteriorated”.
To cite a few activities, Ambrosetti assured that in the transportation sector the estimated losses in the volume of grains will translate into 1.7 million fewer truck trips, some USD 1.3 billion that will not enter the carriers and will imply less demand for fuels. tires, lubricants, spare parts and services on the routes.
Ambrosetti indicated that the increase in idle capacity in industries “puts more than 255,000 jobs at risk” and that companies that produce oils, flours, pellets and biofuels, juices, fibers, infusions, sugar, wines, paper, among many other products and derivatives, “they will have very high idle capacity; the ports will have less activity and so on all the links of the agro-industrial chains”.
“Another affected link will be the collectors and cooperatives that are distributed in towns and cities throughout the productive territory, which will provide fewer services, drying, storage and conditioning of the grains, will stop receiving more than USD 600 million”, concluded Ambrosetti.
Stockpiling is one of the sectors associated with agriculture that suffers the most impact. That’s where growers store their beans: any decline in harvest volumes means less in the silos. That is why the president of the Federation of Collectors, Fernando Rivara, said that today the activity is working at 25% or 30% of its capacity.
Activity in grain storage fell, due to lower production in the current agricultural season
“The drought had a bit of an impact due to the failure of wheat and now we are facing a big hit with the soybean and corn harvest. No one has experienced a failure as resounding as the one we are having. All the stockpiles have a structure set up for a certain volume and this hits the waterline and we hope not to sink, but it is a very difficult situation and we are going to see how we are going to cope until the next harvest,” Rivara said in dialogue with Infobae.
As explained by the business leader, the collections have a large number of fixed expenses that do not change according to the level of activity they have. “We have a base energy consumption, an annual agreement with the electric company for certain consumption that occurs in normal years. We also have the salary of the employees in the silo plants who are about to unload 100 tons and are unloading 25. In addition, the warehouse charges a commission when the merchandise is sold, but the merchandise is not there. Only 25% will enter us. The truth is that it is going to be a difficult situation”, explained Rivara.
But another problem that the stockpiles will have to face is the possible non-compliance of the producers regarding the exchange of inputs for production, since, precisely, a large number of them have had an extremely lean campaign. The business leader explained that many times it is the stockpiles that provide agrochemicals, seeds, fertilizers and fuel to farmers in exchange for the delivery of grain to harvest.
For the next agricultural campaign, the gaze of the producers will be on the financing lines for the purchase of inputs
“We have to see how the issue of deliveries of the exchanges is. We don’t know what will happen, but with some producers we are going to have to talk and see how we can carry out their compliance. The message in this crisis is to face it side by side. We are going to have to work together”, concluded Rivara.
Of course, a lower harvest results in a drop in the income of producers and in the availability of money to make new investments, such as the purchase of agricultural machinery. That is why the president of the Argentine Chamber of Agricultural Machinery Manufacturers (CAFMA), Eduardo Borri, estimated that there will be a decrease in the production level of 30%, while sales could fall between 40% and 50% for the this year due to drought.
“It is impossible that if our clients do badly, we do well. Since June of last year the situation began to deteriorate: sales orders began to fall, credits became more expensive and we were able to get through the year because we came with a stock of previous sales and orders to produce that meant that we ended 2022 with a record in this sense. But when we started 2023, the depletion of that sales stock and the sharp drop in sales, which in some cases reached 70%, made the yellow lights that came on last year turn red.” Borri said.
In the agricultural machinery sector, they are already talking about a decline in production and sales levels
As explained by the president of Cafma, there are two different cycles in the sector: the moment in which it is sold and the moment in which it is produced. This means that when a large volume of sales is generated, the delivery of the machinery usually takes time, but when “production beats sales, as is the case at the moment, delivery times are much shorter than what we had.” in the last three years. We are aiming to have a production close to 70% of what it was last year, which does not mean that this machinery is sold, but rather that we expect it to fall between 40% and 50%”.
However, this situation is not sustainable over time, said Borri, who also highlighted the intention of “most businessmen not to reduce productive capacity, with a view to improving next year”, so the sector It is requesting “to the public bank that we are not only going to need to finance our clients, but also the working capital, because no one can support having production for a long time and not selling it.”
The other item that shows a strong impact due to the effects of the drought is the transportation of grains. In this sense, the treasurer of the Argentine Federation of Business Entities of Cargo Transport (FADEEAC), Carlos Rébora, indicated that the business chamber has estimates that more than one million fewer trips were recorded during this campaign, an issue that includes the trip from the field to the collection and also from this to the ports or to the agro-industrial chain”.
The transport of grains also with less activity, due to the effects of the drought. REUTERS/Stringer
“This situation affects all carriers that focus on agriculture to a greater or lesser extent,” Rébora told Infobae. According to the business leader, the grain transporter is “waiting for the harvest all year long”, for which he considers the situation of the sector as “very difficult”, added to the complaint that the cargo providers do not abide by the rates established ago just a few weeks. “There is so much supply of trucks that the rates are not being respected, when we signed a new increase of 22%,” said Rébora
Regarding the level of activity. Rébora explained that “normally, when you are harvesting, it can take a day to unload the grains at the terminals, but, beyond that, you can take a trip every two days, but today if you get to load a trip a week is that you were lucky”. That is why the business leader affirms that “there are no trips. Today in Entre Ríos the average yield of soybeans is 800 kilos per hectare, when the normal is 2,800 kilos. That difference is fewer trips. The impact is great and in the towns it is much greater, affecting even the small store that supplies drivers before traveling”.
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