Argentina Argentina’s grains industry: Implications for Australia Professor Ross Kingwell Chief Economist Dr Peter White Senior Projects Manager OR AUTHORS Professor Ross Kingwell Chief Economist Dr Peter White Senior Projects Manager Perth (head office) Sydney 3 Baron-Hay Court 1 Rivett Road South Perth Riverside Corporate Park Western Australia 6151 North Ryde Editor: Kerry Coyle Communications; Design: Josephine Eynaud P: +61 8 6168 9900 New South Wales 2113 E: [email protected] P: +61 2 8025 3200 Please note W: aegic.org.au 1. Export and import values often vary depending on the information source — exercise caution when interpreting information presented in this publication. 2. All units cited in this report are metric measurements. Of particular note, the unit tonnes is a metric tonne (i.e. 1000 kilograms). AEGIC is an initiative of the Western Australian State Government 3. All uncredited photos have been sourced from shutterstock.com and Australia’s Grains Research & Development Corporation NOVEMBER 2018 MIRP18001EN. All contents copyright ©AEGIC. All rights reserved. The related bodies corporate, directors and employees of AEGIC accept no liability whatsoever for any injury, loss, claim, damage, incidental or consequential damage, arising out of, or in any way connected with, the use of any information, or any, error, omission or defect in the information contained in this publication. Whilst every care has been taken in the preparation of this publication AEGIC accepts no liability for the accuracy of the information supplied. Contents Acknowledgements 3 Wheat Supply Chain 44 Key findings 4 Overview 45 Key implications for Australia’s grains industry 5 Total costs 47 Executive Summary 6 Farm costs of wheat production 48 Policy settings 7 Grain storage and elevators 49 Environmental advantages and challenges 7 Elevator to market/port 51 Market opportunities 8 Port operations and shipping 55 Key institutions 8 Port to destination 57 Sectoral value-adding 8 Grain exports 58 Logistical strengths and weaknesses 9 Export makeup 59 Plausible futures 9 Argentina and Australia’s wheat exports 59 Politics and instability 9 Future prospects for the Argentinian wheat industry 64 Productivity and R&D 10 Implications for Australian wheat exports 66 Wheat customers 10 Key markets 67 Wheat production 11 Conclusion 72 Wheat quality 11 Implications for Australia’s wheat industry 73 Actions for Australia’s grains industry 11 References 75 Introduction 12 Figures 77 Country snapshot 14 Tables 77 The political environment 17 Acronyms 78 Business impediments 18 Abbreviations 78 R&D investment 20 Labour 21 Credit 21 Geographic diversity 22 Argentina’s Grains Industry 24 Government policy 25 Institutions supporting agricultural competitiveness 27 Grain production in Argentina 28 Crop and water management 35 Argentina and Australia’s grain production 40 Wheat breeding in Argentina 42 Wheat quality in Argentina 43 Argentina’s grains industry: Implications for Australia 1 In Buenos Aires, the authors (from left) Peter White and Ross Kingwell, with Australia’s Ambassador to Argentina, Noel Campbell (far right) In Rosario, Argentina, Ross Kingwell (far right) with staff from the Rosario Board of Trade. From left: Alfredo Sesé, Emilce Terré, Guillermo Llovera, Silvio Di Vanni and Alejandro Lorenc (interpreter and driver) 2 Argentina’s grains industry: Implications for Australia ACKNOWLEDGEMENTS Acknowledgements In September and October 2017 we had the pleasure of visiting Argentina to see the many changes underway in the Argentinian grains industry and its supply chains. Many organisations and individuals were generous in making their time and facilities available to us so that we could learn about the nature of the industry and supply chains. Our chief interest was in the wheat industry and many people we spoke to were keen to discuss the issues and opportunities facing Argentina’s wheat industry. We wish to thank the following individuals and organisations with whom we held discussions: • Guillermo Fiad — Administración de • Leandro Pierbattisti — Federación de • Gastón Urrets Zavalia Infraestructuras Ferroviarias Sociedad Asociaciones de Elevadores de País • Leonardo Vanzetti del Estado (ADIFSE) • Ariel Jorge — Instituto Para • Eugenio Fernadez — Ministerio de • Sebastian Olivero — AGRO-T.E.C.E.I. Las Negociaciones Agricolas Agricultura y Ganaderia, Provincia de Consultores Internacionales (INAI) Córdoba • Alfredo Beheran — Asociación • Sofia Perini — Instituto Para • Agustin Larralde — Ministerio de Argentina de Consorcios Regionales Las Negociaciones Agricolas Agroindustria de Experimentación Agrícola (CREA) Internacionales (INAI) • Juan Miguens — Ministerio de • Frederico Bert — Asociación Argentina • Alberto Ballesteros — Instituto Agroindustria de Consorcios Regionales de Nacional de Semillas (INASE) • Javier Mayorca — Ministerio de Experimentación Agrícola (CREA) • Enrique Alberione — Instituto Transporte • Cecilia Guillen — ArgenTrigo Nacional de Tecnología Agropecuaria • Matias Uslenghi — Ministerio de (INTA) • David Hughes — ArgenTrigo Transporte • Carlos Bainotti • Augusto Gonzalo — Bolsa de Cereales • Guillermo Llovera — Socidad Germial de Córdoba (BCCBA) • Mario Baragachini de Acopiadores De Granos • Patricia Bergero — Bolsa de Comercio • Maria Beatriz Formica • Roberto Merlo — Vicentin de Rosario (BCR) • Maria Belén Conde Special thanks to Akrom for help with • Silvio Di Vanni • Juan Crescente planning the study tour and facilitating • Luis Maria Lopez • Martha Cuniberti meetings: • Alfredo Sesé • Melina Demichelis • Veronica Ragusa • Emilce Terré • Guillermo Donaire • Diego Berazategui • Laura Amelong — Bioceres • Jorge Fraschina • Alejandro Lorenc • Gerónimo Watson — Bioceres • Dionisio Gomez We also acknowledge funding support • Juan Brihet — Bolsa de Cereales de • Marcelo Helguera from The University of Western Australia. Buenos Aires (BC) • Lucio Lombardo • Estateban Copati — Bolsa de Cereales • Leticia Mir de Buenos Aires (BC) • Alejandro Saavedra • Augustin Tejeda Rodriguez — Bolsa de Cereales de Buenos Aires (BC) • Fernando Sacaramuzza • Esteban Moscariello — Bunge • José Salines • Noel Campbell — Department of • Nicholas Salines Foreign Affairs and Trade • Marcelo Tolchinsky Argentina’s grains industry: Implications for Australia 3 SUMMARY Key findings Argentina... ...exports 86mmt ...representing 15% produces 125mmt of grains and share of world of grain oilseed products grains trading Grain production and export Wheat breeding Argentina produces 125mmt of grain or 5% of the world’s grain Although policing of plant breeders’ intellectual property rights production. Its share of world grains and by-products’ trading is is improving, commercial returns to wheat breeders historically 15%, involving exports of 86mmt of grains and oilseed products. have been constrained by poor enforcement of these rights. Breeders mostly focus on yield rather than grain functionality and quality. While yield advantages will always remain a priority, Wheat production and export many Argentinian experts acknowledge that as Argentinian wheat exports re-enter markets or attempt to establish new Argentina’s wheat production is destined to consistently reach markets, greater diversity in grain functionality and quality will around 21mmt towards 2025, with its area planted to wheat be required. possibly increasing by a further 2 million hectares, depending on price incentives. The increase in wheat production will not solely be due to an increased area sown to wheat. Yield increases are Government reform likely as more farmers use increased inputs, adopt superior varieties and use improved technologies. Argentina’s domestic Argentina’s national government has a reform agenda that requirements are likely to remain at between 6mmt and includes not viewing the grains industry solely as a ‘cash 7mmt, so around 14–15mmt will regularly become available for cow’ to be heavily taxed. The government has embarked on export compared to the average annual export of only 6.5mmt macroeconomic policy reform and infrastructure investment to from 2008–09 to 2014–15. Already in 2018, around 6.1 million sustain the export competitiveness of its industries, importantly hectares is being planted to wheat with anticipated production including the grains industry. Generating macroeconomic being 19mmt. stability (especially controlling inflation), attracting foreign investment and improving transport and energy infrastructure are among the policy priorities of the government. For Production and supply chain costs agriculture, reduced export taxes, enhancing productivity and upgrading supply chain infrastructure are already helping to Argentina’s supply chain costs for exported wheat vary due to underpin the export competitiveness of Argentina’s grains sector. the distance from a farm to its closest port. For short trucking journeys of 150km, supply chain costs are about 22% of the wheat FOB (free-on-board) price. However, most wheat exported Industry-good functions requires a truck journey of closer to 250km and so supply chain costs rise to around 27% of the wheat FOB price. Argentina’s Argentina’s grains industry has largely self-funded its industry- farm costs of export wheat production greatly depend on good functions. Rather than rely on government funding and whether farmland is owned or rented. Nonetheless, overall, the action, the grains industry has established and supported per tonne farm cash costs of wheat production in Argentina its own set of industry-good