The drought in Argentina affects more than half of the territory and million-dollar losses are expected
(CNN Spanish) — Argentina is facing one of the worst droughts in its history: almost 55% of the territory’s surface is affected by lack of rain or in conditions of water stress, according to a report from the Drought Information System for Southern South America (Sissa ). The economic consequences are beginning to be felt in various crops, but all eyes are on soybeans, the country’s main export.
“The 2022/23 harvest is under the driest conditions of the last 60 years or more,” explains a report from the Rosario Stock Exchange, which estimates that in the so-called core zone, the most productive, there are 45% less soy. The Buenos Aires Grain Exchange, meanwhile, estimates a total impact of up to 1.8% on the gross domestic product and a loss of exports of up to US$ 14,115 million.
“The current situation is chaotic and very critical and the outlook that we envision is not encouraging either, but rather indicates that we have to start looking at strategies to be able to face a catastrophe in terms of agriculture and livestock,” says Jorge. Gvozdenovich, an agronomist engineer from the National Institute of Agricultural Technology (INTA).
The La Nina Effect
The lack of rain has been felt for years, coinciding with an exceptional event marked by the World Meteorological Organization: the “triple” episode of La Niña, which has spanned three consecutive years and has only occurred three times since 1950.
“The continuity that the conditions of water scarcity maintained from 2020 to date, and its impact on the water reserves in the Pampas region allow us to define, without any exaggeration, the 2022/23 campaign as the driest in more than sixty years”, affirm José Luis Aiello, doctor in Meteorological Sciences and consultant Alfredo Elorriaga in the Strategic Guide for Agriculture of the Rosario Stock Exchange.
According to the Argentine Meteorological Service, “winter 2022 was 33.3% drier than normal, and it was positioned as the 7th driest since 1961 and the 5th consecutive one to register a rainfall deficit.”
But the absence of rain extended to the southern spring, between September and December, which are key months for planting, and continues into the summer. “January is on the way to becoming a continuity of what December was. There is an almost perfect coincidence between the negative conditions of the regional scale dynamics and the persistent rainfall restriction imposed by the third consecutive La Niña. Without a doubt, the strong presence that this negative force has presented during the last three years marks an unprecedented turning point when it comes to talking about drought in Argentina”, add Aiello and Elorriaga.
The drought mainly affects the most productive area of Argentina in terms of agribusiness: the Pampas region, Mesopotamia, and the north-central area of the country.
So far, wheat is the crop hardest hit by the drought, which has accompanied its entire production cycle, and its harvest has already concluded.
“We came from a record harvest of 22 million tons; Today we are talking about 13.4 million tons. There we already have a significant loss. That is estimated, it depends on the evaluations, but around US$ 2,500 million. And obviously the volume of soybeans and corn is not going to be the same as the previous campaign,” explains Juan José Bahillo, Secretary of Agriculture, Livestock and Fisheries of Argentina.
“25% of Argentine soybeans have already been lost in the midst of the driest campaign in more than 60 years,” says a report from the Rosario Stock Exchange, adding that: “Of the 49 million tons that were projected With a normal scenario a month ago, the weather adjusted the first soybean estimate to 37 million tons, so 12 million tons of the oilseed are already considered lost, and it is estimated that it will be the third worst Argentine crop of the last 15 years”.
In addition, they warn that “due to the lack of water, 1.1 million hectares could not be planted. It is the first time in 15 years that such a level of acreage has been discounted.”
Something similar happens with corn, the projections of the Buenos Aires Grain Exchange speak of a reduction in production of between 11% and 25%, depending on what happens with the weather.
Crops are not the only ones affected. At the dairy there are serious difficulties in obtaining food for the cows because the grass did not grow and the grains are scarce, which leads to increased costs.
“It makes our diet more expensive because we have to buy the rest of the food. We have not had grass for almost three months and also the reserves, which is what we are trying to achieve today, are close to 20 percent of what we would have to achieve, that is, it will affect us for a year to come. This leads to a cycle that is lost and a cycle that, in addition, we are going to have bad food, of poor quality and very expensive”, explains Laurentino López Candiotti, dairy farmer from the province of Entre Ríos.
Added to this is another problem: getting water to keep their animals alive.
The loss numbers
The Minister of Economy of Argentina, Sergio Massa, estimates that the losses for the country due to the drought could be in the order of US$2.300 to US$2.900 million, according to what he stated in an interview with the newspaper Perfil, although he maintains that “it may happen that what we lose by volume we will recover by price”.
From the Grain Exchange of Buenos Aires they are less optimistic. Although this year they expected a gross agro-industrial product equivalent to US$49,094 million, their projections propose two possible scenarios: a 21% decrease in the best of cases, totaling US$42,136 million. But in the worst scenario, this cut could extend up to 30% and only reach US$ 37,418 million. Thus, 6,958 million could be lost in the first scenario and 11,676 million in the second, respectively.
Continuing with these two scenarios that they handle, they point out that tax collection “would also suffer significant drops”. Agro-industrial producers would contribute 18% less to the treasury in the first scenario and 27% less for the second, compared to last season.
Finally, the drought will have a direct effect on exports. Although the Buenos Aires Grain Exchange was already contemplating a decline of 6% in relation to the exports of the 21/22 campaign, the lower production of scenarios A or B that they manage could lead this figure to falls of 21% or 33%, affecting the availability of foreign currency by US$9,226 million and US$14,115 million, respectively.
Despite the bleak outlook that is expected, there are still some variables that could amortize the fall. The figures that are used for the projections “correspond to accrued values, that is, they are economic, not financial, results.” For this reason, they point out that, “in practice there may be factors that modify the dynamics of the collection and inflow of foreign currency, as happened, for example, in 2022 with the Export Increase Program (or soybean dollar)”, which stipulated a highest dollar price for agricultural exports.
The other variable is the one that Massa proposes: that, given the lack of crops, their price rises and they can cut losses.
But beyond all the possible scenarios, variables and lucubrations, everyone expects the same thing: that it rain again.