The war in Ukraine is affecting the Latin American economies due to two main factors: the drop in cereal production and the sanctions imposed on Russia for the export of its hydrocarbons. Both points are leading to a rise in prices and destabilizing battered economies like Argentina.
How much does the Russian invasion of Ukraine weigh on the Latin American and, in particular, Argentine agricultural market?
“It has a lot of impact because both Russia and Ukraine are two important suppliers of grains and oilseeds, with which the impact of this war from the point of view of grains and oilseeds, as expected, the prices of commodities (basic products) rise ”, confirmed the analyst Leonardo Piazza, director of the financial consulting firm LP Consulting.
“In the case of Argentina, from the point of view of cereals, we are exporters. The rise in prices should, in principle, favor the entry of foreign currency”, anticipated Piazza, consulted by our associated media outlet RFI.
In this context, this Sunday, Argentina, the world’s leading supplier of soybean meal and oil, suspended exports of these products, the main ones in its export basket. The soybean complex represented 30% of Argentine exports in 2021 and contributed to the treasury some 9,000 million dollars in export taxes.
Industry sources consider that the temporary suspension of exports will serve to raise taxes on foreign sales of these products from 31% to 33% and thus increase their foreign exchange tax collection.
“It is a measure with a more tax tint, of collection for Argentina, than of limiting exports. We estimate that an increase of two points (in export taxes) will imply an additional collection of 450 million dollars in 2022,” market analyst Dante Romano told AFP.
“The closure of exports is done to prevent businesses from registering before the tax change. But it should last a short time and should not affect the international market,” Romano said.
The shipments of these already committed products will continue normally since the registration procedures are carried out one to two months in advance.
“What the Government is looking for is to suspend exports and then automatically raise the withholdings that in Argentina are called agricultural withholdings, which is a withholding that is made to the exporter. It will be soybeans, corn and wheat”, predicts Leonardo Piazza.
However, the war in Ukraine will also have a negative impact on the Argentine economy. The conflict will lead to a general increase in prices throughout Latin America due to the increase in the price of energy that is passed on to production and transportation costs. And according to Leonardo Piazza, Argentina is more fragile in the face of this next spike in inflation.
“Peru or Brazil have two tools: a more stabilized macroeconomy and inflation in these countries is not more than one digit per year, when we have 50 per year. In the other countries, these price increases will only be an adjustment of internal prices, but they will quickly accommodate. On the other hand, in Argentina, having the highest floor, makes the inflation problem worse. It harms Argentina more”, analyzes Leonardo Piazza.
The Argentine government is studying measures to mitigate the increase in prices, such as the recent creation of an agri-food fund that seeks to decouple prices from international market prices.