The government launched a series of support measures for the dairy sectorwhose SME segment has been affected for a while by the industry’s pricing policy, the drought and the rise in costs that the two “soybean dollar” programs implied.
The Economy Minister Sergio Massaannounced the “Impulso Tambero Program, which will mean a total investment of 9.16 billion pesos over four months for 8 out of 10 dairy farmers in the country.”
The benefit will apply to dairy farms with less than 1,500 liters of sale per day, for which an average of the October 2021/September 2022 period will be taken, and a subsidy of 15 pesos per liter will be granted. For dairy farms of more than 1,500 liters (average of 12 months) and up to 5,000 liters per day, it will be subsidized with 10 pesos per liter. In all cases, the fixed sum granted may not exceed 600,000 pesos per month.
The dairy industry has been warning for some time that the dairy farmerthe weakest link in the chain, supports a reduced profit margins, while the industry improves its numbers. He warns that tambos are closing and animals are liquidated because the business does not work.
Prices and costs
According to the INTA Milk Program, “the dairy chain presented a negative result in October 2022 of 5001 million pesos, although with a difference between links. While the The industrial sector showed an estimated positive result of 1,304 million pesos, primary production had a loss of 6,306 million pesos. This situation of destruction of value in primary production has been dragging on since December 2021 and continued throughout 2022.”
“The fall in the profitability of the primary link is explained by the industry pricing policy. We as producers do not have the possibility of discussing a price according to production costs. This is also linked to the high concentration of the industrial sector. These problems deepened with the dollar-soybean policy and thus the sale of dairy farms was unleashed. Today a cow with good genetics and production standard is given away for practically 100,000 pesos,” he told Page 12 Marisa Boschetti, leader of the Agrarian Federation (FAA).
Joaquín Pérez Martín, researcher at the Faculty of Agronomyexplains that “65 percent of the dairy farms are SMEs, but they only represent a quarter of the national production. The smaller dairy farms are experiencing negative profitability and are disappearing because the numbers do not close. On the other hand, the big ones grow, some of them even benefit from the soybean dollar, because they do agriculture as a complementary activity”.
“So that the youngest fall but the big ones are growing, which is why at the aggregate level 2022 has been closing as a relatively good year of milk production. In any case, starting in the summer it is expected that production will begin to fall as a result of the drought and the impact of the soybean dollar,” he added.
soybean dollar and drought
The incentive program for the liquidation of the soybean crop further complicated the picture through two channels. On the one hand, soybeans intervene in the structure of milk production costs due to its participation in the foods consumed in the cows’ diets, such as commercial feed and soybean expeler.
The preferential dollar of 200 pesos and 230 pesos in the two versions of the program, respectively, implied an increase in the domestic price of soybeans, since nobody is willing to sell their harvest cheaper in the internal market compared to the external market. So that the rise in the price of soybeans due to the The “soybean dollar” raised the costs of milk production, between 5 and 7 percent, according to INTA.
Additionally, in some basins the lease contracts are fixed with a value equivalent to a determined quantity of quintals of soybeans. The increase in the cost of soybeans, in these cases, also raises the rental price. The INTA estimated an increase in costs, for this reason, of 1.34 percent.
In parallel, drought problem grows, which affects sectoral productivity and, consequently, the profitability equation. It is estimated that as a result of the drought, daily milk production would drop by 6.2 percent in 2023.