Drought hastens Argentina's first beef imports

(China Daily)
Updated: 2009-08-20 08:06

A drop in Argentine beef production and exports could hurt earnings at companies such as Brazil's JBS SA, the world's biggest meatpacker. Bloomberg News

SANTIAGO: Argentina, the biggest beef-consuming nation, may resort to imports for the first time within two years as a drought kills cattle and export controls prompt ranchers to quit the business.

Pastures have dried up and forage prices gained so much that farmers are allowing livestock to die in the fields, said Arturo Llavallol, a director of Buenos Aires-based farm group The Rural Society. Ranchers are killing higher than usual numbers of breeding stock, compromising future output, he said.

The nation's herd has dwindled 7 percent since 2006, when the government restricted beef exports to boost supplies in the local market, Llavallol said in a telephone interview from his farm in Saavedra, southwest Buenos Aires province. The country may need imports within a couple of years, he said.

"If we want to keep exporting, we have to lower consumption," said Llavallol, also the vice-president of the Paris-based International Meat Secretariat, an association that represents ranchers worldwide. "If you don't have enough raw materials, you shut down the factory or you import."

Argentines will consume about 70 kg of beef per person this year, according to Miguel Schiariti, an analyst who compiles a monthly report for the Argentine Beef Industry and Commerce Chamber. Consumption has risen from less than 60 kg a person in 2006 when the export restrictions began, according to Ciccra, as the chamber is known.

Prices in the Latin American nation are the cheapest in the world at about $1.65 a kg, compared with $2.82 in neighboring Brazil and $2.86 in the US, Miguel Gorelik, a spokesman for Argentine meatpacker Quickfood SA, said in a telephone interview from Buenos Aires.

Farmers may renew roadside protests as Argentina's Senate votes today on a bill that would give President Cristina Fernandez de Kirchner power to change farming policies without consulting congress, Eduardo Buzzi, head of the Argentine Agrarian Federation, told the newspaper Infobae .

Farmers and ranchers last year blocked grain and cattle shipments for four months to protest a new tax on soybeans and the export controls on farm goods. The government backed down on the new tax in July 2008 after it was rejected by Congress.

Argentina, which was the world's largest beef exporter in the 1970s, slipped to seventh place last year, according to the US Department of Agriculture. Brazil, now the world's largest exporter, will ship four times as much beef as Argentina this year, according to the USDA.

Argentina will "celebrate" its bicentenary year in 2010 eating imported beef, milk and wheat, said Hugo Biolcati, president of the Rural Society, in an annual address during a livestock show in Buenos Aires. The show debuted more than a century ago.

Export restrictions

Lifting the export restrictions set in place by former Argentine President Nestor Kirchner would allow ranchers to get better prices and stop them from selling breeding cattle for slaughter, according to Llavallol.

A drop in Argentine beef production and exports could hurt earnings at companies such as Brazil's JBS SA, the world's biggest meatpacker, and Marfrig Alimentos SA, which both own slaughterhouses in Argentina.

JBS, which became Argentina's largest beef producer after its 2007 acquisition of US meatpacker Swift & Co, has ceased investment in the Latin American nation because government controls are hurting economic growth, Marcus Vinicius Pratini de Moraes, a member of the company's board and a former agriculture minister of Brazil, said from Sao Paulo.

'Stopped growing'

"We stopped growing in Argentina because of those problems," Pratini de Moraes said. "The world is currently divided into three types of countries: the developed ones, the emerging nations and Argentina."

Ricardo Gauna, a spokesman at Argentina's Agriculture Secretariat, declined to comment when contacted by telephone.

On Aug 6, Fernandez announced an easing of some restrictions on beef exports. Five days later, she signed an accord to ship 80,000 metric tons of beef to Venezuela.

Parts of central and western Buenos Aires province are suffering a "severe drought", the Buenos Aires Cereals Exchange said in an Aug 12 crop report. The exchange said its report this week may show rains failed to alleviate the drought in the area, prompting ranchers to sell off their herds.

"Undoubtedly, it's going to affect the herd," said Quickfood's Gorelik. "There have been deaths, but it's difficult to quantify."

The Argentine diet consisting of large amounts of beef dates back three centuries ago, when cowboys, known as gauchos, in the Spanish colony would feed from wild cattle on the grassy Pampas and sell the hides.

Hoping for downpours

Ranchers are hoping downpours will arrive later this year as the El Nino weather pattern forms, which warms ocean temperatures and creates excess precipitation on the Pampas.

So far, the effects of El Nino have only alleviated the drought nearer the eastern coastal areas of the Pampas agricultural zone, according to the Buenos Aires Cereals Exchange.

Opposition parties are seeking to eliminate government restrictions on beef and other farm exports in December, when they assume seats won during mid-term elections.

Still, ranchers who have given up on raising cattle to grow crops instead "aren't going to come back", said Luciano Miguens, a farm adviser to Union Pro, a coalition of opposition parties, in an interview from Buenos Aires.

"We need to stimulate the ranching and dairy industries, which are going through critical moments."

Markets

Last week, the yield on Argentina's benchmark 8.28 percent dollar bonds due in 2033 rose 43 basis points to 15.89 percent, according to JPMorgan Chase & Co. The peso rose 0.47 percent to 3.845 per US dollar from 3.833 on Aug 10.

The Merval stock index declined 2.1 percent to 1,761.61. Banco Macro SA declined 8 percent, while Empresa Distribuidora y Comercializadora Norte SA fell 7.5 percent.

Bloomberg News

(China Daily 08/20/2009 page16)