Drought deals a heavy blow to Argentina’s weak economy

The drought that affects the agricultural production of Argentinathe most severe in the last 60 years, is already making its effects felt in the country’s economy, with falls in exports and lower income for the Treasury.

The lack of rain has been felt in the fertile and vast Argentine fields since mid-2022, a year that was 12.8% drier than average, a climatic picture that persists in this southern summer, in addition, with the most extreme thermal records of the last six decades and strong frosts.

According to the latest report from the National Drought Monitoring Board of Argentina, in agricultural activity there are strong losses in yield, delays and a decrease in the final area planted with corn and soybeans, and the phenomenon is also having a strong impact on livestock systems.

Insufficient rainfall affects 172.5 million agricultural and livestock hectares, with 8 million cultivated hectares with moderate to severe drought and 21.7 million cattle heads at risk, a harsh scenario for one of the main producing and exporting countries. world food markets and that relies a good part of its economy on the agricultural sector.

LESS EXPORTS, LESS INCOME

Among economists, analysis and projections of the impact that the drought will have on the weak Argentine economy are the order of the day.

“From a macroeconomic point of view, tax revenues are going to be lower. And from the point of view of the regional economies, when the countryside does not work, it retracts in consumption, it does not invest and it does not spend”, Leonardo Piazza, director of the consulting firm LP Consulting, told EFE.

The effects are already evident in the trade balance and fiscal accounts.

In January, exports fell 11.7% year-on-year due to lower sales of wheat, biodiesel, corn and sunflower oil, evidencing the impact that the drought already had on crops last year.

Also in January, the fiscal deficit skyrocketed, with a decline in real terms in revenue from taxes on agricultural exports due to the drought.

According to calculations by the Institute for Studies on Argentine and Latin American Reality (IERAL), of the Mediterranean Foundation, Argentine agricultural exports will total some 37.8 billion dollars in 2023, with a drop of 8.4 billion compared to 2022, although the decrease could be of 6,500 million if the drought loosens or 10,100 million if the weather worsens.

On the fiscal front, Argentina would collect 7.6 billion dollars this year for agricultural export rights, with a drop of 2.05 billion compared to 2022, but that decrease could be 1.5 billion if weather conditions improve or 2.4 billion if they worsen.

BAD NEWS

“Macroeconomics 2023 will not find higher incomes or a greater influx of foreign currency in the agricultural sector,” observed Juan Manuel Garzón, chief economist at IERAL.

This is bad news for a country that this year must meet demanding goals to reduce the fiscal deficit and accumulate monetary reserves committed in the agreement signed in 2022 with the International Monetary Fund.

Experts agree that the drought will affect Argentine economic activity, which has already been showing signs of cooling since the last months of 2022.

“By 2023, we expect the activity to be negatively affected, firstly, by the drought itself, but also by the decrease in foreign currency that it generates through lower exports, which would be correlated with a lower availability of foreign currency for imports. . For this reason, the conditioning on the operation of the industrial sector would be more palpable than last year ”, noted in a report the consulting firm LCG, which forecasts that the Argentine GDP will contract 2% this year.

Source: EFE