Agri-food Argentina lost competitiveness and portions of the global market

An x-ray of the Argentine agri-food sector, carried out by a detailed report from the World Bank, reflects the loss of relative competitiveness compared to similar countries. The data show that it continues to be key to driving development and inclusion and that it is growing in absolute terms, but it is the only leading agricultural country that decreased its participation in the global market.

Diego Ariasmanager of the Agriculture and Food Practice of the World Bank, specified that “Argentina’s agri-food sector has shown general growth, but it is necessary to make changes in policies to maintain its competitiveness in the world and reduce its vulnerability to external impacts. ”.

In the last 10 years The relative investment of this sector in research and development decreased. Agricultural producers and food production are more vulnerable today, due to dependence on natural resources and the lack of actions to increase climate resilience, especially with regard to droughts.

The report “Towards a more competitive, inclusive and resilient agri-food sector in Argentina”is an evaluation carried out by the world Bank in order to support the formulation of public policies and programs related to the agricultural sector. Topics such as the area’s historical performance and trends, and policy options to promote the future development of the sector, integrating local and international experiences, are addressed.

As Arias explained, it is not only necessary to “unlock” or deactivate public policies that impacted the sector, but also “It is important to refocus investments and create consensus for the future by promoting public-private collaboration. With these reforms, the sector can be redirected as an engine of development and global leadership.”

The diagnosis assumes that Argentina is a world leader in agri-food production and exports. However, it is noted that “Only the predictability and continuity of policies will allow the sector to play a greater role in the country’s economic recovery.”generating jobs, income, food security and resilience, and benefiting all citizens and the environment.

Productivity and new technologies

The main conclusions of the Report continue to show that The agri-food sector is fundamental for the prosperity, poverty reduction and sustainable development of Argentina.

In 2021, agricultural and agri-food value chains represented 15.7% of total gross domestic product (GDP), 10.6% of tax revenues, between 17% and 24% of private sector employment, and 61% of exports, which made the country the third net food exporter in the world.

The growth of total factor productivity in the agri-food sector has exceeded the overall increase in GDP by increase of 3.7% annually since 1973 due to the adoption of new technologies. Greenhouse gas (GHG) emissions per unit of production have decreased, primarily due to the widespread adoption of no-till practices in cereal production.

Argentina’s innovation ecosystem has played a key role in support of technology-driven productivity growth in the agri-food sector, which has increased efficiency in the use of resources.

The environmental challenge

The climate impacts suffered by agri-food production have knock-on effects for the economy in general. For example, The drought of 2023 accentuated the shortage of dollars in the country and generated more inflation through rising food prices. The decrease in rainfall caused a 45% drop in the production of the three main crops, a 40% decrease in income from soybean exports and total losses of US$20 billion, equivalent to 3% of GDP. The droughts of 2018 and 2009 were similarly associated with peso depreciation and GDP contraction.

Investment and public policies

A resilient agri-food sector is fundamental for Argentina’s macro-fiscal performance. Limitations related to the public policy framework, development patterns and unsustainable production practices are creating inequalities and limiting the growth of the sector.

In the last decade, Agri-food exports have fallen by 1.3% annually, and Argentina’s participation in international agri-food markets decreased from 2.7% in 2011 to 2.2% in 2021. The support provided to producers in the country is less compared to that of its international competitors: around 20% of gross agricultural income between 2019-2021.

Some measures, such as Export restrictions and high and variable export taxes specifically affect the agri-food sector.. Other policies, such as differentiated exchange rates, import restrictions, and gross receipts tax, impact all areas of the economy. Meanwhile, the sector shows a low level of investment in public goods and servicessuch as research, capacity building, natural resource management and rural infrastructure.

Keys to being more competitive, inclusive and resilient

Current growth patterns have had consequences for deforestation, GHG emissions, water availability, soil health, regional development and income inequality, putting environmental and social sustainability in question of current approaches.

The World Bank report also highlights that “Distortive policies have especially harmed small producers in more remote areas, with lower profit margins and less access to services.”. With taxes on Argentina’s livestock sector ranging between 49% and 57%, the profits of (mainly small-scale) beef producers have been hit hard, reducing their investment capacity and incentives to improve production practices.

Between 2001 and 2014, Argentina also lost more than 12% of its forest area, and producers and the public sector have not invested enough in water resource management. If adaptation measures are not implemented, flood damage could reduce GDP by 0.5% per year by 2060, and persistent droughts could cause GDP to decline by 4% per year by 2050.

Approximately 50% of domestic food consumption is produced by small family farming units throughout the country. Despite the importance of this segment in territorial development, rural poverty remains highespecially among indigenous communities.

With a new vision and a more appropriate regulatory environment, The agri-food sector can consolidate its role as a generator of income, jobs, food security and resilience.

Three priority areas

A new approach could address three priority areas:

• Agri-food competitiveness and economic returns

• Socioeconomic inclusion

• Environmental resilience and sustainability

Progress on these three fronts implies the adoption of reforms that address distortive and negative supports to the sector; offer safety nets for domestic food consumers and the most vulnerable agricultural producers; improve access to financing for medium and long-term investments, and reduce exposure to climate and economic risks that affect the sector, with emphasis on public goods and promoting private investment.

“Improving resilience in the agri-food sector will pave the way to economic recovery,” said Arias.