Argentine drought hits farmers hard, undermining economy

Jorge Josifovich is silent and downcast as he walks under the pounding sun in one of Argentina's most fertile agricultural regions, staring at soy crops parched by the country's worst drought in years.

The drought, which began in November, has caused big losses, reduced expectations of economic growth and raised concerns among farmers, government officials and experts in the world's third-largest exporter of soybean and corn.

"It's dramatic," said Josifovich, a farmer and agricultural engineer who provides advice to growers. He picked up soy seeds from a plant that stands at about half its normal height.

"Not only is there the physical loss of grain yield, but there's also the loss of quality, which lowers the product's final price."

That's a blow to Argentina, where farming is the economy's main engine, and high or low prices for soy and other commodities can either help sustain or bust government investment plans.

President Mauricio Macri was counting on a near-record soy crop this year to boost economic growth to 3.5 per cent in 2018. Instead, what is expected to be the poorest harvest in at least a decade has already cut growth forecasts by up to a percentage point.

While Macri struggles to reduce the country's high fiscal deficit and tame inflation, Argentines continue to lose purchasing power and many are growing increasingly frustrated with rises in fuel and transportation costs.

The value of grain exports this year could be cut by up to US$3.4 billion as a result of the drought, according to recent estimates by the Buenos Aires Grains Exchange. But the impact could be even more bruising if related industries are taken into account.

"This situation is frustrating because it impedes the government from reaching its expected growth, and it hits other sectors," said Fausto Spotorno, an economic analyst at Orlando Ferreres & Asociados, a Buenos Aires-based consulting firm.

Argentina's famed meat and dairy industries, which depend on corn and soymeal for animal feed, are facing more than US$600 million in losses, according to the exchange. The drought has also hurt the poultry and pork sectors as well as the silos that store grain and the trucking and shipping companies that transport it.

"You'll have less beef and a problem with (a rise) in prices," Ezequiel de Freijo, chief economist at the Argentine Rural Society, said about the outlook for next year.

He said the consumption of Argentine diesel fuel will also be reduced by 2.5 per cent in 2018. And about a million fewer trucks will be used to transport grain in 2018 compared to last year because of the drought. That translates into an estimated US$1.1 billion in losses.

Soy makes up more than a third of all Argentine exports, and Argentina is the world's top supplier of soy oil and meal.

"This is directly hitting our pockets," Alejandro Calderon, president of the farming group Rural Society of Pergamino, said as he inspected soy plants with Josifovich at a field about 140 miles (220 kilometres) northwest of Argentina's capital. Badly needed rains that had been expected in recent days never came.

Argentina has been hit by severe droughts in the past. The last one, in 2008, killed thousands of cows, cut grain output and stirred growing discontent among farmers who complained about what they said was a harmful government policy and a lack of aid for the agricultural industry.

This time around, Macri has announced that his government would provide debt relief to drought-hit farmers, including delaying maturities on agricultural loans and extending new credit lines with longer grace periods so growers can continue buying tools and other equipment.

Still, many growers say the government needs to do more. So far, the estimate for the soy harvest has dropped to 39.5 million metric tons, a 31 per cent plunge from the 2016-17 season. Corn is expected to come in at 32 million metric tons, a 22 per cent drop from expectations earlier in the season.

Many farmers are demanding insurance that can once and for all protect them from inclement weather.

"We have a business that is out in the open air and we depend on weather," Josifovich said. "Sometimes, our complaints are justified."

- AP