88018 Latin America and the Caribbean Region LCSSD Occasional Paper Series on Food Prices Implications of the Organization of the Commodity Production and Processing Industry: The Soybean Chain in Argentina Marcelo Regunaga January 2010 2 The The workSoybean Chain has been in Argentina partly financed by the Trust Fund for Environmentally and Socially Sustainable Development (TFESSD) LATIN AMERICA AND THE CARIBBEAN REGION LCSSD Food Papers Series IMPLICATIONS of the ORGANIZATION of the COMMODITY PRODUCTION and PROCESSING INDUSTRY THE SOYBEAN CHAIN in ARGENTINA Marcelo Regunaga January 2010 The Soybean Chain in Argentina 1 March 17, 2011 Dear Colleagues : After falling sharply during the global financial crisis—in the second half of 2008—food and oil prices have resumed their upward trend. International food prices have risen almost to the levels of 2008 and some commodities like maize have reached record highs. Virtually all the commodity that matter for LAC countries are partaking in this strong wave of price increases. Moreover, the rate of price increases has accelerated in the last three to four months, with food price indices reaching roughly the same level as at their previous peak, in 2008. This increase in food prices presents some great challenges for some LAC countries, in particular in the Caribbean, but it also presents a great opportunity, as many LAC countries are net food exporters and are a food source for other Regions in the world. It is within this context that we are launching the Sustainable Development Occasional Paper Se- ries on Food Prices . We hope that this will contribute to add to the knowledge and exchange of innovative experiences in food policy and programs in LAC. The Occasional Paper Series on Food Prices is expected to include country-specific as well as regional analytical work related to food, logistics, and agriculture policy, and will seek to learn from the 2007-2008 food price crisis and put forward innovative concepts for improving the efficiency of food markets and for reducing the vulnerability to exoge- nous shocks in the food production and trade in the LAC Region. The series starts with papers on: (i) the impact evalu- ation of the 2008 food price subsidy on the rice sector of Haiti, (ii) an analysis of the transmission of international food prices to domestic markets in Central America, (iii) an assessment of the conditions for developing agriculture com- modity exchanges in LAC, (iv) a policy guidance for improving logistics and transport efficiency in the context of food prices, and (v) an analysis on logistics and grains in Argentina. We hope to continue publishing more papers soon to provide additional input to the debate as we take on the challenges and opportunities of the new dynamics in international food markets in the Region and elsewhere. Sincerely,   Laura Tuck Ethel Sennhauser Director Sector Manager Sustainable Development Department Agriculture and Rural Development Aurelio Menendez Jordan Schwartz Sector Manager Lead Economist Transport Sector Sustainable Development Department 2 The Soybean Chain in Argentina TABLE of CONTENTS I. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 II. Brief Production Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 III. Description Of The Argentine Soybean Value Chain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 IV. Characterization Of The Policy And Institutional Regime In Argentina . . . . . . . . . . . . . . . . . . 9 V. Lessons Learned Related To The Political Economy And The Industry Organization . . . . . . 13 Annex . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 The Soybean Chain in Argentina 3 I. INTRODUCTION This study is part of a major initiative launched by the Latin meal -around 50% of total exports- and soybean oil -more American and Caribbean Chief Economist’s Office that than 55% of total exports-; and the third largest exporter aims to examine the challenges and opportunities associ- of soybean -15% of total exports-, after the USA and Brazil). ated with commodity resources in the Latin American and Caribbean Region (LCR). The purpose of the study is to Currently soybean cropping is the most dynamic and better understand the implications of different structures largest economic industry of Argentina’s farming sector; of resource-based industries; to learn why the struc- and it is the main source of national fiscal revenues. It has tural characteristics vary across commodities or across strong impact in the regional development of the country, countries and what this means for development policy. particularly in the Pampas Region and the Northern prov- The study analyzes to what extent government policies, inces. The main changes occurred in the soybean industry institutions and investments are effective in increasing the resulted from several factors associated with: a) govern- efficiency and sustainability of primary commodities pro- ment policies; b) the characteristics and evolution of the duction, and to encourage the development of value- domestic production and trade structure; and c) the added products along the value chains in the countries in dynamics of the soybean complex international scenario. which the primary commodities are produced. The study includes four sections: i) brief production back- The global food system is facing new challenges associ- ground; ii) description of the Argentine soybean value ated with a strong demand growth projected for future chain; iii) evolution of the main policies and institutional decades, particularly in the case of the soybean com- regimes in Argentina; iv) lessons learned related to the plex, in which very few countries -including Argentina- political economy and the industrial organization. The concentrate most of the production and exports. The study describes the main policies implemented in Argen- soybean chain case has been selected in the Argentine tina during the last two decades which had impact on study because it is an active part of the global food value the structure of the soybean value chain and its perfor- chain (providing protein feed, vegetable oil, bio-fuel and mance. The dramatic changes registered in some of such many other processed goods) and such industry has reg- policies, as well as in the international scenario, provide istered significant organizational and structural changes interesting background to better understand the evolu- during the last two decades, which resulted in improved tion and performance of the Argentine industry in the competitiveness and in dramatic increases in the area global soybean value chain. planted and resources destined; in the volume of produc- tion; and in the value of exports of the soybean complex (in 2007/08 Argentina was the largest exporter of soybean 4 The Soybean Chain in Argentina II. BRIEF PRODUCTION BACKGROUND The economic development of Argentina has been and commercial policies implemented in Argentina, strongly influenced along its history by production and which included foreign exchange controls, import taxes trade based on natural resources, including the primary and import restrictions on manufactured goods (industrial commodities and the value added products processed incentives) and export taxes on agricultural products. The by agro-industries. The strong economic growth and “import substitution growth strategy” resulted in negative prosperity of Argentina registered during the last three de- commercial protection to agriculture; but it was not suc- cades of the second half of the XIXth Century and the first cessful in promoting other sector’s international com- three decades of the XXth Century was associated with petitiveness. The long term economic performance of the development of the grain and livestock industries. It the country during the period 1940-1990 was very poor; it was based on the availability of natural resources (com- included short periods of economic growth based on do- parative advantages), on the labor input associated with mestic demand growth, followed by others characterized large European migration inflows, and on the investment by stagnation and high inflation. During such period the (capital inflows) and technology incorporated to produc- real exchange rate had high volatility associated with re- tion and processing of the main agricultural products current balance of payment crises; currency devaluations (wheat, corn, beef and wool). Total trade (exports + im- were used to “improve” competitiveness and to resume ports) represented more than 60% of GDP. The Argentine growth; but they lasted very limited time, until a new com- economy was integrated to world trade, and most of the mercial and fiscal crisis emerged again (the “stop and increase in production was destined to export, which was go” cycles which characterized the Argentine economy). the main driving force of the sustained domestic eco- Such import substitution policy had a negative impact nomic growth registered during more than six decades (it on the performance of the agricultural sector; and it also has been named “the agro-export economic model”)1. resulted in very little long term economic growth rates During such period domestic prices were stable, public of Argentina when compared with many other similar expenditures were small and there was no direct taxation countries, like Canada, Australia, New Zealand and Brazil. on agricultural exports. During the period 1940-1990 per capita average real an- nual rate of growth was lower than 1% 2. Later, for several decades after the 1930s’ world eco- nomic crisis and the Second World War until the 1980s, More recently, in 1991 deep economic and structural re- the agricultural sector growth was limited by difficulties forms and some key agricultural policies were implement- emerging from protectionist agricultural international ed, including the elimination of export taxes and other policies and by the changes in the domestic economic quantitative restrictions, reductions in import taxes on 1 P  rimary production and processing (wheat mills and slaughter houses) included most of the state-of-the-art technologies available at those dates. The Rosario grain exchange and future market was one of the leading world markets during the first decades of the XXth Century. 2 Between 33 to 50% lower than the growth registered in Australia, Brazil, Canada and USA. The Soybean Chain in Argentina 5 agricultural inputs and elimination of import restrictions. During the last two decades most of the stages of the The reforms reestablished price stability, reduced the anti- soybean value chain have shown very relevant organi- trade bias of previous commercial policies, and created zational and structural changes, from input and services a more favorable environment for investment and growth providers for primary production upstream to processing in the farming sector, particularly in the case of soybean, and distribution of commodities and added value prod- and resulted in dramatic increases in agricultural produc- ucts. There has been an interesting process of production tion and exports (Mundlak, Y. and M. Regunaga (2003) 3. differentiation and value creation, both upstream and downstream, which provided opportunities to generate This positive trend in crop production continued during economic rents along the chain and improved its interna- the period 2002-2007, in which the improvement in the tional competitiveness, allowing Argentina to capture a international trade scenario for food products and other significant share of the growing international demand of processed primary products and the decrease in the the soybean complex. exchange rate after the huge devaluation of the peso in 2002 balanced the negative impact of the decline in the Figure 1 shows the stagnation of the area planted with ce- nominal rate of assistance at farm level registered during reals and oilseeds 4 during the period 1940-1990 and its sig- such period (Tables A 3 and A 4 in Annex), and also pro- nificant increase during the 1990s and the 2000s (around moted the dynamic growth of the Argentine agribusiness 60%). It also shows the limited growth in total production sector, which was also leaded by the soybean industry. during most of the first period, and the dramatic growth This process had a significant impact on regional devel- occurred since the early 1990s until the 2007/08 crop, opment, because agribusiness and the related industries period in which the relative input-output prices improved and services are widespread all over the country and and the economic environment promoted investment promoted overall progress of small cities and towns. and innovation in crop production, processing and distri- bution5. Total cereals and oilseeds production grew from Figure 1: Area planted and production of cereals and oilseeds in Argentina. Period 1941-2008 (production in tons; area in hectares) ton - ha 100.000.000 90.000.000 80.000.000 70.000.000 60.000.000 50.000.000 40.000.000 Area Planted 30.000.000 Production 20.000.000 10.000.000 0 1991 reforms 1941/42 1950/51 1959/60 1968/69 1977/78 1986/87 1995/96 2007/2008 Source: Data from SAGPyA. www.sagpya.gov.ar 3 S  tability in the rules of the game was very important to create a more favorable environment for agricultural production, which in previous de- cades was subject to systematic changes in commercial policies. Figure A 3 shows the huge variability in the commercial policies measured by the nominal rate of assistance (NRA) during the period 1960-1990 for the main Argentine agricultural products, and its stability during the 1990s. Figure A 4 shows the commercial policy stability during the 1990s for soybean. 4  The evaluation of the impact of policies, production structures and markets includes total crops, because they are part of the same production system and they compete for the same resources (land, human resources and capital) 5 There has been some growth in productivity during the 1970s and 1980s mainly associated with the use of improved seeds adapted to local condi-  tions. However, the dramatic changes occurred after the 1991 economic and structural reforms, and resulted from the increase in the resources used (land, human resources, capital) and the new technologies implemented (improved seeds, fertilizers, chemicals, no-till and other modern technological packages). 6 The Soybean Chain in Argentina Figure 2. Area planted with cereals and oilseeds in Argentina. Period 1941-2008 (hectares) 25.000.000 20.000.000 15.000.000 Cereals 10.000.000 Oilseeds 5.000.000 Cereals Cereal’s & oilseeds substitution growth with oilseeds 0 1941/42 1949/50 1957/58 1965/66 1973/74 1981/82 1989/90 1997/98 2006/2007 Source: Data from SAGPyA. www.sagpya.gov.ar 38.2 million tons in 1990/91 to 98.1 million tons in 2007/08. Figure 2 shows that oilseeds have been more dynamic The dramatic increases in crop production began in than cereals during the last 3 decades. However, during 1991/92, when the economic and structural reforms imple- the period 1990-2008 most of the growth in total crops mented resulted in stability and improved oilseeds-inputs area was based on the increase in soybeans acreage, relative prices. Later, since 1996 the soybean competitive- which replaced land destined mainly to livestock produc- ness improved more with the fast massive use of a new tion (not cereals) in the Pampas Region and in the North technological package including GMO seed, glyphosate East and North West Regions of Argentina. and no till planting (Regúnaga, M. et. al. 2003). Corn GMO seed came later, by the end of the 1990s, and its massive Soybean has been the leading and more dynamic crop, adoption was delayed, but has also been very important based on: a) its high competitiveness vis a vis livestock to increase yields and to reduce costs during the 2000s. and dairy production and the rest of the crops (higher gross margin per hectare); b) its lower operative costs Figure 3. Area planted and production of soybean in Argentina (Area in million hectares; production in million tons) 50,00 45,00 40,00 35,00 30,00 25,00 20,00 Area 15,00 Production 10,00 5,00 0.00 1992/93 1993/94 1994/95 1995/96 1996/97 1997/98 1998/99 1999/00 1991/92 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 Source: Data from SAGPyA. www.sagpya.gov.ar The Soybean Chain in Argentina 7 per hectare, which reduces risks and capital require- ments (needs less doses of fertilizers than corn or wheat because more than half of the Nitrogen requirements are self provided by the plant6); c) the crop manage- ment with the new package is very simple and allows an efficient use of the water accumulated in the soil (Regu- naga, M. et al, 2003). The area planted has expanded dramatically based on the improved competitiveness of most of the participants in the soybean value chain and on the crop adaptability to very different agro-ecological conditions (from the Northern areas –subtropical- to the colder areas in the South of Buenos Aires province; and from the more humid areas in the East of the Pampas Region to the more dry areas in the central provinces of Argentina, like Cordoba and San Luis). The area planted with soybean grew from 4.97 million hectares in 1990/91 to 16.6 million hectares in 2007/08 (Figure 3); and production grew from 10.9 million tons in 1990/91 to 46.2 million tons in 2007/08 (324% in 17 years; 8.9 % annual cumulative growth rate). In 2007 the gross value of production of the soybean complex was estimated at 10.5 billion US Dollars. 6 Technologies to improve the Nitrogen Fixation in the soil (Rizobium) have also been very relevant.  8 The Soybean Chain in Argentina III. DESCRIPTION of the ARGENTINE SOYBEAN VALUE CHAIN The Argentine soybean industry is a key part of the global 3.1. Input providers for primary food system. Within the main world producers and export- production ers, the Argentine soybean chain is the most integrated to Main inputs for soybean production are: seeds; fertilizers; world trade: more than 90% of total production is des- chemicals (herbicides, pesticides and other products tined to international markets, while in the USA and Brazil for disease control); and machinery-equipment. The a high share of the soybean oil and the soybean meal relevance of the inputs used and the role of input provid- production is destined to domestic consumption. For such ers (including its human resources) have grown dramati- reason, during the last decades Argentina has been a cally during the last two decades, because they involve very active part of the reorganization and restructuring of some of the key elements of the innovations and current the global soybean value chain, which impacts in many competitiveness of the soybean value chain. Argentine different food and fuel markets and countries7. agriculture has become a very sophisticated industry, in which inputs play an important role to improve productiv- This process is resulting in the consolidation of most of the ity and to add value. value chain steps all over the world, including the Argen- tine soybean chain. Taking into account the mentioned Input providers have been very dynamic during the last circumstances, the description of the Argentine soybean two decades, both in terms of the new knowledge based value chain includes all the steps up to the main markets products and the improved technological packages de- in which the products are sold, and looks at the trends on veloped. They are an active part of the new networks that the main buyers’ preferences and the import restrictions characterize current Argentine soybean production. imposed by countries on commodities and value added products. A special consideration deserves research and develop- ment (R&D) on inputs and their efficient use, which have The description of the soybean value chain involves the been and will be a key factor in the competitiveness and following stages: input providers for primary production; sustainability of soybean production. At the beginning of soybean producers; services providers; crushers, inter- the second half of the XXth Century, Argentina created national traders; producers of related food products, the INTA (the national agriculture research and extension bio-fuels and other industrial inputs; main international service) which, together with the Universities, played a markets importers. Figure 4 provides a simplified diagram very important role during the 1960s until the 1980s, both in of the Argentine soybean value chain. the research and the extension of improved technologies (seeds, chemicals, fertilizers, machinery, soil management including no till practices, etc.). The Soybean Chain in Argentina 9 Figure 4. Argentine soybean value chain However, the gradual reduction in public resources producing regions, have been crucial for recent innova- destined to R&D and the dynamic need of innovations tions incorporated in soybean production. resulted in a growing relevance of the private sector during the last three decades, particularly in the case Seeds. Argentine crop production is rain fed and less of crops like soybean . This process involved private firms 8 input intensive than production developed in the USA, (input providers) and several technical farm associa- EU and most of the Asian countries. It relies very much on tions, like AACREA and AAPRESID, as well as other public- genetics and on crop management, because these tech- private national initiatives like “Cambio Rural” and other nologies provide opportunities to improve productivity at provincial programs , which played a very relevant role 9 low costs of production. Such situation is associated with in “on farm” experimentation and transfer of technology. the domestic economic environment resulting from the Beyond what has been done by farm organizations, and agricultural policies implemented during many decades similar to what happened in the USA, EU and other com- in Argentina10, which have limited the use of irrigation and peting countries, the seed and chemical industries and high doses of agrochemicals to increase productivity per their technical-commercial networks located in the main hectare. Therefore, improved seeds have been tradition- 8 ntellectual property rights have played a crucial role to promote private investment. I 9 A ACREA is the national association of CREA farm groups (with technical purposes, similar to the French CETAs). AAPRESID in the national associa-  tion of farmers promoting no-till practices (called in Argentina direct-seeding). Cambio Rural also involves small and medium sized farm groups with technical assistance financed partially by the Secretary of Agriculture and partially by the farmers. 10 While USA and EU farmers have positive PSEs (OECD, 2007), Argentine farmers have negative PSEs resulting in less favourable relative prices which  limit the profitability of intensive innovations, such as the use of high amounts of fertilizers per hectare, irrigation, and capital in general. 10 The Soybean Chain in Argentina ally the most important tool to increase productivity and decades the private sector has gradually replaced the competitiveness in Argentina. R&D on seeds and the seed extension services previously provided by the public sector industry have played a key role since many decades ago. (particularly INTA). The “Farm Shows”, in which the seed firms disclose and promote their new products and techni- Currently the Argentine seed industry involves more than cal packages, and the networks they have in the produc- 50 firms, including many local small and medium sized ing areas are currently the main tools for the technology firms, as well as the main international seed companies, transfer. These networks also involve farmers: AACREA most of which are also producers and distributors of members and some selected farms produce seed for the chemical products (Monsanto, Syngenta, Dow Agrosci- seed industry, and also conduct “on farm” experiments. ences, Pioneer, Advanta, Bayer Cropscience, Nidera, Nufarm, Pannar RSA, etc.). During the last two decades Fertilizers. For many decades until the 1990s the use of there has been a consolidation process of the internation- fertilizers in Argentina was very low, local production was al firms. The seed industry has created the Argentine Seed very little and domestic prices were high (resulting from Asociation (ASA www.asa.org.ar), which is very active in lack of scale of the industry, and from import taxes and promoting the implementation of better intellectual prop- import bans on fertilizers). This situation changed dramati- erty rights, that are crucial for the future development of cally since the early nineties, when relative prices im- new improved seeds . 11 proved, associated with the elimination of export taxes on grains and oilseeds, the reduction of import taxes on fertil- The use of modern biotechnology had a significant izers and other chemicals and the elimination of import impact on the seed industry, particularly in the case bans. Since then the fertilizers’ use in Argentina increased of soybeans. During the 1990s Argentina took the lead significantly (Tables 11 and 12). together with the USA in the use of biotech seed, which was available in the Argentine market since the crop Prices stability, crop production growth and the improve- 1996/97; and already in the crop year 2000/01 almost 90% ment in the climate for foreign and local investment in the of total area planted in the country involved genetically oil and gas sector resulted in investments in large fertilizer modified (GM) soybean -RR gene developed in the USA plants, built by international and local firms (such as Pro- and included in varieties adapted to local conditions-. fertil, a joint venture involving Repsol-YPF and Agrium; and Currently almost all farms use GM crops (98% of total area Mosaic, a joint venture involving Cargill and IMC Global). planted with soybean). Despite in recent years many Currently Argentina produces and exports urea and phos- other countries decided to use GM crops, such as Brazil phates to the regional market. and other soybean exporters, currently Argentina is still the most intensive user of biotech seeds in the world (the Fertilizers are produced or imported by a limited number share of GM crops in total planted area is higher than in of large firms. Most of them are the large grain traders the USA and the rest of the world - ISAAA www.isaaa.org and oilseed crushers (Cargill, Bunge, Nidera, Dreyfus, ). It should be noted that the success of the RR soybean AGD, and the coop ACA), which sell the fertilizers to in the main producing areas of Argentina is also associ- farmers at very competitive prices. They have developed ated with the development, by the Argentine based seed distribution networks and finance the sales. Some of the industry -not limited to the international firms-, of improved fertilizer sales are in barter programs, in which farmers pay varieties adapted to the different agro-ecological condi- at the harvest with the delivery of the grain12. The fertilizer tions of the country (not just the RR gene). firms are members of an association which also involves the producers of other agro-chemicals (the Argentine The seed industry also plays an important role in the Chamber of Ag Sanitary Products and Fertilizers – CASAFE technology transfer and in the financing of the seeds to www.casafe.org). the farmers through its distribution networks. During the last 11 n 1991-1992 the Secretary of Agriculture created the National Seeds Institute (INASE) and modified the Seeds Law to promote the development of I Biotechnology and the investment in the industry. These reforms were successful during the 1990s, but they are insufficient today; and the lack of better IPRs is a current weakness. 12  S uch barter sales reduce the transaction costs (VAT, tax on bank notes, broker’s fees, etc.). The Soybean Chain in Argentina 11 Herbicides, insecticides, and other products. The large process also involved manufacturing agreements with international seed companies are also the main produc- international companies. ers and distributors of chemicals destined to weed, pest and disease control. During the last two decades there The country counts with many local manufacturers (over has been an important consolidation process all over the 150) and with the representatives of the main large inter- world, including Argentina. The main companies operat- national firms. In this industry also occurred some consoli- ing in the country are Monsanto, Syngenta, Basf, Dow dation process; however it has been less significant than Agrosciences, Advanta, Atanor, Bayer Cropscience, Ni- in the case of seeds and chemicals, because there are dera, Dupont, Nufarm, Merk, and Repsol-YPF. However, in different specialized machineries for which local firms are this market there are also medium sized local and interna- competitive. Total sales in 2008 accounted for US$ 1,100 of tional firms (near 100 companies) which produce / import which near 37% were manufactured in Argentina. and distribute agro-chemicals; this is a difference with the fertilizers’ market. The most relevant changes occurred in this area during the last decades that improved the argentine soybean The domestic agro-chemical market has been very dy- competitiveness were: the increase in the size of the trac- namic since the early 1990s. It was also promoted by the tors, harvesters and sprayers; the massive use of no-till improved relative prices resulting from the policy reforms equipment; the development of computed controlling (Tables 11 and 12). Total sales of sanitary products des- systems to implement precision agriculture; and the tined to soybeans were around US$ 585 million in 2008. equipment developed to use plastic bag silos. The leading product was glyphosate (near 180 million li- ters), produced locally and imported from different coun- The local firms created the industry association CAFMA tries (mainly China). In recent years, products destined to (Argentine Chamber of Agrimachinery Manufacturers – soybean rust control have also been very dynamic. Most www.cafma.org.ar), which in 2007 developed CIDEMA, a of the chemical firms are members of CASAFE and ASA. centre for research and management development aim- ing to promote the competitiveness and the national and Machinery and equipment. Argentine agriculture is international setting of the Argentine industry. mechanized since many decades ago, and such process contributed to improve competitiveness in previous 3.2. Soybean producers decades; therefore, the machinery and equipment During the last five decades there has been a concen- industry has already a long history in Argentina. However, tration process in the farming sector all over the world, the economic and trade reforms implemented during including Argentina. This process involved changes in the the nineties also had a strong impact on the domestic number and in the size of the farm units. Table 1 shows industry which resulted in its restructuring. Equipment the evolution in Argentina during the period 1952-2008, trading started within the MERCOSUR countries and the based on data of the National Agriculture Census for all firms were supposed to modernize the equipment. This kinds of farms13. Table 1. Number and average size of farms in the National Agriculture Census Census years Number of farms Size of the farms (thousand units) (total hectares / unit) Source: INDEC National Agriculture Census. 1952 565 354 www.indec.gov.ar. 1969 538 391 Note: *Data for 2008 are preliminary. 1988 421 421 2002 334 524 2008* 274 560 13 T  he information in Table 1 is for all kinds of farms (including livestock). Average size for crop farms is usually smaller, but it is difficult to estimate because many farms involve several activities (crops, livestock and others). 12 The Soybean Chain in Argentina The concentration is more important when production is organizational changes which are common to the new considered, because economies of scale became very production models. The main characteristics of the new relevant tools for farming competitiveness in Argentina, models are: and many owners prefer to rent all or part of their farms, A substantive portion of the land is rented. Owners •  particularly in the case of land destined to annual crops. are replaced by production firms, who take the risks However, the main transformation process registered in and the benefits of the business and pay a rent for soybean production in Argentina during the last two de- the land. cades is the emergence of a new organizational produc- Usually they sign short term rentals, for one year. •  tion and distribution model based on networks, which is To reduce weather risks production firms rent land •  replacing the traditional farming system (Figures A 1 and in different locations, since they do not have the A 2 in Annex). rigidity of a specific owned farm. They also diversify the production portfolio including several winter Traditional farmers. In the old model the farmer con- and summer crops. This alternative allows them to centrated the ownership of the land and most of the reduce costs because they avoid crop insurance, production functions within the farm, including seed which is expensive in Argentina (there is no massive production, labor force and machinery operations (with subsidized crop insurance like in the USA). farmer owned equipment for planting and for weed and Production firms provide part of the working capital •  insecticide controls). They used to be isolated economic required to rent the land and to purchase the inputs agents, who developed little relationships along the value and services. In many occasions production firms chain and with other farmers. The extension services manage third parties investments (funds, “planting made strong efforts to transfer the new technologies to pools”) and therefore they take lower risks than if most of the farmers, who were “passive agents”. However, they use loans (they share the benefits). In addition, since Argentine farmers never owned harvesters and part of the operating capital is provided by input trucks, harvesting and transportation services were always providers (seeds, fertilizers, and chemical products) provided by specialized contractors and transport firms14. and by trading and crushing firms. Such relation- On-farm storing capacity has also been very limited in ships imply the development of networks between Argentina; therefore most of the farmers conditioned and producers and the rest of the value chain. All these stored the soybeans in the facilities provided by local financial options result in a limited demand of credit coops and country dealers. Such alternatives are more from the institutional system. efficient in the use of fixed investment than the prevailing Production firms involve different kinds of manag - •  system in other countries; however, in some cases they ers: i) owners of land who rent additional acreage limit the farmer’s opportunities to select the best timing for to increase the scale and to diversify risk producing the grain sales. in different locations; ii) owners of machinery who used to be contractors and also perform as pro- New production models. It is estimated that most of the ducers; iii) specialized teams (usually technicians) soybean production (60 to 70%) is currently under new who manage funds provided by different kind of models with more specialized managers, which involve investors, involving mainly private initiatives16 but different kinds of horizontal and vertical networks, in also public local and foreign funds (they are usually which contracts play a key role15. There is not a single called managers of “planting pools”). model and production strategy; however, there are some 14  his is a main difference with the USA, Canadian and European farmers, who usually own equipment. Such specialization has always been a T competitive advantage of Argentine production, because the use of capital goods by specialized firms which operate all the year round is more efficient. 15  It is important to highlight that in the farming sector the commercial relationships in some occasions do not use formal contracts, because the be- havior of farmers and other participants is very special (they trust each other and they comply with the commitments). However more specialized producing firms are using formal contracts; and their performance is very high, different to what happens in many other activities in Argentina. 16 After the financial crisis registered in Argentina in 2001-2002 many small investors lost confidence on the banking system and have been investing  in soybean production through different kind of agreements with the production firms (they are called “planting pools”). Many of the pools are financed by individuals (lawyers, physicians, merchants and other people living in small towns and cities around the country) who have been sav- ing money and investing in agriculture through production firms. The Soybean Chain in Argentina 13 •  Traders and crushers also invest in soybean produc - The new organization of primary production in networks tion (managed by their own firms or by the special- implies a differentiation and specialization process result- ized production firms). However, the magnitude of ing in a very efficient system, with more economic actors such production is very little (usually less than 10%) involved in “on-farm” production, similar to what happens when compared with their total crushing / trading in the rest of the world with many dynamic manufactur- operation. ing industries. In Argentina, such networks have been an •  Most of the improved seed is produced and pro - interesting alternative to a much higher consolidation. vided by the seed industry. Some production firms develop provision and financing agreements with This evolution contributed to the creation of a structure of the seed firms. competitive medium sized agents, instead of employees, •  Some farmers own equipment. However, most of the which is important in terms of local and regional develop- on-farm operations are implemented with a network ment (local medium class). However, it requires very good of services providers . Usually they are specialized in 17 links among the participants in the network. Farm manag- three groups of contractors: i) for tilling and sowing; ers are not supposed to just conduct production, but also ii) for crop defense18 ; iii) for the harvest. to organize and manage the network. Production firms •  Production firms organize production and are rely very much on services providers, and therefore they responsible for the technologies used. Such role are supposed to help them in the improvement of their has been very important for the massive use of technical capacities and also in their capitalization. Many improved technologies in soybean production, farmers prefer to hire services providers -and also to sup- such as the package RR soybean-glyphosate-no till port their development- than to invest in equipment and planting, which has been adopted in almost all the to have too many employees20. area planted in Argentina . Frequently the technical 19 assistance is provided by specialized teams hired As a result of this process, the current soybean production by the production firms. The concept of the need structure involves many independent agents develop- of extension services has been replaced by a new ing activities in the interior of the country. The reduction producer’s behavior, in which farmers are “proac- in the number of farmers and the concentration process tive users” of innovations. They are not waiting for in production have been balanced with the emergence the extension services. of a large number of new small and medium sized firms Large production firms also develop upstream •  specialized as services providers. All of them create value agreements with trading and crushing companies, in a much more sophisticated and efficient chain. to better manage logistics, to guarantee the quality of production, and to implement forward sales for Despite the mentioned concentration process in the risk management. Vertical coordination is a main number and size of farm units, soybean production still tool for efficient management. They also use future involves a large number of farmers / production units of markets to mitigate price risks. different sizes. Based on the information of soybean first sales during 2007, the ONCCA (national service respon- 17 S  ome of the services providers are small farmers, who own and eventually purchase machinery in excess to what they need in their farms. In many cases these alternative is easier to raise their income than purchasing land. However, more recently many large production firms promote the development of specialized services providers, to develop a permanent and trusted production network. Some firms, like El Tejar, help them in the financing of the equipment, the technical assistance of the employees and their development as specialized firms. 18  Some weed and insect controls are implemented by plains with sprayers. Such firms are usually specialized. 19 In a previous study conducted for the World Bank in 2008, we find that soybean is the single crop in which the national average yield is similar to  the modern groups’ yields (like AACREA). This is not the case for other crops. 20  Labor regulations and associated costs’ risks are high in Argentina. In addition, the cost of capital has been traditionally high in Argentina, and the long term credit required for the purchase of machinery and equipment has been very limited in the institutional system. 14 The Soybean Chain in Argentina Table 2. Stratification of soybean producers in Argentina in 2007 Categories Number of farmers (units) Volume sold (thousand tons) Percentage of total farmers (%) Percentage of total production (%) 1 a 60 ton 18,897 578 25,72 1,51 61 a 150 ton 16,767 1,689 22,82 4,41 151 a 300 ton 13,644 2,942 18,57 7,67 301 a 450 ton 6,963 2,568 9,48 6,70 451 a 600 ton 4,164 2,168 5,67 5,65 601 a 750 ton 2,664 1,783 3,63 4,65 751 a 1000 ton 2,900 2,508 3,95 6,54 1001 a 1500 ton 2,901 3,537 3,95 9,22 More 1500 ton 4,577 20,569 6,23 53,65 Total 73,477 38.341 100 100 Source: ONCCA, 2008. www.oncca.gov.ar sible for agricultural trade control) defined a stratification large number of small and medium sized specialized firms of soybean producers which is included in Table 2. (input and services providers). In Argentina the restructur- ing of the soybean production system did not result in a Taking into account that the average yield is around 3 primary production consolidation in a very little number tons per hectare, it could be estimated that 63% of pro- of integrated companies, with the headquarters based in duction involves a reduced number of farms of the two Buenos Aires or overseas (which is very frequent in other largest size levels (around 7,500 units), who plant annually manufacturing industries). On the contrary, it resulted in more than 330 hectares of soybeans. Most of them are the creation of many new specialized firms, which had a very competitive producers. It should be noted that most significant impact on the social and economic develop- of the farmers plant several crops, and therefore total ment of the interior of Argentina, particularly during the acreage planted with crops is around 60 to 80% higher period 2003-2007. The excessive increase in export taxes than the soybean acreage. and the export restrictions implemented in 2008 and 2009 deteriorated very much the farming situation, and At the other end, there are a large number of farmers of resulted in a sharp decline in the area planted with cere- the three smaller size levels (near 50,000) who plant less als and oilseeds in 2008/09, before the emergence of the than 100 hectares of soybeans each and contribute only international financial crisis. The area planted in 2009/10 with 13.5% of total soybean production. Such farmers are with total crops and the production will also be lower than less competitive, and currently they do not raise enough in 2007/08. The technology used also went back (a sharp “on-farm” income to comply with their family needs (the reduction in the use of fertilizers and less use of improved negative impact of export taxes is very high for these seeds). Farm organizations have issued a sentence that farmers). describes very well the process: “the recent economic development of Argentina come from the interior to- Some analysts, politicians and farm organizations criticize gether with the agricultural sector growth, and the current the recent evolution of the agricultural sector in Argen- recession and economic crisis is associated with the lack tina, which resulted in a reduction in the number of farms, of growth of the agricultural value chains, more than from because it is very difficult for small farms producing soy- the external crisis”. bean and other annual crops to compete and progress in the new production context. However, it should be noted Summing up, the construction of dynamic competitive that they look at the sector limited to the farm structure, advantages implied major technical and organizational which is only part of the new production model. At the innovations. There is strong competition among farms; and same time it is emerging a medium class, living in towns the traditional farming is disappearing because the new and small cities of the interior of the country, involving a production systems require a sophisticated management The Soybean Chain in Argentina 15 of networks and technical packages, which are system- There are different vertical and horizontal integration atically changing from year to year, associated with new strategies implemented by new production models. Some innovations emerging from biotechnology, information firms limit their operations to the “on-farm” production technology, precision technologies, new products, increas- process; they concentrate their efforts on the effective- ing requirements from consumers, etc. They require special- ness of the management of production, logistics and ized teams and very good management of networks for marketing activities, and in the development of reliable vertical and horizontal coordination, which provide more networks with the owners of the land, with inputs and efficiency and competitiveness to the value chain. services providers, and with the trading / crushing firms (upstream and downstream vertical coordination). They It should be noted that during the last two decades the reach economies of scale through their own horizontal Argentine soybean production has been successfully growth in different production regions with non correlated moving in this direction, creating interesting rents along weather patterns. Most of the land they plant is rented the value chain, and resulting in a significant growth in and they have minimum fixed assets. The competitiveness the value of production and in the increase of its share in and risk management strategies of the largest Argentine total Argentine GDP, with interesting impacts on employ- specialized production firms resulted in their regional ment and on regional development. The sustained growth expansion, initially within Argentina and more recently to in soybean production has been successfully sold in the several South American countries22. This is the case of El international markets, mainly as processed commodities, Tejar described in Box 1. based on the high and “genuine” competitiveness of the Argentine soybean chain21. Box 1. EL TEJAR In 1987 two cattle family farms decided to produce associated, and were the origin of El Tejar. Both families, Alvara- do and Pallette, owned mid-sized farms with less than 1,000 hectares each, located in a livestock producing area of Buenos Aires province. They were members of the CREA Saladillo-Roque Pérez, a group of farmers that shared innovations and farm management strategies. In 1992 and 1993 other three members of the same CREA, Mc Lean, Lamatina and Bosch, also joined. The five families created a special cooperation private association regulated by the Argentine Corporations Law, which allowed them to work associated but also maintaining their respective family societies. At the beginning they focused on adding value to their beef production through processing and market- ing a high quality branded meat: “Cabaña El Tejar”. In 1993 they opened a healthy butchery in Saladillo city, from where they built the awareness of the brand. They also sold beef carcasses to butchers located at near cities. In 1995 another CREA member joined the group, the Kasdorf family. At this time, they decided to create a corpora- tion: El Tejar S.A. (ET Arg) to produce, to provide technical and management services and to market the produc- tion. Latter, other families and farmers joined ET Arg. The growth strategy was to have minimum fixed assets, renting the land and developing horizontal and vertical networks. Previous to the association, the individual family firms got annual average rates of return on net assets of around 4% (including in the assets the owned land, livestock and equipment); with the new strategy the firm targeted to achieve 20% annual rates of return in the years to come. The new company began operations in 1995 renting the 7,165 hectares owned by the six families. The first com- pany’s board had members of the six families, and most of the managers were family’s specialists. Oscar Alvarado, a young innovative agronomist, became the CEO. Since the very beginning ET Arg gave a high priority to several values shared by the founders: growth, people development and social commitment. 21 t is mentioned “genuine” because the growth and the access to world markets are not based on subsidies provided by the rest of the Argentine I society as is the case of the USA and other countries. On the contrary, during the current decade soybean production has grown until 2007/08 despite the high export taxes applied to the soybean complex. 22 Country diversification allows them to reduce weather, price and political risks.  16 The Soybean Chain in Argentina The first stage of the company’s development was the livestock business. It was structured in two areas: i) beef production and related services , including meat production, sales of heifers and bulls, sales of semen, technical advising and management of farms in several provinces of Argentina and later in Bolivia; ii) marketing and sales of branded beef directly to consumers: through own butcheries in Saladillo and in Buenos Aires city; through indepen- dent butchers and supermarkets located in several cities of Buenos Aires province; and exports to other countries. The second stage was based on crop production, initially in Argentina and later in other South American coun- tries. Technical innovations and the improved economic environment available since the early 1990s modified the production opportunities, and the crop business emerged as an interesting alternative for the firm’s growth. For that purpose the company trained its employees on improved crop production, including biotechnology and soil man- agement, and it improved the marketing of the grain through direct sales to crushers and exporters and through the use of future markets and forward sales. During the second half of the 1990s ET Arg grew very fast with rented land and no equipment, expanding initially to other regions of Buenos Aires province, and later to other provinces to diversify weather risks and to find better production opportunities; in 1997/98 they planted 8 thousand hectares and in 2000/01 they reached 38 thousand planted hectares. The crop business success was based on improved management and production technologies. Management included production and commercial risk mitigation, the implementation of a quality management system and the development of a strong marketing network. Production technologies included no-till practices, biotechnology and the development of a production network. In the early 2000s they already involved more than 500 members (farm owners, input providers, services providers, country dealers, processors and traders, investors, etc.). At that time they also began their internationalization strategy, to reduce risks and to find new opportunities based on their competitive approach. In 2003 their 2010 vision was to become a large agribusiness firm, planting 200 thousand hectares of cereals and oilseeds in the Southern Cone in the 2009/10 crop year, selling directly to crushers and exporters, and raising revenues of US$10 million. The main strategy was horizontal growth with networks. Oscar Alvarado defined ET Arg as “a firm operating in the first steps of the agribusiness chain with minimum fixed assets, managing businesses and organizing and leading teams, putting always the focus on the customer ” (quality com- mitment). It was also a key objective to develop a large group of people and families sharing dreams and values. In 2002 they expanded to Bolivia, and in 2003 they began farm operations in Uruguay and in Brazil (in Mato Grosso), becoming a “multi-local” firm targeting high annual profits and also taking commitments with the local develop- ment of the areas in which they produce (they invest annually 2% of their benefits in social promotion -Corporate Social Responsibility-). Team building within the firm and network building have been always the keys to allow a successful and aggres- sive growth, with the view of “building a company to last 700 years ”. ET Arg managers believed that the success and good awareness of the firm resulted from their constant innovation and growth, supported by strong alliances with: i) services providers, who are considered allies and not providers or contractors; ii) farm owners, who are con- sidered associates and not lessees; iii) investors, who are considered associates and not lenders. Alliances with third parties are not an end, but a tool to develop sustained long term cooperation relationships (fidelity) and growth. The base of the firm’s model is trust, promoting team work, communication and transparency. They have always looked at the company as the environment for individual and family development. Instead of a Human Resources department they created in 2001 a People Development department, with the mission of conducting the firm to be a school of leaders with strong social commitment and with the commitment of a continuous personal improve- ment. Initially they had a quality management system and currently they certify processes under: i) ISO 9001/2000 (economic-operating capability); ISO 14001/2006 (environmental care); OSHAS 18001/2006 (occupational health and safety management). The Soybean Chain in Argentina 17 The third stage of the company’s development began in 2006 when it became a public firm with a global perspective and very ambitious growth projects, also based on minimum fixed assets, team building and network building. Their impressive growth capacity could be appraised by looking at the recent evolution: 129 thousand planted hectares in 2005/06; 182 thousand in 2006/07; 337 thousand in 2007/08; 650 thousand in 2008/09: The target for 2009/10 was 885 thousand planted hectares and a production of 2.9 million tons of cereals and oilseeds. In 2006 ET Arg received US$ 30 million equity investment from Altima Partners to expand the area planted and to purchase land (adding a new component: capital earnings through land appreciation). In 2007 ET Arg received additional US$ 20 million equity from Altima and created the firm Campos Verdes. In 2008 ET Arg and Campos Verdes merged and created El Tejar Limited (ETL) and also expanded its operations to Paraguay. In 2009 ETL received US$ 150 mil- lion equity from a large investment fund, The Capital Group Companies. The new business model involves two components. The main one is the production business, conducted with the previous strategy of minimum fixed assets and strong teams and networks, focussed on primary commodity pro- duction in 5 countries, with EBITDA budgeted and controlled on-line by farm and by lot. The targeted growth is very ambitious: 2,0 million hectares planted area in 2014/15 in the Southern Cone, with most of the projected growth in Brazil and Uruguay. The second component is the real estate business, looking at capital gains generated with high quality land acquisitions and sales (land value arbitrage among the different countries and regions). The com- pany has successfully invested US$ 564 million in farmland over the past two years (acquiring almost 150 thousand hectares, half of them in Brazil), taking advantage of the company’s regional network and its multi-local presence in 5 countries; they already built one of the largest privately held cropland in South America. By the end of 2008 the market value of the properties was 56% over the book values. ETL core business is primary commodities production with minimum fixed assets and implies a redefinition of the traditional agro paradigm, which allows them to be very competitive and to achieve long term sustained growth. Business management replaces the isolated traditional farmer by a new business approach, involving strategic networks, alliances and a strong development of soft assets (know how, networking, information systems), using Montecarlo simulations to create a crop portfolio aimed to manage weather, country, environment and price risks. They implement a flexible and dynamic production strategy with annual crops, and a professionalized total quality management. Networking involves: i) the development of services providers; ii) building long term relation- ships with the main input providers (such as Basf, Monsanto, Petrobras Energia, ADM, Bunge, Cargill, Nidera, Isusa, Los Grobo and Baya Casal) to receive technological and logistics support, financing and just in time services; iii) building long term relationships with the main customers (such as ADM, Bunge, Cargill, Dreyfus, Los Grobo, Canta- bria, Copagran, Big Frango and others) to have a diversified client roster, to receive logistics support, differentiated commercial terms and convenient financing. Risk management includes the use of barter agreements, forward sales and futures markets; and a portfolio selection of different crops and production locations looking at different weather patterns. Strategic risk focus includes politics, macroeconomic and social issues. The firm uses high-tech just in time cutting edge technology, including no-till farming, crop rotations, double-cropping, high yielding seeds and technologies, information technologies and site specific farm management, to allow them to be a very competitive low cost producer. They also base their competitive advantages on economies of scale to reduce costs and to improve their access to technology, to financing and to markets. In terms of environment and social sustainability they produce primary products with: social responsibility, environmentally friendly technologies and customer focus; they develop young professionals and entrepreneurs; and the company is “multi-local” with social commitment in each production area. 18 The Soybean Chain in Argentina Other large new production models do not limit their process allows them to reduce transaction costs and to in- growth to primary production on rented land. They also crease their purchasing-selling power. In box 2 is described develop upstream and /or downstream activities along the case of Los Grobo, a large Argentine firm producing the soybean value chain and in other value chains. Some mainly on rented land in Argentina, and more recently of these successful firms develop seed production, import in other South American countries, which has also devel- fertilizers and other chemicals, provide logistics and trad- oped several upstream and downstream activities in the ing services, export, produce feed and meat and other soybean value chain and in other related chains. processed products such as bio-diesel. The integration Box 2. LOS GROBO Adolfo Grobocopatel and his brothers used to farm land and to operate as country dealers for several decades since the 1950s, based in Carlos Casares, a city located in the Center-West of Buenos Aires province. In 1984 they decided to split their company, and Adolfo created the firm Los Grobo Agropecuaria (Los Grobo) to specialize in farming and breeding livestock, leaving to his youngest brother the trading activities. He kept a 3,500 hectares farm of high quality land, and involved his sons in the management of the firm. One of them, Gustavo, a young and in- novative agronomical engineer, became responsible of overall production, and Andrea, economist, got in charge of finance and administration; both contributed to professionalize the firm. They gave a high priority to increase productivity and also to improve competitiveness through costs reductions. At the beginning they had the land, 4 employees and one truck; they were a family mid size farming firm. Initially they grew purchasing land and renting additional land to increase scale. They also developed grain trading activities, purchasing a 1,000 ton storing plant in 1985; later they purchased additional plants, totalling 8,000 ton storing capacity by 1990. Most of the growth was based on their own investment of profits and the networking; very little was funded with institutional short term credit. During the 1980s they consolidated an efficient producing and trading family firm, implementing the main tech- nical innovations available, such as no-till farming, improved seeds and fertilizers, and developing good commer- cial relations with their customers. Adolfo’s dream was to grow in the ownership of land and leave a farm for each of his four children. They were able to conduct successful real estate farm businesses allowing them to increase the owned family land to 9,000 hectares by 1993. However, taking into account the challenges and opportunities emerged with the Convertibility Plan and the economic and commercial reforms implemented by the government since 1991, by the mid 1990’s Gustavo Grobocopatel find that the growth strategy should change; it should be based on farming and trading networks, keeping as little as possible the assets and operations within the boundary of Los Grobo, renting land –associated owners- and storing facilities, and involving independent services providers. Scale, efficiency and networking were key objectives of the strategy. During the 1990s they grew very fast and became a large professionalized agri- business firm, involving hired specialized managers and external advisors. Since 2002 the agronomists working for the firm became associated services providers, receiving as payment a percentage of the crop raised; they grew as independent firms providing most of their services to Los Grobo, but also to others; and some of them run their own farming. Since the early 1990s Los Grobo created a decentralized network of associated regional branches to purchase grain, to sell inputs and services, and to develop new business. Branch officers work closely with Los Grobo regional agronomists, who are supposed to purchase the inputs at the branches; and they also deliver the grain to the com- The Soybean Chain in Argentina 19 pany. Initially the branches were located in the Province of Buenos Aires; latter they opened branches in Cordoba, Santa Fé, La Pampa, and Chaco. More recently they expanded to Uruguay, Paraguay and Brazil. The branches are linked to Los Grobo headquarters, located in a farm near the city of Carlos Casares, where the company conducts i) the planning and monitoring of agricultural production, working closely with the agronomists; ii) the procurement and distribution of inputs through the branches; iii) the selling of the company’s and other farms grains, and the hedging through a Los Grobo owned company named Chain Services S.A. They also created SGR Los Grobo, a reciprocal guaranteeing company which finances small and medium sized network members. In ad- dition, since 2005 they have expanded the acreage issuing agricultural trusts, beginning a new relationship with capital markets; the second two year duration trust launched in 2006 totalled US$ 12 million and was destined to plant 45,000 hectares in Buenos Aires and Entre Ríos. During the nineties, their strategy and the favourable economic and institutional environment, allowed them to grow very fast. Technology, including biotechnology (RR soybean) and information technologies, and the develop- ment of futures markets were also key factors for their success. They continued growing during the 2000s favoured by the improved food international scenario; and they expanded operations to other South American countries to mitigate weather, market and political risks. Currently they are one of the largest grain producers in South America, with 230 thousand hectares lanted in 2009/10. Most of their producing land is rented (involving different alternatives: associated owners sharing risks and rewards, owners receiving a percentage of the yield per hectare, and owners receiving a specified amount of money); they employ few strategic people, and they do not own most of the fixed assets required to sow the crops, to harvest and to transport the production to the markets / ports. The production strategy has been to grow through “agreements with people” that provide the land and most of the services required for production, developing networks with hundreds of land owners, agronomists, contrac- tors, branch managers and other companies along the value chain. The growth through contracting is based on customer’s trust and alliances resulting from their transparency and solvency (volume operated, the storing and processing capacity and the land owned). The trading strategy included the origination of grain produced by the firm in own and in rented land (vertical inte- gration), and provided by associated producers (vertical coordination), and through contracts and purchases in the market. By the mid 1990s more than ¾ of total origination was purchased in the market; while by the mid 2000s more than 70% was provided by own production, associated producers and contracts. They have concentrated operations with large customers, reducing the number and increasing the volume per customer. Since 1998 Los Grobo also provide futures markets services (mainly to their large customers), becoming by the end of the 1990s in the third largest operator in the Buenos Aires grain futures market. The vertical integration strategy also included the purchase of a wheat mill in 2000. In 2005 they purchased a second large mill. And including an additional rented mill, they became the fourth largest milling group of Argen- tina. Since then they created a new business unit in Brazil: Los Grobo Agroindustrial do Brazil, through which they sell to such market Argentine high quality wheat flour and pre-mixes. Today, the key competitive advantages of Los Grobo are: 1) Economies of scale and dynamic growth (21% an- nual growth in area planted and 20% annual growth in grain origination during 2002/03 to 2009/10. 2) Weather, market and political risk mitigation through diversification in four South American countries and six crops. 3) Integration : they conduct on farm research and development; they purchase and sell inputs; they provide finan- cial services to local producers; they conduct technical crop monitoring including quality controls; they provide 20 The Soybean Chain in Argentina hedging services; they provide marketing services (transport, conditioning, storing, etc); they sale their produc- tion through their marketing network and operate as country dealers. 4) Network model they provide inputs and services to farmers, they rent land and use services providers equipment, and they trade their own and third parties grains; the models help them to leverage scale and operations, to receive additional sources of income, to optimize the use of fixed assets and to mitigate risks operating in different regions of four countries. 5) Improved and efficient management technologies, involving high-tech production and precision agriculture, information technologies, best weather and market risk management practices and sophisticated trading. Quality is a main issue involving: leadership, processes and results; already in 2000 they were ISO 9001 certified. 6) The management team very innovative, with proven experience and a strong growth strategy. During the 1990s and early 2000s they became a regional agribusiness leader, and since 2004 they began an internationalization strategy becoming one the largest South American grain producers by the end of the 2000s with around 250 thousand planted hectares; and a large grain trader with 3 million tons traded in 2009. 3.3. Services providers Country dealers and coops Since many decades ago harvesting, transportation, Most of the conditioning and storing of the soybean and conditioning and storing services have been provided other grains is provided by country dealers and coops by specialized firms. Argentina has a large network of widespread in all the producing areas. There are about firms providing such services. More recently some services 1,200 private firms and 500 coops, who own around 54% providers are emerging as specialized firms, providing of the total fixed storing capacity of Argentina. The crush- “on-farm” services for crop management and technical ing industry owns 11% of total fixed capacity; port facilities advising, for planting and for sanitary controls (herbicides, 7%; and flour mills 4% (Table 3). insecticides, pesticides, etc.). In most of the cases they are small or medium sized firms, which develop their activities In Argentina the structure of the storing capacity is very at regional or sub-regional level, based in specific loca- different to that existing in the USA or Canada, countries tions (towns and small cities of the main producing areas). in which most of such capacity is “on-farm”. Table 3 shows They involve several thousands of firms for each service, that producers own only around 22% of total fixed ca- and they perform in competitive regional markets. In ad- pacity. “On-farm” fixed capacity in Argentina is relatively dition, there are other relevant services provided by public low when compared with total production (15.9 and 94.4 and private organizations; the main ones are the grain million ton respectively in 2006/07). In the last decade exchanges and the sanitary and quality services. farmers and also some country dealers have successfully used plastic bags as transitory silos, to overcome their Table 3. Grain storing capacity in Argentina in 2007 (million tons and percentages) Agents Total capacity Share in total fixed (million ton) capacity (%) Country dealers and coops 38.20 53.9 Farmers (fixed silos) 15.90 22.4 Oilseed crushers 7.66 10.8 Exporters (at the ports) 4.76 6.7 Flour mills 2.55 3.6 Feed mills 0.79 1.1 Rice mills 0,56 0.8 Source: Lopez, G. and G. Oliverio. 2008 with Specialized Conditioners 0,52 0.8 data from ONCCA and Agritrend SA TOTAL FIXED CAPACITY 70.93 100 % Notes: *Estimated. **Total grain and oilseed production in crop 2006/07 was 94.4 million ton. Plastic bags* 30 The Soybean Chain in Argentina 21 lack of enough fixed storing infrastructure. Despite farmers exporters, which also have built / purchased storing plants use plastic bag silos, they are supposed to condition and and developed regional networks through which they sell store a high percentage of their production in the facili- and finance inputs and receive as payment the soybeans ties provided by local country dealers and / or crushers after the harvest (many of such operations are barter pro- and other processors. In 2007 plastic bag silos represented grams, which reduce tax costs and other brokering fees). around 30% of total capacity (fixed storing capacity + These alternatives reduce the transaction costs along the plastic bags). value chain, and improve the coordination between pro- ducers and crushers / exporters, which is very important in During the last two decades total fixed storing capacity terms of logistics, quality arrangements and traceability. has been around 20% under total annual production23. Such situation implies a good use of fixed capital, when Most of the country dealers are medium sized local firms compared with other competitors (capital costs advantag- which operate at regional level. There are very limited es). However, in some critical periods after the harvest of cases of large country dealers operating at national level. the soybean and other summer crops it creates manage- Despite crushers and exporters own country elevators, ment difficulties. The development of plastic bag silos has their regional storing capacity is a small part of their total been a very useful innovation to improve efficiency and operation, and they need to acquire most of the grain negotiating power, and for the management of the grains from country dealers, coops, farmers and other brokers. In during the harvesting time, particularly for farmers who use recent years, country dealers and exporters have also de- several large harvesters at the same time. They also allow veloped network agreements instead of consolidations, them to better manage different products / qualities. which have been more significant in other countries. Country dealers and coops provide conditioning and “On-farm” services providers storing services, but they also operate as traders, purchas- “On-farm” services involve many different agents. The ing and selling the cereals and oilseeds. Many of them main ones are the technical advisers and the contrac- also sell inputs to farmers (seeds, chemicals, fertilizers) tors. Both are key players in the soybean chain. which are partially financed by the country dealers and paid at the harvest with the delivery of the grains. The progressive sophistication of the farming activi- ties registered during the last three decades has raised Several decades ago, most of the production was sold the relevance of technical advisers (consultants) as or delivered for deposit24 by farmers to country dealers, key factors for the business success. In the old farming who conducted most of the commercial and financial system the technical management of the farms was relationships with the farmers. Direct sales to crushers and one of the main tasks conducted by the owners of the exporters were very limited, mainly restricted to large pro- land or the tenants, who eventually received technical ducers owning storing facilities; and crushers and export- advising provided by public extension services. Later, ers were specialized in their specific activities, with limited the growing importance of innovations increased the regional storing facilities (and they did not use to sell relevance of technical advisers. Several decades ago inputs). Deliveries to the ports and processing plants were the CREA groups were created, involving around 10 farms managed mainly by the country dealers and coops. Such each, which hired a technical adviser for the activities marketing channel included several participants (the conducted by the groups25. These groups had an impor- dealer plus the broker), increasing the transaction costs. tant role on the farmer’s awareness of the relevance of private consulting, and helped to develop good links More recently, large and medium sized farmers have de- between the research centers and the farmers. More re- veloped direct arrangements and sales with crushers and cently AACREA has also played an interesting role in the 23 t should be noted that total capacity includes port and other facilities which are not totally available for storing. I 24 Some farmers used to sell the cereals and oilseeds to the local dealers, who later sold them to final users (earning a margin with the prices). Other  farmers just delivered the grain for the conditioning and storing at the dealers (who charged for the services provided), but maintaining the own- ership until they sold it to crushers or exporters. 25 The main purpose of the CREAs (regional consortiums for agricultural experimentation) it to share experiences among the farmers of the group  and to receive technical and managerial advise. They have created the national association AACREA (www.crea.org.ar). 22 The Soybean Chain in Argentina development of the networks between farmers and the conducted by contractors. Some contractors are also private R&D sector involving input providers. soybean producers. In addition to AACREA, during the last two decades there The quality of the equipment, particularly in the case of were created other private organizations, such as AAPRE- direct sewers, sprayers and harvesters has improved sub- SID (www.aapresid.org.ar), and other public-private initia- stantially during the last two decades. Such process has tives destined to provide technical assistance to groups of paralleled the increase in production and productivity farmers, such as CAMBIO RURAL and other similar orga- of soybean and other crops in such period. Together with nized by some Provinces. the incorporated innovations in the equipment, there has been also an improvement in human resources involved Direct private consulting has grown dramatically during in the operations, which are key factors for the success the last two decades. In the main producing areas there of the very sophisticated production systems currently are small consulting firms and individuals specialized in implemented. Many producing firms using networks make technical advising. There are also some medium sized strong efforts to professionalize and to ensure the loyalty firms which provide technical advising and became man- of its services providers; this is also an interesting process agers of the “planting pools”. They have played a very that has improved the chain’s competitiveness. important role in the restructuring process of the Argen- tine soybean production system. Carriers Most of the soybean produced in Argentina is carried in There are three main kinds of contractors : i) tilling and bulk by trucks from the farms to the local country dealers sowing firms; ii) crop defense firms; iii) harvesting firms26. / coops, and to the crushers or ports. Rail infrastructure is They are small and medium sized firms; most of them are very limited, and the services are usually very poor. Barges family firms that operate at regional level. There are sev- are not relevant for most of the Argentine production. The eral thousands of services providers, which usually use the estimated shares for total cereals and oilseeds carried equipment more intensively than the farmers who imple- are: 83-84% trucks; 15-16% rail; and 1-2% barges. Barges ment such tasks with their own equipment. The higher use are also used to bring soybeans from Bolivia and Para- of the equipment allows them to reduce the costs of the guay to Rosario port. services and to reduce the period of time required for their replacement, which is important to purchase new Taking into account that trucks are the most expensive al- machinery with innovations (contractors usually renew ternative and barges the cheapest, this situation could be their equipment after 2 to 4 years).The massive use of considered a weakness of the Argentine system. However, no-till practices has been facilitated by such situation; the such weakness vis a vis other countries like the USA or estimates for the Province of Buenos Aires are that 77% of Canada is less relevant in the case of Argentina, because the area planted with no-till technology is contracted27. most of the soybean is produced near the ports (around 200 to 300 kilometers); very little production is distant more Some of them (around 3,500) are associated to a specific than 500 kilometers29. This is not the case of the competi- chamber FACMA (Argentine Federation of Agricultural tors, USA and Brazil, because the main producing areas Machineries Contractors www.facma.com.ar which joins in the USA and the main expansion areas in Brazil are several regional chambers). Recent studies have esti- located at more than 1.5 thousand kilometers from the mated that there are near 10,000 contractors, among export ports. which there are around 1,000 harvesters and 250 firms specialized in air spraying28. The chamber reports that Studies conducted to compare transportation costs in Ar- between 80 and 85% of total spraying and harvesting is gentina, Brazil and the USA show that unit costs for trucks 26 There are also cases in which the firms conduct both tasks.  27  odola, A. (2008). L 28 B isang, R. et.al. (2008).  29 Actually the high transport costs using trucks limits the expansion of the soybean production to the Northwest areas of Argentina (mainly Salta and  Tucumán where there is land with high potential for soybean production). 30 Lopez, G. at al. (2007) estimated that truck freights in Argentina and Brazil are around 35-37 US$/ton/1,000 km and rail freights are similar in the  three countries, around 25-28 US$/ton/1,000 km. The Soybean Chain in Argentina 23 (in US$ per ton and per km) for soybeans are similar in Since most of the crushing industry is located at the ports, Brazil and Argentina, and higher in the USA . Rail freights 30 particularly Rosario, the pricing system is relatively simple are similar in the three countries. In the same study the and transparent. The crushing plants located in the inte- average distance mentioned from origin to ports is 300 km rior of the country (a small percentage of total capacity), in Argentina; in Brazil it varies from 300 km in the Southern usually negotiate the prices paid to farmers in the same states to 1,500 km in the Western states (Mato Grosso and way, using a reference port price at a selected grain Mato Grosso do Sul); and 1,400 km in the USA. exchange and deducting the marketing costs, including Most of truck carriers are small and medium sized firms also transportation costs and quality premiums. widespread all over the producing areas. Cereals and oilseeds are the main products transported in Argentina. Future markets. The Rosario Exchange and the Buenos There are several local / Province’s chambers and the Na- Aires Grain Exchange also operate with future contracts. tional chamber CATAC (Argentine Chamber of Load Car- The reforms implemented in the early 1990s promoted the riers www.catac.org.ar); its associates are individuals and use of the future markets and options; there were allowed firms. CATAC is a very strong private organization, which quotations in pesos and in US Dollars. This decision and sets the freights for cereals and oilseeds (usually in agree- the monetary policy (currency convertibility and price ment with grain trader’s and farmer’s organizations). Cur- stability) helped very much the development of the fu- rently the trucks registered are around 720 thousand . 31 tures markets in Argentina, which grew dramatically dur- ing such decade. Such development helped very much Domestic grain and oilseed markets to reduce risks and has been one of the relevant tools to Spot markets. There are three main markets located at improve competitiveness and to promote the growth of the ports: Rosario, Buenos Aires and Bahía Blanca. Most the soybean and other grains production registered dur- of the local sales, all over the main producing areas, ing the 1990s. are referred to the spot prices quoted at one of these markets32. These three markets operate daily in spot, and The devaluation of the currency in 2002, the inflation the quotations are disclosed (almost on-line) all over the registered after the devaluation until today, and the country through the radio and the television; and they are currency controls and market interventions (export taxes published in the newspapers. and export bans) have reduced very much the use of the Argentine future markets since then. For such reason, The system is very transparent, because most of the currently most of the domestic soybean trade is spot contracts (spot and forward sales) use such prices and or forward sales “ventas a fijar” which also use the spot discount the brokering and other marketing costs. The exchange’s prices. net prices received by farmers or by the country deal- ers include in the invoice the market price and all the Trading and crushing companies use the international deductions. They are referred to a standard quality; in the future markets, like the Chicago Exchange, for their over- contracts and in the final invoices there are also included seas operations. But this is not the case of farmers and the premiums (or discounts) for the quality. country dealers. A substantive part of the sales are forward sales (“ventas Sanitary and quality services a fijar”), in which the farmer / country dealer deliver the Since many decades ago Argentina gave a high prior- soybean and later select the date for the final pricing ity to the sanitary and quality conditions of the grains and sale. The prices used for the invoices are the grain and oilseeds produced and traded. Since the 1940s until exchange quotations at the selected day, which are the 1980s the National Grain Board was in charge of the disclosed every day by the three exchanges (“precios de public controls and the setting of the standards for the la pizarra”). domestic market and for exports33 (including also oils and 31 B  isang, R. et. al. (2008). 32 There are some limited sales between farmers and country dealers that are agreed on a local price, but also in this cases such prices are based  on port prices, deducting all the costs incurred in sending the soybean to the ports. 33 Some international sales use additional specified standards or conditions, which are controlled by international or local firms providing such  services (such as SGS, Control Union, etc.) 24 The Soybean Chain in Argentina protein meals). In addition, within the grain exchanges, firms. Total crushing capacity is around 150 thousand there are Arbitration Chambers aimed to resolve disputes tons per day (assuming 320 working days per year, total between parties. Both kinds of services have been crucial capacity is around 45 million tons) 34. to promote the quality and the transparency in the do- mestic market, and to guarantee the sanitary and quality The main purpose of the Argentine crushing industry is conditions of the exported goods. the export of protein meal and crude vegetable oil, the Since the 1990s until nowadays the functions performed two most traded processed commodities of the soybean by the National Grain Board (JNG) are conducted by complex. For different reasons, but mainly because of the the SENASA (the national service in charge of sanitary tariff escalation existing in most of the relevant markets, it and quality controls including all primary and processed is very difficult to export refined oil and other value added agricultural products). The JNG specialized teams and products (packed, bottled and branded). However, functions were transferred to SENASA. some firms also process the oil in refineries for sales to the domestic market and some limited international sales Quality and health issues are becoming more important (mainly to neighbor countries of Latin America and to Afri- and such priority will increase in the future, associated can countries). In recent years some of the large crushing with consumer preferences. Traceability is becoming firms also built bio-diesel plants for the export market. a need in some cases, particularly for differentiated products. The new requirements will be a challenge for Similar to what happened in many other countries, during the conditioning and storing capacity growth, which cur- the last decades there has been a concentration process rently is relatively scarce. of the crushing industry, which involves some of the main international companies (Cargill, Dreyfus, Bunge, Glen- The certification of non GMO crops and products is a ser- core, Nidera) 35 and some large local firms (Molinos Río de vice currently required for some special contracts, involv- la Plata, Aceitera General Dehesa –AGD-, Vicentin). Table ing its traceability from the farm to the ports. Such service 4 shows that 6 firms concentrate almost 93% of the crush- is provided by specialized private firms, which operate ing capacity of Argentina. along the value chain and conduct the analysis at public laboratories (INTA) or those provided by the Arbitration The industry has storing capacity at the crushing plants Chambers. and also has networks of owned country elevators in the main producing areas (strategic capacity, mainly for 3.4. Crushing and other processing logistics). However, most of the storing and conditioning industries of the soybean crushed and exported is done at the pro- The Argentine crushing industry is currently the most ducing areas by the country dealers and coops. modern and competitive of the world. The processing and storing capacity grew dramatically together with the The large crushing firms are also input providers. Some Argentine soybean production and the growing interna- of them produce seeds (Bunge, Nidera, AGD), but most tional demand for oilseeds and protein meals. Its growth produce and / or import chemicals and fertilizers. Through followed a competitive export strategy: i) most of the input sales the crushing industry usually develops trad- plants are located at the ports; ii) they have been built ing arrangements with farmers, which in many occasions recently and they involve the most modern technology involve also financing and barter programs. This vertical available; iii) they are large plants, with the highest aver- coordination helps them for the logistics and the trading, age crushing capacity per day of the world. The leading and to reduce transaction costs. firms own at least one plant with a crushing capacity over 8,000 tons per day (24 hours); and the national average Despite there is a limited number of leading crushing firms, is over 4,000 tons per plant per day, including the smaller the competition among them is very high, because they 34 There are several projects in the pipeline for the next years which will add around 20 thousand tons per day.  35  DM, which has large operations in Brazil and the USA, did not invest in crushing facilities in Argentina. They operate in the FOB market. A The Soybean Chain in Argentina 25 Table 4. Crushing capacity in 2007/08. Main firms processing soybeans (thousand tons / 24 hours day) Company Number of plants Crushing capacity Average capacity/plant (000 tons/day) (000 tons/day) Cargill* 5 29.6 5.9 Bunge** 5 26.8 5.4 Vicentin* 4 22.8 5.7 Molinos Rio de la Plata 2 21.5 10.8 Dreyfus 2 20.0 10.0 AGD** 4 20.0 5.0 Glencore-Moreno 3 5.2 1.7 Nidera 2 4.2 2.1 Others 9 4.1 0.5 Total 36 152 4.2 Source: Hinrichsen (2009), SAGPYA and companies’ websites. Notes: *They also operate plants from other companies;**Both firms share a crushing plant in Terminal 6 (Rosario). try to increase their market share (all of them have been the domestic marketing system is well developed, •  increasing their crushing capacity very much in recent and crushers have vertical coordination (and in years). The domestic competition strategy of the crushing some cases integration) with country dealers and firms is not limited to soybean prices and logistics provided farmers to reduce transaction costs and to imple- to the farmers; it also includes the input prices sold and ment efficient logistics; its financing36. Such vertical integration and coordination most of the large firms are input providers (fertilizers, •  approach has been a key factor for the competitiveness chemicals, seeds), who develop barter programs of some of the Argentine firms; this is the case of AGD, with the farmers resulting in lower transaction costs; described in Box 3. the government has implemented a long term policy •  to protect the processing industry against the tariff The Argentine crushing industry involves also the main escalation existing in most of the importing countries, trading companies and is very competitive when it is through a 3% differential export tax, which allows the compared with the rest of the world. The main factors for crushing firms to purchase the soybean in the do- its competitiveness are: mestic market cheaper than the export price (FOB). it involves large firms with trading capacities all over •  the world which are focused on exports37; most of the crushing is conducted in modern and •  very large processing plants with low costs of pro- duction (economies of scale); the crushing plants are located at the ports, reduc - •  ing transportation and loading costs; 36  any managers of the trading companies do not like to finance the inputs, because of the risks involved in activities in which they are not special- M ized (banking). However, input sales and financing are important tools to help them to improve their soybean’s market share; and result in benefits for the farmers who have limited access to institutional credit (the banking system in Argentina is expensive and has many restrictions for small and medium sized farms). 37  Other industries, like the dairy industry, had a production and processing strategy focused on the domestic market, and is less competitive in the international market. 26 The Soybean Chain in Argentina Box 3. AGD GROUP Aceitera General Deheza Group (AGD Group) is a vertically integrated agro-industrial complex, employing more than 2,000 people and exporting to 95 countries in the five continents. Its core business is the crushing of oil- seeds to produce and export protein meals and vegetable oil. However, the group is distinguished because it also involved in many strategic upstream and downstream productions and services along the soybean value chain and in other value chains, including seed production, sales of inputs (seeds, chemicals, fertilizers), technical advis- ing to farmers, financing to farmers, primary commodities production, local storing and conditioning of the grains, transport by rail, processing and refining vegetable oil which is sold in the domestic and the export market packed and branded, production of a long list of other processed high quality products (such as mayonnaise, ketchup, soybean beverages, fruit juices, soya-lecithin, peanut butter, flavored and roasted peanuts). AGD group operates a railway and built ports to export the oilseed complex products, grains and other food. Since 2007 the group also produces and exports biodiesel. AGD today is a global player. It accounts for over 14% of Argentina’s total edible oil and meals exports. In 2008 its world trade market shares were: 7.7% of total soybean meal exports; 7.2 of total soybean oil exports; 5.2% of total sunflower meal exports; 2.5% of total sunflower oil exports; and 15.8% of total peanut oil exports. They also market around 1.5 million tons of cereals. In the 2008/9 fiscal year AGD had a turnover of approximately 3150 million dollars, counting the totals of exports and sales in the local market. The first crushing plant was built by Adrián Pascual Urquía and some friends in 1948. It was located in a small town of Córdoba province, General Deheza, where they still have the head office and some of the main processing facili- ties, including a refinery, a peanut selection plant and a bottling plant. Since early youth Urquía had a clear vision of the huge potential of the edible oil industry. He thought that the natural comparative advantages of the coun- tryside should be enhanced with a vigorously modern, integrated and competitive processing industry. His projects carried out in the interior of the country allowed him to be recognized as an undisputed pioneer and leader of this successful story of the Argentine agribusiness community. Initially, during the 1950s and 1960s AGD expanded and modernized the business producing sunflower and peanut oil destined to the local domestic market, improving the crushing technology with solvent plants and developing several brands of refined oil. Technical innovation and quality production have been always main priorities of the company. As from the seventies the members of a new generation of the Urquía family and other men from General De- heza began to take responsibilities in the company. His cousin Alberto and his sons Adrian and Roberto joined the company during such decade and hold key positions in the group. Later, in 1985, his daughter Adriana also joined. Despite they have professionalized the company together with the growth AGD is still a family firm in which the Urquía family holds strategic managing responsibilities. During the 1970s the company projected itself nation wide and later internationally wide, increasing the crushing capacity and building storing facilities in several locations to facilitate and guarantee the provision of oilseeds; they expanded the crushing operations to Santa Fe province, where they built a plant in Chabas city (at the heart of the Argentine corn-soybean belt distant 100 km from Rosario port). They also built the first export facilities by the Paraná River and began to export. Since then, and particularly during the 1990s and the 2000s when the soybean pro- duction raised significantly, AGD had an aggressive growth strategy including: i) new large and modern crushing plants, including port and crushing facilities on the Paraná- Paraguay waterway. Among them AGD built Terminal 6 in partnership with other firms, a port and a state-of the-art soybean processing plant located in Puerto San Martín The Soybean Chain in Argentina 27 (near Rosario city), with a crushing capacity of 9,000 ton per day. AGD’s total crushing capacity is currently over 20,000 tons per day; ii) a network of storing facilities located mainly in Cordoba and Santa Fé, but also in other 8 provinces. They have 35 storing facilities and a storing and export plant in Mendoza; iii) taking advantage of the structural reforms implemented by the government during the early nineties the company got the concession of the railway Nuevo Central Argentino, which was strategic to improve their competitiveness for the purchase of the soybean and other grains and to improve the export logistics, which has been always a main issue in Argentina; iv) the vertical integration strategy included also farming of around 200 thousand hectares, involving land owned by the company, rented land and joint ventures with other farmers in Argentina’s prime growing areas for soybeans, sunflower, peanuts, wheat and corn. In 1979 AGD diversified production building a peanut selection facility in General Deheza (currently it is the largest peanut processing plant in MERCOSUR). Since then they produce, process and export peanuts and peanut prod- ucts. Later they expanded the peanut processing capacity, building plants in the South of Córdoba and in San Luis province, where they produce flavored and roasted peanuts, sauces and dressings, beverages from organic soybeans and other fruit juices. They have developed several high quality certified brands, including also organic products. Currently AGD’s peanut processing capacity is 1,000 tons per day. AGD is an exclusively Argentine privately owned company that carries out most of the main stages of the produc- tion and distribution processes, producing ISO 9001 certified finished products for the domestic market and for export. It is a solidly constituted firm with a competitive profile based on several features: integration, diversifica- tion and high technology. The logistic chain has become a key strategic element to optimize AGD’s high produc- tivity, allowing it to operate with high efficiency in the Argentine and global markets. Its business goal is constant growth, based on seven strategic pillars: qualified human resources; the integration of production processes; origination; technology innovation; profit reinvestment; the development of a solid logistics structure; and a real competitive vocation. Most of their impressive growth has been based on own savings. However, they have received strategic long term financing from the banking system, leaded by Rabobank and the IFC. They also get short term financing in the Argentine capital market. One of the key components of AGD growth and competitive strategy has been the origination and supplies. For that purpose they produce cereals and oilseeds; they have developed commercial links with more than 6,000 farmers including the sales of seeds, chemicals and fertilizers, technical advising, financing, logistics and the pur- chase of the grains (cereals and oilseeds). Financing of farmer’s purchases of inputs is a strong competitive tool to assure the provision of the grains. To partially support such service AGD created a Reciprocal Guarantees Society (Agroaval SGR) involving 900 associ- ates, in which the company acts as “protecting associate”, providing guarantee funds. The society operates as a guarantor for primary production loans funded in the domestic capital market, financing around 35/40 million US dollars at very competitive rates when compared with other local alternatives (7% annual in US dollars for 270 days, which is the duration of the production cycle). Another pillar of the impressive development of AGD Group is its efficiency in logistics, aimed at integrating all the different sectors of the company. This is why the industrial group operates the Nuevo Central Argentino railroad and two highly efficient port facilities in Rosario and Puerto San Martín. 28 The Soybean Chain in Argentina Summing up, AGD competitiveness is based on several strategic factors: i) economies of scale resulting from large and modern crushing and processing plants; ii) vertical integration which reduces transaction costs and risks; iii) product and market diversification which also reduce risks; iv) the location of the plants at the heart of the soybean corn belt and at the main export ports; v) the network of country silos and the origination strategy; vi) the railway and ports (other crushers and exporters do not own railways); vii) the alternative production of biodiesel; viii) the added value production with high quality certification and branded, which is destined mainly to the domestic market but also to export markets. The refining and packing capacity is very little when In 2006 the Argentine Congress passed the Biofuels Law compared with the crushing capacity. Some of the large that mandates the use of 5% blends, beginning in 2010 crushing firms (Bunge, Molinos, Vicentin, AGD) have refin- (both for gasoline and for fuel oil, called in Argentina ing plants with capacities ranging between 500 to 1,000 “gasoil”). The country has also promoted the production tons per day. There are also other medium sized crushing and export of bio-diesel, through a differential export tax firms, food firms and coops which produce refined oil, on the soybean oil and on the bio-diesel. Such differential margarine and other processed products. Both kinds of has been the main driving force for the huge investment firms also bottle and pack the oil with their own brands. in bio-diesel plants located at Rosario during 2007-2009. Most of the refined oil is destined to the domestic market They exported around 840 million US Dollars (0.7 million for direct consumption, and for the production of mar- tons) of bio-diesel in 2008. garine, mayonnaise and other related food products. However, there are also some exports of refined soybean The emergence of an alternative demand has been an oil. Total Argentine refining capacity is around 5.1 thou- advantage for the crushing industry and particularly for sand tons per day. the firms which built bio-diesel plants at the ports. The profit raised by such firms has been very high in 2007 and The quality of the soybean oil for domestic consump- part of 2008, years in which there was a growing interna- tion improved very much during the 1990s. This evolution tional demand; and exports of bio-diesel benefited also together with the marketing strategy conducted by some from the differential export tax. However, the current situa- of the large crushing firms, promoted the domestic use of tion has changed very much, after the financial crisis and soybean oil replacing part of the sunflower seed oil, which the decline in oil prices registered after September 2008. was for many decades the main vegetable oil consumed in Argentina (more than 90% of total domestic demand 3.5. Exports. Trading companies until the 1980s). Currently around 40-50% of total con- Most of the soybean and soybean products are destined sumption is soybean oil. to export. The development of the Argentine soybean production during the last two decades was driven by a Bio-diesel. During the last three years since 2007, many very dynamic international market, in which Argentina bio-diesel plants were built in Argentina, following the is one of the three leading exporters. Table 5 shows that increasing international demand and the projected local Argentina is the largest exporter of soybean oil (around demand. Most of the large bio-diesel plants were built 55% of total exports) and soybean meal (around 48% of nearby the crushing plants located at the ports (almost total exports); and the third largest exporter of soybean all in the Rosario area). There are already in operation 10 (around 12-16% of total exports). large plants located at the ports, with capacities ranging from 100 to 300 thousand tons per year; total capacity in The structure of the trading sector is similar to the crushing 2008 was 2.0 million tons per year. There is also a long list industry (Table 6). During the last two decades there has of small plants destined to supply the domestic market, also been a concentration and consolidation process in which are located at different cities in the interior of trading, resulting in a reduced number of international Argentina. and local very competitive firms, which concentrate a The Soybean Chain in Argentina 29 high share of total exports of the Argentine soybean com- whole system is very competitive and allows Argentina to plex. The trading sector involves almost the same crushing be an efficient player in the global soybean value chain. firms38. In 2008 the 5 larger crushing firms exported 82.8% Since several decades ago Argentina counts with a well of total soybean oil exports and 80.0% of total protein developed and transparent export market for forward meal exports. However, only 3 of them are large exporters and spot sales, the FOB market, in which trading compa- of soybean, accounting for 40.8% of total exports. ADM, nies operate daily on the basis of premiums against the Nidera, Noble and Toepfer are also relevant exporters of main international markets (Chicago, Kansas and others, soybeans (in the range of 10-12% each). depending on the commodity and destination of the sale). There are also some flat quotations. FOB quotations Some of the main trading companies are the same firms are published daily in the newspapers and other media. operating in Brazil and the USA. The rest of them are local They are used as the reference price for the export taxes firms that have shown their ability to compete with the calculation39, for the conversion into local currency and large multinational trading companies. Therefore, the for the domestic pricing system. Table 5. Soybean complex exports. Main exporting countries (million tons and percentages of total exports) PRODUCTS Units 2000/01 2005/06 2007/08 2009/10* SOYBEAN • Argentina Million tons 7.4 7.2 13.8 9,7 • Brazil Million tons 15.5 25.9 25.4 24,0 • USA Million tons 27.1 25.6 31.5 34.4 • World total Million tons 53.8 63.8 79.6 76.0 Argentine share % 13.8 11.3 17.3 12.8 SOYBEAN OIL • Argentina Million tons 3,2 5,6 5,8 5,4 • Brazil Million tons 1,5 2,5 2,4 1,8 • USA Million tons 0.6 0.5 1.3 1.5 • World total Million tons 7.1 9.8 10.9 9.8 Argentine share % 45.1 57.1 53.2 55.1 Source: USDA-FAS. FAS On line August 2009 USDA forecast for SOYBEAN MEAL 2009/10. • Argentina Million tons 13,6 24,2 26,8 26.8 Note: * The relative reduction in • Brazil Million tons 10,7 12,9 12,1 11.9 Argentine oil export shares is as- • USA Million tons 7.3 7.3 8.4 8.1 sociated with the dramatic growth • World total Million tons 36.3 51.8 55.8 55.1 in production and exports of bio- Argentine share % 37.5 46.7 48.0 48.6 diesel, which begun in 2007. 38  here are some differences because some large international crushers and traders (ADM, Toepfer) did not invest in crushing plants in Argentina. T The large local crushing firms do not export soybeans. Some of them export other grains and processed products. 39 The SAGPYA establishes periodically the FOB minimum export prices, which are used for the calculation of the export taxes, based on the FOB  market. 30 The Soybean Chain in Argentina Table 6. Exports of the soybean complex: shares of the main exporting companies in 2008 (percentages of total exports) Companies Oil (%) Protein meal (%) Soybean (%) AGD 13.8 16.5 -- ADM 1.9 -- 11,4 Bunge 16.2 18.1 10,6 Cargill 27.5 22.0 19,8 Dreyfus 15.2 13.4 10,4 Molinos Rio de La Plata 10.1 10.2 -- Nidera 2.9 2.4 10,1 Noble -- -- 12,3 Toepfer -- -- 10,2 Vicentin 4.3 9.4 -- Source: Data from SAGPYA. Subtotal 10 Firms 91,9 92.0 90,3 www.sagpya.gov.ar 3.6. Main importers countries, Egypt, and Chile. The main markets for Argen- Argentina has a long list of markets of destination of the tine crude soybean oil are China, India, Morocco, Alge- soybean complex products. In recent years soybean ex- ria, Bangladesh, Egypt and several Latina American and ports reached more than 30 countries; crude soybean oil EU countries. In the case of refined oil the main markets exports reached almost 50 countries; refined soybean oil are Angola, South Africa, Columbia, several EU countries reached around 45 countries; and soybean meal exports and India. The main soybean meal market is the Europe- reached near 60 countries. an Union (the largest world import market); other relevant markets are Philippines, Indonesia, Malaysia, Thailand, However the main destination for soybean is China; its Vietnam, South Africa, Korea, and several North African market share in Argentine exports has grown dramatically and South American countries. during the last decade. In the last 3 years China concen- trated more than 60% of total world imports. Other impor- Despite Argentina’s soybean production is almost 100% tant markets for Argentine soybean are several South East GMO, the long list of countries of destination, includ- Asian countries (Indonesia, Malaysia, Thailand), some EU ing the EU and many African countries, shows that the Table 7. Import tariffs applied for the soybean complex in selected countries (“ad valorem” percentages) Countries Soybean Soybean meal Crude oil Refined oil China 2.4-3 5 9 9 European Union 0 0 6.4 9.6 USA 0 2 19.1 19.1 Mexico 0 15 10 20 Columbia 15 15 20 20 Chile* 0-6 0-6 4.2-6 6-6 India 30 15 45 45 Indonesia 10 0 0 0 Source: WTO tariffs database. Note: * Argentina has preferential import taxes resulting from the FTA; all soybean products will be 0% in 2011. The Soybean Chain in Argentina 31 country has no major difficulties to sell the products of the value added products of the chain). To partially bal- the complex (currently the three main exporters are GMO ance this situation Argentina has implemented differential countries). FOB quotations of Argentine soybean and export taxes on the primary and processed products 40, products reflect the difference in freights, protein and oil which provide and advantage to the crushing industry vis contents, and short term market conditions vis a vis other a vis the other two main exporters (Brazil and USA). competitors (i.e. USA Mexican gulf prices). For most of the markets the GMO condition does not result in price dif- 3.7. The competitiveness of the Argentine ferences, except in the case of Japan, in which there are soybean chain premiums for non GMO soybeans). In the case of soybean The concept of competitiveness is dynamic and changes meal the Brazilian price has a premium associated with its over time, because it involves not only the own supply higher protein-oil (pro-fat) content. chain, but also the quantitative and qualitative evolution of demand and the behavior of competitors. Taking into The soybean complex benefits with relatively low import account this approach, we can say that the Argentine tariffs in most of the main importing countries, when soybean value chain is competitive when it can grow and compared with other agricultural products. Such situation increase its market share in the domestic and the interna- has been one of the reasons that explain why oilseeds tional markets. (particularly soybean) are the commodities with higher ratio imports/consumption in world trade. It also explains From the supply side view, the overall competitiveness of why Argentine soybean production has grown more than the value chain is associated with three different com- cereals, livestock and other agricultural goods during the ponents which interact among them and finally result in last decades; all of the other products are subject to sub- the ability of the soybean value chain to compete (Figure stantially higher import taxes in most destinations. 5). The competitiveness of the Argentine soybean value chain results from the efficient structure and performance However, the soybean complex is affected by tariff esca- of the private sector firms and organizations, together lation in the main markets, because most of the countries with the public institutions which are also participants in try to import primary goods and process locally (to add the chain (micro and meso competitiveness). All of them value and employment in the respective country). Table have been -and are also currently- influenced by Argen- 7 shows import taxes charged on the main soybean prod- tina’s public policies and institutional regime (macro ap- ucts traded in selected countries. proach to competitiveness) 41. The soybean complex tariff escalation applied in the main Public policies implemented during the early 1990s cre- world markets results in distorted international relative ated a favorable economic and institutional environment prices (primary products are priced relatively higher than that promoted very interesting structural changes in the figure 5. three interdependent components of the value chain competitiveness Public Policies and Private Competitiveness Institutional Regime (Firms and Chain) Social Capital Source: Regunaga, Marcelo, 2008 Private and Public Organizations 40  The differential export tax is limited to the first processing of the soybean to crude oil. 41  ublic policies have changed substantially during the last decade. Some of them have been very positive for the competitiveness of the chain, P while other ones are having negative impacts, as will be described in next chapter. 32 The Soybean Chain in Argentina soybean value chain and resulted in its improved com- The main improvements in the competitiveness of the Ar- petitiveness and production growth. gentine soybean value chain during the period 1991-2007 have been associated with: During the last two decades the soybean production and a favorable institutional, economic and commer- a)  its market share has grown in the domestic market: i) the cial environment for investment and trade during area planted with soybean replaced areas previously more than ten years; destined to livestock and to other crops; ii) there has been added value through better inputs and high tech b)  an increase in the domestic vegetable oil market, show- technologies, which allowed the increase of the ing its competitiveness vis a vis the sunflower seed oil. productivity per hectare and the reduction in costs of production; However, the main destination of the production growth production consolidation and coordination gener- c)  has been the international market, in which Argentina ated economies of scale at farm level (rented land, is very competitive. The global competitiveness of the networks allowing an efficient use of equipment Argentine soybean chain results from a very efficient and other fixed assets) and resulted in lower costs of structure of production, processing and marketing involv- production and better management of risks; ing all the key participants: vertical coordination and integration has reduced d)  •  Modern and competitive input’s industry with very transaction costs and capital costs associated with good links with producers. improved logistics; •  Very competitive and innovative producers (a high consolidation and huge investment in the crush- e)  percentage of production involves networks with ing industry provided economies of scale and competitive access to capital, technology and mar- improved technologies, which reduced processing kets). Large average size of farms and production and marketing costs, including also the port costs; units vis a vis other competitors. large trading firms (consolidation process) provided f)  •  Developed services providers, including also sani - economies of scale and good access to the main tary and quality services. Efficient networks allow international markets; economies of scale and high rotation of capital exports of processed products promoted markets’ g)  goods. diversification and added value through sales of oil •  Transparent soybean domestic markets. and meal. Very competitive crushing industry which also owns •  port facilities (scale, technology, vertical coordina- 3.8. Employment in the Argentine tion, differential export taxes on processed com- soybean chain and impact on regional modities). development Large and competitive trading companies (in many •  Many old sector studies have raised the idea that agri- cases the same crushing firms). culture is not relevant in job creation. That is one of the The international scenario has also been a driving force reasons why the import substitution strategy implemented for the development of the soybean chain, particularly during many decades in Argentina protected other during the last six years in which domestic public policies manufacturing industries, while the agricultural sector was once again discriminated against agriculture, and export discriminated against, mainly through commercial and taxes and other export controls were reestablished. The differential rate of exchange policies. Such views were growth in international prices partially compensated the based on information limited to primary production, or impact of export taxes and other domestic market gov- eventually included primary goods processing, without ernment interventions until the 2007/08 crop, in which the taking into account the whole value chain from input level of such taxes went too high and reduced incentives providers, to farmers, to services providers in the differ- to continue with the production growth trend registered ent stages up to the processing, trading and distribution during 1991-2007. system (all the soybean cluster). 42 nformation in Table 8 was increased 14.5% in all the components related to area planted (seeds, fertilizers and chemicals, machinery, primary I producers and contractors) and by 46.2% in al the components associated with production (country dealers, carriers, crushers). The Soybean Chain in Argentina 33 Table 8. Employment in the Argentine soybean chain in 2003/04 (number of jobs) Steps / Participants Minimum estimate Maximum estimate Seeds 1,250 1,250 Fertilizers and chemicals 1,878 10,500 Agricultural Machinery 19,350 23,000 Primary producers 91,498 108,500 Contractors 37,700 56,500 Country dealers - coops 36,961 55,035 Carriers 19,000 38,000 Crushers 7,000 11,000 TOTAL JOBS 214,641 303,786 Source: Bisang, R. and S. Sztulwark (2007). As is has been described in sections 3.1. to 3.5. the soy- and Sztulwark, Victoria Castillo et. al. (2007) conducted bean chain involves many different stages and partici- a study for the automotive and spare parts chains (from pants, and they have significant impact on employment autoparts to distributors) which is also part of the same and on regional consumption, particularly in the case book published by the Ministry of Labor in 2007. Total direct of services providers. In recent years the agro-industrial employment in 2006 was estimated at 90 thousand jobs chains became more sophisticated and promoted the (autoparts and vehicles: 57.6 thousand jobs; spare parts: development of several specialized industries; some of 18.4 thousand jobs; official distributors: 14,0 thousand jobs). them are high-tech, like biotechnology and precision farming. They have created opportunities for new and Most of the employment in the soybean value chain more specialized jobs. Therefore, several studies have involves small and medium sized firms (primary produc- been conducted trying to estimate employment in the ers, contractors, country dealers and carriers) which are agribusiness sector as a whole and in some value chains, based in towns and small cities of the interior of Argentina. including all participants. Among them, in 2006 Bisang, R. The recent evolution of the industry organization has been and S. Sztulwark conducted a study on the employment very positive because, despite the concentration of pri- in the soybean chain, from input providers up to crushers mary production and crushing, it has provided opportuni- (it does not include exports and other related services like ties for the emergence and development of local services financing, quality services, and technical services). Their and input providers, who live and consume in small cities estimates for 2003/04 crop include a range of maximum and towns of the main producing areas, most of them and minimum jobs for each step (different assumptions), belonging to an emerging middle class 43. which are included in Table 8. Total direct employment in 2003/04 was estimated in the range of 215 to 304 thou- The regional distribution of the owners of the firms and sand jobs. Most jobs are associated with total soybean its employees is very important in terms of social and acreage and production, which were respectively 14.5 regional development. The good performance of the soy- million hectares and 32 million tons in the 2003/04 crop. bean chain has an immediate impact on local demand of products and services and on regional welfare. This has Using similar assumptions to those included in the study, been the case during recent years until 2007, and explains our estimates for the 2007/08 crop, which totaled 16.6 why the social and political reactions and shows against million hectares and 46.2 million tons, range from 266 to the export taxes and other distorting agricultural policies 381 thousand jobs 42. Such numbers are very relevant when registered during 2008 involved most of the population compared with employment in other protected manu- and different organizations of the interior of the country facturing industries, such as the automotive and spare (they were not limited to farm organizations). parts value chain. Following a similar approach to Bisang 43 O n the contrary, most of the car industry cluster is located in the suburbs of the large cities (Buenos Aires, Rosario and Córdoba).  34 The Soybean Chain in Argentina IV. CHARACTERIZATION of the POLICY AND INSTITUTIONAL REGIME in ARGENTINA The policy and institutional incentives tion of import taxes on capital goods. Elimination of during the 1990s quantitative restrictions on imports. The recent evolution of the structure and performance Tax reform, including the elimination of taxes on •  of the Argentine soybean value chain is associated with production and trade. the policy and institutional context that were put in force New legislation promoting foreign investment (no •  since the early nineties. The period selected for the analy- discrimination; bilateral investment agreements with sis is 1990-2008, because beginning in 1991 there were the main countries) implemented several significant policy and institutional Elimination of quantitative restrictions on trade, and •  reforms which had major impacts on soybean production elimination on price controls and other non tariff and exports. barriers. Elimination of government intervention through the National Grain Board. Several studies conducted recently44 highlight that the Promotion of future markets for grains and oilseeds. •  Argentine crop production, and particularly soybean, has Privatization of public services, through the sale / •  registered dramatic growth and structural changes during concession to the private sector of port and coun- the 1990s associated with an improved economic, com- try elevators, ports, highways, railways, energy and mercial, institutional and technological environment put other government owned firms. in place since 1991. The main factors were: Creation of the National Seed Institute (for IPR con - •  •  Stabilized domestic prices associated with the free trols and seed quality controls) and new Seeds Law convertibility of the currency and other sound mac- to adapt to the UPOV intellectual property prin- roeconomic and fiscal policies implemented since ciples. 1991. B iotechnology policy to promote the development •  •  Elimination of export taxes for most agricultural prod - and use of GMO seeds, including the creation of the ucts. Export taxes reached 41% for soybean in May CONABIA (biotech and biosafety national organiza- 1989 (with the previous Administration), and they tion) within de SAGPYA, and strengthening of the were reduced to 20% in March 1990 with the new Biotechnology programs in INTA. Administration. Later for the crop 1991/92 they were Public and private promotion of the use of no till •  reduced to 3.5%. And in 1992 it was eliminated the practices. 1.5% export tax destined to INTA. Opening of the economy, including the reduction of •  import taxes on agricultural inputs and the elimina- 44 B  isang, R. (2008); Bisang, R. et al (2008); Hillcoat, G. (2009); Mundlak, Y. and M. Regúnaga (2003); Ordoñez, H. et al (2003); Regúnaga, M. et al (2003); Regúnaga, M. (2008); Sturzenegger, A. et al (2007). The Soybean Chain in Argentina 35 The main impacts of such policies have been: period, while crushing capacity increased 256 %. During a) Dramatic reduction of inflation, which was a serious limit the mentioned period, total investment in storing capac- to long term investment and to production intensification ity and the related facilities was around US$ 2,160 million; for decades in Argentina. The parity 1 peso = 1 US Dollar and total investment in crushing capacity and the related and the commercial policies remained unchanged during facilities was 3,580 US$ million. Additional information on 10 years since 1991. Figure A 3 in Annex shows the system- investment is included in Annex, tables A.1., A. 2. and A. 3. atic changes in commercial policies in previous decades and the stability during the 1990s. The free convertibility of c) Improvement in domestic relative prices (tons of the currency and domestic prices stability reduced risks soybeans needed to purchase seed, chemicals, fertil- and helped very much for doing business, particularly izers, fuel, vehicles, machinery and other capital goods) related with trade. The increased use of future markets was resulted in the use of more intensive production systems also facilitated by price stability, currency convertibility and increased productivity. Table 10 shows the significant and regulations allowing futures trading in US Dollars. reduction in selected input prices quoted in US Dollars after the implementation of the reforms in 1991. Table 11 b) Improvement of the climate for foreign and local shows the reduction in relative prices (soybean-inputs) investment was crucial for input providers, producers, when compared with 1980s relative prices. Table 12 shows crushers and traders. It resulted in huge investments in the evolution of annual sales index of selected inputs seed production, in fertilizer and chemicals plants, and after the policy reforms. Table 13 shows the evolution of in crushing, storing and ports facilities. In recent decades soybean yields and gross margins per hectare; the use the private sector has played a key role in R&D and in of some key inputs for soybean production; and total use production, processing, trading and logistics (services); of fertilizers. Soybean productivity per hectare is cur- therefore a good climate for investment (IPRs, free move- rently higher in Argentina than in the USA and Brazil. The ment of capital, non discrimination, stability) has been Argentine soybean average yield for the period 2005/06- strategic for the soybean chain development. Develop- 2006/07-2007/08 was 2.82 tons per hectare, including ment of input providers has been strategic for the new single crops and second crops planted after wheat or technologies implemented and for the financing of another crop in the same year (they were 2.24 tons in the production. Currently Argentina counts with the main period 1990/91-1991/92-1992/93). international firms; they produce and import the most modern inputs available in the world. Based on informa- d) Improved returns attracted investment in soybean tion provided by Lopez, G. (2003 and 2008), we have production. Banking financing grew substantially during estimated investment in storing and crushing capacity the first half of the 1990s. However most of the large invest- during the period 1990/91-2007/08 45, which is included ments in the soybean industry were provided by other in Table 9. Storing capacity increased 97 % during such sources, such as: foreign and local private investment; Table 9. Investment in storing and crushing capacities. Period 1990/91-2007/08 Periods Increase in capacities (million ton) Investment (million US$) Seeds Storing Crushing Storing Crushing TOTAL 1990/91-1999/00 17 15.1 1,020 1,510 2,530 1999/00-2007/08 19 20.7 1,140 2,070 3,210 1990/91-2007/08 36 35.8 2,160 3,580 5,740 % increase 1990/91-2007/08 97 256 % Source: estimates based on information processed by Lopez, G. (2003); and Lopez, G. and G. Oliverio (2008). 45 A  ctual information on investment is not available; therefore we have estimated investment based on the evolution of physical capacities, and the prices involved in the usual storing facilities and crushing facilities. 36 The Soybean Chain in Argentina short term credit provided by trading companies and a very efficient crushing industry. The 3% higher export tax input providers; and domestic savings invested in primary charged to soybean than to processed products provides production, which provided good opportunities to gener- an advantage to crushers, because they can purchase ate and share the rents (formal and informal financing in the domestic market the bean 3% cheaper. Assuming through local “planting pools”). a quotation FOB of 330 US Dollars per ton for the soybean, such difference implies a theoretical cost reduction of e) Biotech policies have been very successful for the 10 US dollars per ton46. In addition to such trade policy improvement of soybean production competitiveness, advantage the crushing industry has also cost competi- particularly on the reduction of production costs and the tive advantages vis a vis the USA and Brazilian crushers as- efficient use of technical packages aimed to allow better sociated with the scale, the location of the plants at the management of the soil and the water, such as no-till ports and the technologies used. All these factors allowed sewing (Argentine soybean is rainfed) in different regions Argentina to be the export leader of processed soybean of the country. Adoption of biotech soybean was massive commodities (oil and meal) 47. in a very short period of time; in the last three years (2007- 2008-2009) more than 98% of total area planted involved The gradual appreciation of the Argentine peso during GMO varieties. Direct sewing -no till practices- also grew the 1990s -which was “pegged” to the US Dollar-, was not dramatically during the last decade, and currently near a major problem for the soybean expansion during such 70% of area planted with soybean is no till (Figure A 6). period, because domestic prices of some key inputs like f) Increase in exports of value added commodities (oil fertilizers and herbicides, as well as other services priced and meal) supported by the differential export tax and by in US Dollars or in soybean tons were also influenced by Table 10. Domestic prices of selected inputs. Period 1991-1994 (US Dollars per unit) Inputs Unit 1991 1992 1993 1994 Gasoil 100 liters 32.5 31.3 27 27 Truck freight 100 kilos 1.38 1.29 1.27 1.47 Di-ammonium Phosphate ton 382 356 333 367 Urea ton 304 301 279 293 Glyphosate 100 liters 12.4 10.8 10.5 8.8 Lazo 100 liters 5.14 5.16 4.82 5.0 Source: Bisang, R. (2008). Table 11. Relative prices soybeans-selected inputs (tons of soybean needed to purchase the specified unit of input) Period Gasoil Tractor 100 HP Glyphosate Treflan Di-ammonium (1000 liters) (Unit) (1000 liters) (1000 liters) (1 ton) 1985-1987 1,4 125 109 37 2.0 1988-1990 1.6 127 82 35 2.1 1991-1993 1.6 144 64 25 1.8 1994-1996 1.2 120 49 22 1.7 Source: Mundlak, Y. and M. Regúnaga (2003). 46 n the reality domestic crushing margins change during the marketing seasons, associated with short term changes in the domestic supply and I demand situation. But the long term scenario provides a support to Argentine crushers. 47 In addition to the competitiveness of the Argentine crushing industry, the demand of meal and oil is relatively lower in Argentina when compared  with Brazil and the USA. Such countries produce and export more meat (poultry, pork and beef) than Argentina. The Soybean Chain in Argentina 37 the local currency overvaluation. In addition, the increase commodities 49. Agricultural commodities were taxed with in total factor productivity of soybean also hided partially higher levels than the rest of the products, particularly in the impact of the rate of exchange. Table 13 shows that the following years when international prices increased. the negative impact of the overvaluation of the peso In March 2002 soybean exports were taxed 13.5%, and in was more relevant since 1998, when soybean margins per April 2002 they were raised to 23.5%. Such level was main- hectare declined until 2003 . 48 tained until January 2007, when soybean export taxes were raised to 27.5%. Figures A 3 and A 4 show the stability Policy reforms implemented during the of relatively neutral commercial policies during the 1990s, period 2002-2008 and the changes in the nominal rates of assistance at The 2001 financial domestic crisis resulted in the discon- farm level for selected agricultural products and specifi- tinuation of the currency convertibility and in a significant cally for soybean since 2002. devaluation of the Argentine peso in early 2002 (more than 200% in few months). Such change in the monetary The export taxes imposed since 2002 limited the impact policy had severe impacts in the short term (particularly on domestic prices of the devaluation of the currency on 2001/02 previous input sales and other contracts which and the raises in international prices. Actually domestic denominated in US Dollars, including the future contacts). quotations in the grain exchanges almost did not change With the purpose of limiting the impact of the devaluation substantially in 2003-2007, despite the increases in FOB on the cost of living and to improve fiscal revenues, the prices. Table 13 shows that margins per hectare were still Administration implemented controls on prices of food attractive during such period (over 300 US Dollars per products and services and imposed export taxes on all hectare). Table 12. Evolution of annual sales index of selected inputs during the period 1990-1997 (index: 1990 =100) Years Fertilizers Herbicides/pesticides Tractors 1990 100 100 100 1991 108 113 74 1992 170 133 106 1993 196 160 113 1994 304 206 139 1995 399 247 100 1996 545 313 167 1997 495 366 165 Source: Mundlak, Y. and M. Regúnaga (2003). 48 t should be noted that the peso overvaluation affected all crops and livestock productions, and soybean was the most competitive primary I production. 49  Despite the Constitution rules that export taxes must be established by the Congress, several years ago a Law delegated in the Administration the establishment of export and import taxes. 38 The Soybean Chain in Argentina Table 13.- Soybean yields, margins, no till acreage, GMOs shares; and total use of fer- tilizers in all crops Years Yields* (ton/ha) Gross margins (US$/ha)** No till soy GMO soy Fertilizers (000 (million ha) (%) tons) Soybean 1 Soybean 2 1989 2.16 120 77 0.05 -- 407 1990 2.28 185 96 0.08 -- 404 1991 2.29 272 154 0.28 -- 419 1992 2.16 357 186 0.44 -- 587 1993 2.04 376 201 0.78 -- 699 1994 2.05 383 200 1.35 -- 1016 1995 2.11 400 194 1.67 -- 1325 1996 1.72 568 291 2.15 -- 1780 1997 2.69 696 374 2.86 5 1721 1998 2.45 480 239 3.32 25 1488 1999 2.34 226 81 3.78 57 1718 2000 2.59 396 229 5.02 76 1795 2001 2.63 309 155 6.66 87 1800 2002 2.80 293 170 8.67 93 1600 2003 2.21 309 243 9.78 95 2100 2004 2.73 585 415 11.39 91 2931 2005 2.68 297 257 11.54 98 2651 2006 2.97 368 319 12.41 98 3337 2007 2.82 421 373 n.a. 98 3669 Source: Grosso, S. (2009); AAPRESID (2009); CONABIA; Oliverio, G. et al (2008). SAGPYA database. Notes: * Yields are referred to crop years; i.e. 2007 is crop year 2007/08; ** Constant US Dollars per hectare. The Soybean Chain in Argentina 39 Total cereals and oilseeds production continued growing The commercial policies not only limited the potential during 2003-2007 (Figure 1), as a result of the increases production growth but also created disincentives, par- in yields of the main crops and in the soybean acreage ticularly in the case of cereals, and will result in a low total growth (Figures 2 and 3). However, several studies con- 2009/10 crop which is having good weather conditions. ducted on the potential growth of crop production as- Estimates for the 2009/10 crop forecast total crop produc- sociated with the improved international prices (Nogués, tion in around 82 million tons, also a significant reduction J. and A. Porto et al 2007), show that the raise in export when compared with 2007/08 crop and with previous taxes limited significantly agricultural potential growth. projections 51. The main projected declines are in cere- als production (actually there has already registered a In December 2007 soybean export taxes were raised to sharp decline in area planted with wheat and with corn), 35%; and in March 2008 there was implemented a vari- because the relative margins among crops are still favor- able levy associated with the evolution of FOB prices able to soybean, and such crop is the cheapest in terms (which could have reached 50% or more in March-April of direct costs per hectare52 (the farmer prefers to reduce 2008). The last decision was seriously challenged by farm the expenditures, particularly because the financial situ- and other organizations (small farmers revenues were seri- ation is not good). In addition, government intervention ously affected by export taxes during 2008). Taking into in soybean has focused on the export tax (no bans on account the political situation, the Congress decided to exports), while cereals have lower export taxes but are eliminate the variable export tax; therefore, the remaining subject to price controls and quantitative export restric- tax on soybean since 2007 until nowadays has been 35%. tions (export bans which add additional risks and domes- Such level of taxation is too high, and together with other tic price reductions); such bans had serious impacts on government interventions (export restrictions, currency domestic prices during the last three years, which had an controls, etc) and the effect of a drought resulted in a equivalent effect to an export tax53. Figure A 5 shows the dramatic decrease in 2008/09 total crop production: 63.4 impact of non tariff barriers on wheat prices received by million tons (it was 96.4 in 2007/08). farmers. The negative impact of the extremely high taxation and It should be noted that government market interventions other government interventions (price controls, export are unpredictable and add risks which result in increased bans) resulted also in significant drops in the use of inputs transaction costs and create frictions among participants (fertilizers declined almost 30% in one year, from 3.7 million in the value chain, limiting vertical coordination and re- in 2007 to 2.6 million tons in 2008). Estimates for 2009 use of ducing the competitiveness of the Argentine value chain. fertilizers are 2.1 million tons. Sales of machinery and other Usually the main losers are the farmers, which have less fixed investment also declined sharply during 2008 (before market power in the chain. the world financial crisis, when international agricultural prices were still very high) and during 200950. Consumption and other related economic activities developed in cities and towns of the interior of the country also declined in 2008 before the decline in world prices. 50  ccording to CAFMA information, national production of total machinery and equipment declined from 21,086 units in 2007, to 16,504 units in 2008 A (and to 6.738 units during 2009 first semester). Production of tractors declined from 1,160 units in 2007 to 870 in 2008; for the same years, production of sewers declined from 5,300 to 4,300 units, production of harvesters declined from 785 to 355 units, and production of trailers from 1935 to 1452 units. 51  Taking into account the previous trend and after the 2007/08 crop of 96.4 million tons, three years ago projections for 2010 forecasted total pro- duction at 99 - 100 million tons. 52 Wheat and corn use higher doses of fertilizers per hectare than soybean.  53 In a previous study we find that total export taxation on corn and wheat was over 40% during the marketing season, including the effect of the  export bans (more than the 35% for soybean). Figure A 5 shows the impact of non tariff barriers on wheat prices. 40 The Soybean Chain in Argentina V. LESSONS LEARNED RELATED to the POLITICAL ECONOMY and the INDUSTRY ORGANIZATION The Argentine experience on the soybean chain perfor- tor). Non-agricultural productions were highly protected mance during the last two decades provides interesting trough import taxes and quantitative restrictions and lessons, particularly because some policies have had resulted in non-competitive manufacturing industries. The significant impacts on production and on the restructur- anti-agriculture bias of such policies resulted in very little ing and modernization of the key participants in the value investment and growth of the agricultural sector, includ- chain. Some policies remained without major changes ing the soybean value chain. In such context, soybean during the period 1990-2009, such as the biotech policy, and other crops had limited impact on job creation along the land use policy, the reduction in import taxes on the different steps of the value chain and on the regional inputs and the privatization of public services (elevators, development of the country, speeding up the rural urban ports, highways, railways, etc.). Other ones, which had migration process; the income distribution lag between very positive impacts in the early nineties, had changes in the large urban centers and the small towns and cities of recent years, and they are already affecting the current the interior of the country increased. and future development of the value chain. Therefore it is interesting to identify the key policies that have been The dramatic reforms implemented during 1991 on mac- driving forces for production and employment growth, to roeconomic, trade, agricultural and institutional policies promote structural changes, and to improve the industry’s created a favorable environment for investment and for competitiveness. The main interesting lessons that emerge the reorganization of the soybean chain. Price stability, from the Argentine experience are summarized below. currency free convertibility, improved relative prices, the lack of government intervention in agricultural markets a) The soybean industry responds rapidly when the and the opening of the economy had very positive re- economic, commercial and institutional environment sults: i) promoted the development of a competitive input is favorable industry which currently provides the most modern tech- A fist general lesson emerging from the Argentine expe- nologies available; ii) attracted capital and technology rience is that the soybean industry responds to sound to primary production resulting in: increased yields, acre- macroeconomic and market oriented trade policies, age expansion, and the restructuring of the traditional particularly when there are good opportunities in the farming system becoming a more competitive production international markets. During several decades previous system; iii) promoted huge investments in manufacturing to 1990, Argentine macroeconomic policies resulted in plants, elevators, ports, highways and other logistics facili- high price instability, the institutional environment did not ties; iv) helped the development of transparent markets, promote investment, and trade policies strongly dis- including the future markets, allowing to reduce transac- criminated against primary agriculture production (the tion costs among different participants along the value economy’s most efficient and competitive tradable sec- chain and to mitigate market risks. All these improvements The Soybean Chain in Argentina 41 resulted in a very competitive chain, which has increased logistics costs. In sum, it resulted in production growth and production and exports of the soybean products com- increased productivity (Figure 6). plex, taking advantage of the dynamics of the interna- tional markets. b) Open capital markets and a good institutional envi- ronment attract strategic direct investment Rents along the value chain improved, particularly in the The reforms in foreign investment legislation, including primary production stage, in which better relative prices free movement of capital, free currency convertibility and promoted yield increases through the use of higher doses non-discrimination, and the bilateral investment treaties of fertilizers and chemicals as well as other new improved signed with the main developed countries, created a technologies. They also contributed to the restructuring of favorable environment and resulted in large investments the production system, resulting in lower costs of produc- in the seed, chemical and machinery industries, which tion and transaction costs. The elimination of government currently involve most of the main world players. intervention in agricultural trade contributed to provide a more stable and predictable environment and helped They also attracted large investments in production, the development of vertical coordination among input crushing, storing, ports and highways. Currently Argentina providers, producers, crushers and traders, and resulted counts with very competitive and large local and global in lower transaction costs along the value chain and in primary producers, crushers and traders; most of them are reduced risks. world class firms, which are crucial for commodities com- petitiveness (low costs of production and crushing, high The mentioned improvements created a “virtuous circle” productivity, good access to capital and to markets). which attracted new private investors to primary produc- tion and provided incentives to increase productivity and c) Dynamic and profitable productions attract capital the acreage destined to soybean production. Produc- to allow growth, despite the lack of enough institu- tion growth prospects also promoted large investments in tional credit input production and in processing and logistics, which in Most of the financing of the growth in Argentine soybean turn resulted in higher crushing productivity and reduced production and processing during the last two decades Figure 6. Virtuous cycle: policies - organization of production- competitiveness - growth Source: Prepared by Regúnaga, M. 42 The Soybean Chain in Argentina came from private sources, attracted by the existing There is a high potential for growth in the soybean in- opportunities to earn potential rents in different stages of dustry, based on the domestic competitiveness, on the the value chain. This is the case for the investment done opportunities provided by the availability of natural re- by input providers, primary producers, services providers, sources and by innovations that are currently in the pipe- crushers and traders. Only a small part of total investment line, and on the dynamics of the international markets. was financed by local and international banks. The new organization of production and trade provides It is interesting to highlight the case of primary production also a solid and competitive basis to continue with the investment, in which the bank financing was very limited growth trends registered during the last two decades. and not enough to support the growing requirements of capital associated with the dynamics of the soybean The successful growth during the period 1991-2007 pro- markets. Since most of the farmers are small and me- vides support and lessons to promote the future expan- dium sized firms, they usually have difficulties to comply sion of area planted, production and exports. The country with all the banking system requirements (accounting has already experienced the importance of the soybean information, tax payments, collaterals, etc). Despite such chain on the country’s economic growth, on job creation situation, the dynamics and high expected revenues of and on regional development, when the economic and soybean production promoted the emergence of other institutional environment is favorable. sources of financing of the operational costs including own farm savings, investment funds, “planting pools”, and This industry is strategic because it is one of the relevant foreign investors. In addition, input costs were financed sectors in which Argentina is very competitive in interna- by input providers and crushers / traders involving mainly tional terms, and could be a base of sustained economic barter programs and forward sales. growth through exports. This is not the case of other pro- tected manufacturing industries which are not competi- Large investments by input providers, crushing plants, tive and only contribute to short term domestic based ports and other facilities also resulted from local savings economic growth. and foreign investment54. They have been only partially financed by local and international banks. During the As it has been highlighted in section 3.8., the soybean 1990s monetary policies (including free convertibility and chain is very relevant in job creation, more than other pro- no restrictions on capital movements) promoted the use tected industries, such as the cars and autoparts chain. of cheap short term international credit using future ex- This has been a mis-undertanding which has backed ports as collaterals; a regime called “prefinanciación de some of the wrong policies implemented in Argentina for exportaciones” was implemented to accede to cheap several decades, including the recent policies described international loans, taking advantage of the fact that in the previous section. most of the soybean production is exported. Most of the job creation by the soybean chain is located However, institutional credit has been very important for in the interior of the country. Therefore, its impact on long term financing, needed mainly for investment in facili- regional development is higher than the case of the ties; in this sense the IFC has played an important role as manufacturing industries, which are mainly located near a source of medium to long term credit and to help local the large urban centers. firms to accede to other private long term bank financing. e) Strategic sector policies could lead to significant d) Competitive commodity production and the re- improvements in competitiveness lated industries provide opportunities to the country’s Biotech policies implemented since the early nineties economic growth, to increase exports and employ- have been a crucial component of the Argentine soy- ment and to contribute to regional development. bean chain competitiveness. Such policies needed to 54  S uch firms are supposed to finance, in addition to their specific investment and operational needs, part of the inputs used by the farmers. The Soybean Chain in Argentina 43 have a global approach taking into account bio-safety, Networks imply different kinds of relationships among intellectual property rights, human resources training, and participants. In the agriculture sector many of them are large investment in public and private infrastructure. informal agreements, because it is usual to give a high priority to personal relations (based on personal reputa- This is an area in which the private sector has played a key tion). Trust is a word that has a different meaning in the role, and the creation of attractive conditions for its devel- urban society and the rural sector and also in the grain opment was a major challenge. The intellectual property trade sector (in these cases huge amounts of money are legislation and the controls put in place in the early 1990s, committed just by phone or mail). together with the favorable environment for foreign invest- ment were strategic for the initial development of the However, gradually the main participants in the value seeds’ biotech industry. However, it should be highlighted chain are paying more attention to implement formal that the evolution of private sector requirements has not contracts, particularly when the capital involved in not been followed in recent years (particularly since 2002) by owned. Actually the large firms, like El Tejar, Los Grobo, improved legislation, and this situation is creating uncer- and others, already have developed and use formal tainties related to future investment in the soybean seed contracts with the owners of the land and the services industry. Currently some of the leading biotech firms find providers. This is an issue that will have a growing role in better institutional and IPR environment in Brazil, and are the future development of Argentine agriculture; particu- destining most of the investment to such country. larly it would be important to look at private dispute-set- tlement mechanisms, taking into account the weaknesses It is interesting to note that several studies conducted on of the Argentine Justice. the impact of biotech soybean conclude that most of the participants in the value chain have received part of g) Cooperation between public and private institu- the additional rents associated with improved seed and tions is crucial to provide strategic services (meso- improved competitiveness of the soybean crop vis a vis competitiveness) other crops and livestock productions. Most of the ben- Global value chain competitiveness is also associated efits were captured by farmers (Regúnaga, M. et al. 2003; with the quality and cooperation of different public and Trigo, E. et al. 2002) private organizations (meso-competitiveness). It is not just an issue of having competitive firms along the value f) The relevance of networks to improve competitive- chain (micro-competitiveness). ness in the value chain: organizational innovations One of the key factors explaining Argentine soybeans This is the case of several developments occurred in the competitiveness and growth is the substantial restructur- Argentine value chain: technological innovations, quality ing of the farming system, resulting in larger and very controls and certifications, development of grain markets. competitive producing firms. Currently, a significant share of soybean production involves networks, which allowed The cooperation between INTA, the private input pro- reducing costs of production (scale, specialization, and viders, some private technological organizations (like better use of fixed capital) and transaction costs. Most AACREA and AAPRESID) and some mixed initiatives of production is conducted by firms that do not own the involving the SAGPYA and some Province’s governments land and other fixed assets (machinery, silos, trucks, etc); and private groups of farmers, has been very important therefore the rates of return on their assets (operating for research, development and adoption of innovations in capital) are very high, and have attracted investors from soybean production. other economic sectors. Such specialized and large pro- duction firms are much more competitive than traditional Quality controls and certifications are not limited to the farmers, also because they have improved their access to public services provided by SENASA. Modern systems capital and technology; they also have improved logistics involve an active relationship between SENASA, the and access to markets, they have much better manage- producers and the private sector providers of certifica- ment of weather and price risks and they have lower tion and quality control services (i.e. certifications related transaction costs. with non-GMO crops and other differentiated soybean 44 The Soybean Chain in Argentina products require the participation of farmers, private specialized firms and the government to follow and certify traceability). Soybean markets trade on the basis of a standard. The government has established quality standards and certi- fies the sanitary situation of soybean exported. The reli- ability and transparency of the domestic and the export market depends on public and private certifications, and within the grain exchanges operate Arbitration Cham- bers, which resolve private disputes in a very efficient way. In sum, a competitive and efficient soybean chain relies very much on the existence of a developed and cooper- ative structure of private and public organizations, which have performed very well during the last decades in the Argentine case. The Soybean Chain in Argentina 45 ANNEX Figure A 1. Traditional farming. Vertical integration model Figure A 2. New network production model Source: adapted from Bisang, R. et al. (2008) 46 The Soybean Chain in Argentina Figure A 3. Nominal rate of assistance at farm level for the main Argentine agricultural products. 1960-2005 (simple average of covered products) 0,05 Negative and instability in trade policies Stability and Negative almost neutral 0 -0,05 -0,1 -0,15 -0,2 -0,25 -0,3 -0,35 -0,4 -0,45 2005 2002 1990 1999 1960 1966 1996 1963 1984 1993 1969 1987 1972 1978 1975 1981 Source: Sturzenegger A. and M. Salazni (2007). Note: selected products are corn, soybean, sunflower, wheat, beef and milk (data for oilseeds begin in 1997). Figure A 4. Nominal rate of assistance at farm level for soybean. 1994-2005 Negative and instability in trade policies Stability and Negative almost neutral 0 -0-5 -10 -15 -20 -25 -30 -35 -40 2005 2003 2001 1999 1995 1993 1985 1983 1997 1989 1991 1977 1979 1987 1981 Source: Sturzenegger A. and M. Salazni (2007). Note: NRAs measured by the explicit export tax. The Soybean Chain in Argentina 47 Figure A5. Impact of non tariff barriers on the domestic wheat market. Official ex- port taxes and total effective export taxes* (“ad valorem” percentages referred to the FOB price) 60% Total effective export taxes 50% 40% Official export taxes 30% 20% 10% 0% nov-05 ene-06 may-06 jul-06 sep-06 nov-06 ene-07 may-07 jul-07 sep-07 nov-07 ene-08 mar-08 may-08 jul-08 sep-08 nov-08 ene-09 ene-05 may-05 jul-05 sep-05 mar-06 mar-07 mar-09 mar-05 Source: Ambrosetti, E. Seminario Agrotendencias 2009 (2009). Ref: Total effective export taxes are estimated comparing market prices with the theoretical market prices based on the FOB price deducted by fobbing costs and the official export taxes (tariff equivalents). Figure A 6. Adoption of no till practices in soybean and total crops 20 18 16 14 Total crops Million ha 12 Soybean 10 8 6 4 2 0 1990/91 1991/92 1996/97 1997/98 1998/99 1999/00 2000/01 1992/93 1993/94 1994/95 1995/96 2001/02 2002/03 2003/04 2004/05 2005/06 Crop years Source : AAPRESID. www.aapresid.org.ar 48 The Soybean Chain in Argentina Table A 1. Investment by privatized / concesioned companies* (million A pesos, equivalent to million US$) Years Fuels Telecom. Railways Roads** 1991 822 345 -- 100 1992 825 1,232 10 200 1993 1,215 1,927 35 240 1994 1,760 2,082 52 628 1995 2,787 2,089 78 595 1996 1,883 2,089 240 348 1997 1,997 1,704 416 392 Total 1991-97 11,146 11,468 831 2,503 Source: Llach, J. (1997). Note: *Previously Government owned companies. ** Vialidad Nacional. Most of the large highways were concessioned and are not included under this company. Table A 2. Investment in Food and Beverages Processing Industries. Period 1990-2005 (000 million US$) Period 1990-2000 Period 2001-2005 Total Foreign National Total Capital formation - Greenfield 1.68 1.00 2.68 na - Additions 2.68 2.63 5.31 na - Subtotal 4.36 3.63 7.99 1.94 Mergers and Acquisitions 4.15 1.73 5.88 1.27 TOTAL 8.51 5.36 13.87 3.21 The Soybean Chain in Argentina 49 Table A3. Investment in Agricultural Machinery and Imports of Capital Goods destined to the Primary Sector (million 1993 Arg $, units, and million US$)* Years Machinery and equipment Capital Goods Imports Consumption Tractors Harvesters Direct Sewers (US$ million) (million 1993 Arg $) (units) (units) (units) 1992 800 4,871 415 1,043 na 1993 844 4,338 344 1,786 98 1994 1,051 6,393 1,011 2,757 178 1995 737 4,615 662 1,462 150 1996 1,149 7,720 1,560 1,100 259 1997 991 7,601 1,706 2,880 314 1998 883 5,925 1,450 2,580 330 1999 511 2,720 760 2,400 131 2000 357 2,108 697 2,300 100 2001 340 1,328 597 2,650 113 2002 261 1,188 560 3,423 37 2003 629 4,102 2,334 4,845 268 2004 805 6,163 3,080 4,499 425 2005 na 6,315 1,950 3,581 372 2006 na 5,882 1,650 3,576 378 2007 na 7,880 2,415 4,059 550 50 The Soybean Chain in Argentina REFERENCES AGD Brochure. Alimentos Naturales. Buenos Aires, 2009. And AGD web-site www.agd.com.ar. •  Ambrosetti, E. Seminario Agrotendencias 2009. “Trigo: O.G.M.” Buenos Aires, 2009. http://www. •  agrotendencias2009.com.ar/09/presentaciones09.php B isang, R. “ El Desarrollo Agropecuario en las Ultimas Décadas: Volver a Creer?” in Crisis, Re- •  cuperación y Nuevos Dilemas. La Economía Argentina 2002-2007. CEPAL. Santiago de Chile, 2007. B isang. R., G. Anlló, et al. “Una Revolución No Tan Silenciosa. Claves para Repensar el Agro en •  Argentina”. Desarrollo Económico No. 190-191 Vol 48. Buenos Aires, 2008. B isang, R. y S. Sztulwark. “Tramas Productivas de Alta Tecnología y Ocupación. El Caso de la •  Soja Transgénica en la Argentina”. In Estructura Productiva y Empleo. Un Enfoque Transversal. Ministerio de Trabajo, Empleo y Seguridad Social. Buenos Aires, 2007. Cabrini. S, Diaz Hermelo. F, et al. “Los Grobo”. Estudio de caso. Universidad de San Andrés. •  Buenos Aires, 2007. Carrera. Alejandro “El Tejar S.A”. Caso de la División de Investigación del IAE. Buenos Aires, •  2004. Castillo, V., S. 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Agricul - •  tural Distortions Working Paper 11, World Bank’s Development Research Group. Washington, 2007. Trigo, E., et. al. “Los Transgénicos en la Agricultura Argentina”. IICA. Buenos Aires, 2002. •  • WTO tariffs database. http://www.wto.org/english/tratop_e/tariffs_e/tariff_data_e.htm. The cases described in the boxes also included meetings with high executives of AGD, El Tejar and Los Grobo. 52 The Soybean Chain in Argentina About the series: The LCSSD Occasional Paper Series is a publication of the Sustainable Development Depart- ment (LCSSD) in the World Bank’s Latin America and the Caribbean Region. The papers in this series are the result of economic and technical research conducted by members of the LCSSD community. 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