September 11, 2010

The massive soy sector of Argentina is facing higher costs and lower revenues that could deter future investment, a local executive from exporter Louis Dreyfus said Friday (Sept 10).

Argentina is a major soyoil and soymeal exporter. Investment in expanding its crushing capacity has surged over the last decade in tandem with soy production. But a dilapidated transportation system, increased labor costs and a boycott by top buyer China that has halted shipments to the Asian country since late March have raised concerns among exporters.

"We've had a worrisome decrease in the net margin of profit and this discourages new investments," said Luis Zubizarreta, institutional relations manager for Louis Dreyfus in Argentina. He said growth in the industry's crushing capacity and output has clogged loading centres, and road and railway improvements are urgently needed.

"Here in Timbues, there are two crushing plants and soon there will be a third one that can only be accessed through a dirt road. The industry is also reeling from an increase in costs, including grain worker and dock worker salary hikes granted by companies and unions. We're a very efficient industry but in recent years we've had increased costs that have not been reflected in an increase in margins," he added.

According to industry data, net crushing margins in Argentina fell 93% between July 2007 and March 2010.

Another blow for the industry came this year when China halted Argentinean shipments after the South American country imposed anti-dumping measures on some Chinese manufactured goods. Argentina exported 1.84 million tonnes of soyoil to China last year, bringing in US$1.4 billion and accounting for 77% of Chinese soyoil imports. The unresolved spat has threatened a key hard-currency earner for Argentina and forced exporters to look for new markets.

"The government is trying to fix this situation but it needs to be solved soon because it's becoming a huge problem for us," Zubizarreta said, adding that other markets, such as India, pay less for soyoil imports.

To keep up soyoil demand the government made energy companies raise the amount of soy-based biodiesel they blend with regular diesel fuel from 5% to 10% by the end of the year.

"The nascent biodiesel industry is growing because the government developed the local market wisely ... We're substituting part of China's demand for biodiesel demand," he said.

Zubizarreta said that, despite current challenges, he was positive about Argentina's soy-crushing industry and said Louis Dreyfus would continue to invest heavily.