May 31, 2011

 

Argentine economy flourishes as grain and soy prices surge

 

 

In the port city of Rosario, earnings from grains shipments have supported the construction of some of Argentina's highest buildings over the previous year, thus, removing traces of Argentina's devastating 2001/02 financial predicament.

 

Soy and corn pour into giant barges lined up on the river leading out to the Atlantic. While the UN warns of a coming food crisis caused by soaring prices, Rosario has more luxury cars on its roads than ever.

 

"The model in most demand is the Mercedes Benz Class C," local auto dealer Juan Carlos Rosetti said. "It is a sign of increasing luxury consumption thanks to the improving farm sector."

 

Rosario, home to Argentina's biggest grains exchange, has a population of more than one million and is located 300 kilometres northwest of Buenos Aires.

 

From Russia to Australia to the US, food prices have been rising amid tight stocks and crop trouble over the past year while consumer nations such as China and India have tightened monetary policy to tamp down inflation.

 

World soy prices have shot about 70% higher, passing US$13 per bushel, up from US$7.83 during the depths of the world financial crisis in 2008.

 

Argentina is the world number one soymeal and soyoil exporter, as well as the third-biggest soy supplier. The government expects the 2010/11 harvest to total 50.4 million tonnes.

 

The South American country is also a major supplier of corn and wheat.

 

Rising world prices have pushed the value of Argentina's 2010/11 grains and oilseeds crop, most of it shipped from Rosario, to US$34.5 billion, up 43% from the previous season, local consultancy Abeceb.com said.

 

Skyrocketing food costs contributed to rebellions that toppled governments in Egypt and Tunisia this year, and could clip 1.5% from the economic growth of importing countries, according to the Asian Development Bank.

 

However, Rosario, birthplace to Latin American revolutionary Ernesto "Che" Guevara and soccer phenomenon Lionel Messi, has been enjoying the food price boom, even though Argentina has one of the world's highest inflation rates.

 

On the other hand, the grains-fueled economic boom has not reached the whole country. Shanty towns still exist just outside of Rosario. But Argentina has clearly bounced back from its massive debt default and currency devaluation a decade ago.

 

The prosperity should continue if exporters are right when they predict a 40% rise in global demand for food over the next 20 years. These expectations have helped restore consumer confidence.