Argentina's economic crisis and its impact on the global food crisis
Argentina has long tried to manage its crisis economy and currency by, among other things, limiting how large cash withdrawals can be made per week, as well as how much USD the population can buy at the official exchange rate. However, these measures has not led to increased confidence in the Argentine central bank and a strong Argentine peso (ARS), but to the existence of an official USDARS exchange rate and an unofficial, or Blue Dollar.
Argentina has long tried to manage its crisis
economy and currency by, among other things, limiting how large cash
withdrawals can be made per week, as well as how much USD the population can
buy at the official exchange rate. However, these measures has not led to
increased confidence in the Argentine central bank and a strong Argentine peso
(ARS), but to the existence of an official USDARS exchange rate and an
unofficial, or Blue Dollar.
Today, the official USDARS rate is trading at
around 130, for which you as an Argentine can buy a maximum of 200 USD for each
month. Meanwhile, the USD is unofficially trading at more than double the rate,
paying over 330 ARS per USD, and with the outlook for the Argentine economy
looking reminiscent of the early 2000s, many are more than happy to pay more to
get out with their ARS.
Now the Argentine farmers are protesting
against the weak official exchange rate, because when they export soybeans they
are paid by the Argentine government in the official exchange rate and thus
lose 60 percent even before taxing the income. In protest, soybean farmers have
now completely stopped exporting and are instead sitting on large stocks.
Export freezes are not a new phenomenon in
Argentina, but occur periodically when farmers want to protect themselves
against inflation. They use their produced raw material as a reserve for which
they can sell at a higher price in the future. Now, however, the government is
discussing two possible options to solve the temporary export freeze by either
simply confiscating the farmers' stock and forcing exports, or by creating a
third exchange rate that will lie between the official exchange rate and the
Blue Dollar.
As the world's third largest producer of
soybeans, an export stop will of course have an impact on the global supply of
food. Along with Russia's invasion of Ukraine continuing to shake the world and
both energy and food access, the export freeze is particularly worrying.
Soybean prices have been volatile so far this
year, but are now trading near the levels we saw at the start of the year.
Since the bottom at the covid-19 crash in March 2020, however, the price has
first risen above 100 percent before falling back recently and is now trading
around 70 percent higher than at the start of the pandemic.
Despite historically high prices, however,
there is still upside in the long term. The price of ammonia, a common
fertilizer, has risen in price from $215 per ton in September 2020 to over
$1,200 in March 2022.
With Russia as the largest producer of
fertilizers of which there is now a global shortage of. This will may be seen in
raw material stocks in the coming months, therefore there is little room for a
long-term drop in food prices. Now, the EU Commission has also proposed a
temporary suspension on the tariffs that are currently in place for two key
ingredients needed to manufacture fertilizers in an attempt to control prices.
So far, the farmers' export strike has had
little or no effect on the soybean price, which is trading significantly lower
than a month ago, but the price drop is rather technical and due to the entire
commodity sector falling rather than fundamental negative signals behind it.
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