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ANALYSIS: Taking state control of soy processor sends a bad signal to Argentina's trade partners

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One of Argentina’s biggest and oldest soy processors has abruptly been taken over by the state. This should send a cold shudder down the spine of the global soy trade.

 

Vicentin - the newly-nationalised company - has been in financial trouble since at least last December. It entered formal bankruptcy in February. It has debts of some $1.5bn, some $500m of which is owed to hundreds of smaller agricultural producers. By far the biggest debt - around $300m - is owed to Banco de la Nacion, the state-owned bank.

 

President Alberto Fernandez, who leads the Peronist government, says the state takeover of Vicentin is to "defend its 2,600 workers". He added that "Argentines have to be very happy because we are taking a step towards food sovereignty."

 

That evoked a hollow laugh from Vicentin. The company has said that the first it heard of the state takeover from media reports. It added that no employee has been made redundant.

 

Big deal

 

Vicentin has been in trouble since last December at least. The company - which exported 8.5m tonnes of grains and food oils in the 2018-19 season - then missed a repayment equivalent to $350m to farmers. It sold last December a 16.7% stake in Renova, owner of Argentina’s biggest soybean crushing plant, to Glencore, the world’s biggest commodity trader. Renova is one of the world’s biggest soybean crushing companies, with a daily capacity of 20,000 tonnes.

 

Glencore now holds 66.7% of Renova, Vicentin the rest. Vicentin is based in Santa Fe province, Argentina’s biggest shipper of soybean meal and oil. Vicentin also owns a cotton unit, a large port, a grape juice maker, a vineyard, a feedlot with capacity for 20,000 heads of cattle, and a soybean, corn and sunflower cooking oil producer.

 

Soybean output to drop

 

Vicentin is now to be administered by YPF-Agro, the subsidiary of the energy company YPF, 51% of which was re-nationalised in 2012 under a former government.

 

Argentina is the world’s third biggest producer and exporter of soybeans and is the world’s biggest exporter of processed soy.

 

The Buenos Aires Grains Exchange said in mid-March that, due to dry conditions in the provinces of Cordoba and Santa Fe, it was lowering its estimate for the country’s November-to-October soybean crop year of 2019-20 to 52m tonnes, down 6% year-on-year. Export estimates for Argentina’s 2019-20 soybean harvest are around 8m tonnes. Estimates for global carryover stocks from 2019-20 vary considerably.

 

Long memories

 

Glencore may be interested in taking over the whole of Renova, the juiciest fruit in Vicentins’ basket, if only to escape inevitable government interference.

 

At the right price. Which may not be the price that will be demanded by a government that now controls Vincentin, and which is facing an economy which is likely to shrink by some 10% this year, inflation of more than 40%, is trying to re-structure a $65bn debt, and is facing a rapidly weakening currency.

 

Those with long memories can recall the economic disasters supervised by previous Peronist governments, stretching back as far as 1946. The authoritarian streak familiar from earlier Peronist administrations, which often have been keen to nationalise companies to gain voter popularity, has so far not made itself felt.

 

But the government’s roughshod takeover of Vicentin indicates a willingness to stifle free market solutions for the sake of political grandstanding. It also raises the spectre of possible market-rigging in soybeans, as the government will certainly try to wring greater returns from one of its biggest exports. Few will forget that earlier this year the government placed an additional 3% tax on the country’s soybean exports.

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