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Argentina's new dawn a boost to agriculture prospects

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Since coming to power in 2015, Argentina's government has left behind the populist economic policies of its predecessors and is seeking to remake Argentina into a commodity exporting powerhouse.

Left with dwindling foreign exchange reserves and high inflation, the new government is promoting the country's agriculture and alternative energies as 'strategic sectors' as they underpin more than half of exports.

Beef downturn

Argentina is the world's largest exporter of soymeal, and produces 18% of the world's soybean supplies in 2014-15 according to data from FundaciĆ³n Producir Conservando.

The country is also a large exporter of wheat and corn. While Argentina only produced 3% of the world's corn, its corn supplies contributed to 13% of world crop trading in 2014-2015.

Argentina was once the world's third largest beef exporter, but stringent policies such as a 15% tariff on beef exports made cattle production expensive, causing farmers to shift towards growing more lucrative crops such soybeans.

Beef exports have declined significantly and the national herd is estimated to have fallen to 50m head, as the country has steadily lost market share to its neighbours.

Uruguay, which has a 10-times smaller herd than Argentina, surpassed the country's beef exports in 2011.

Growth potential

Argentina's crop potential is estimated to rise by 79% by 2020, in a best-case scenario expected by the country's Ministry of Agriculture.

Even the most conservative scenario from joint research by the Organization of Economic Co-operation and Development (OECD) and United Nations Food and Agriculture Organization (FAO) estimates the country's crop potential to rise by 41% by 2020.

These estimates reflect the supportive measures introduced by the government. Particularly a 5% reduction in the soybean export tax rate to 30% and removal of export quotas for agricultural exports.

Meanwhile, beef exports are expected to rise between 22-52% by 2020, in a conservative to best-case scenario.

Macro-economic tailwinds

The new Argentinian government removed currency controls, which led to an immediate 30% devaluation in the peso.

This should help make farmers' exports more competitive compared with exports from North America and Europe, were farmers often also benefit from subsidies and better farm technology.

An expansionary fiscal policy had increased the country's the debt levels to 56.5% of GDP and increased inflation to 25% in 2015. The new government has enforced a tighter fiscal policy to control the country's deficit and reduce inflation.

The country's new macro climate was like a breath of fresh air, and I am optimistic on the country's agricultural prospects.

The government is working hard to open up its agricultural export sector to international trade and become a predictable country.

By Rafael Aliaga and Shweta Upadh

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