Belt & Road: Argentina Enters Chinese Wheat Market
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The Secretary of Agriculture, Livestock and Fisheries of Argentina, Juan José Bahillo, agreed in a meeting with the Vice Minister of the General Administration of Customs of China (GACC), Wang Lingjun, different export protocols for Wheat, wool, offal and byproducts bovines and signed a Memorandum of Cooperation on Safety and Health, during the tour within the framework of the Belt and Road, where he participated with the Foreign Ministry and President Alberto Fernández in a meeting with the Chinese president Xi Jinping.
In the case of Wheat, the signed protocol will allow the start of exports from Argentina to China (the world’s third-largest importer of this cereal with 10 million tons worth US$3.8 billion). Currently, Australia (with 5.7 million tons) and Canada (with 1.8 million tons) are the two leading suppliers to the Chinese market.
Regarding the Memorandum of Cooperation on Safety and Health, a periodic scope of bilateral meetings is created to discuss issues on the access and cooperation agenda with Chinese Customs (GACC), also establishing a mechanism for cooperation and exchange of health information and scientific research.
Wheat Output Forecast
With a planting projection of 5.6 million hectares and an expected yield recovery, the production estimate would be 16.2 million tons in 2023/24. In productive terms, although these 16.2 million tons would represent a 40% recovery in the country’s Wheat production after the fateful 2022/23 harvest, it would still mark the second-lowest Argentine Wheat production in recent years.
Exports could reach 9.5 million tons in the 2023/24 campaign, 120% above the current campaign. They would represent US$2,375 million. A great competitor of Argentina is Australia. This is due to seasonality and the timing of harvests.
In the latest update, Argentina’s Rosario Grains exchange trimmed its forecast for the 2023/2024 Wheat harvest to 15 million metric tons, down from 15.6 million tons previously estimated, as some of the country’s agricultural areas strain under dry conditions. The crop’s harvest begins in November and ends in January.
These are, of course, projections. The effective development of foreign trade will depend on many things, such as the competitiveness of Argentine Grain in international markets, foreign trade policies, and domestic consumption needs, among others. The demand for milling is initially projected at 6 million tons, which can grow if the good dynamics that the milling sector has been presenting in the current campaign are maintained.
Wheat Trade
As per AgFlow data, Argentina exported 1.5 million tons of Wheat to Brazil in Jan – Sep 2023. The following markets were Colombia (90,000 tons), Chile (52,133 tons), Uruguay (50,000 tons), Peru (48,900 tons), Egypt (30,000 tons), and Ireland (28,500 tons). Myanmar, Jordan, and South Africa also purchased small volumes of Wheat from Argentina. Total exports hit 2 million tons in that period. In terms of imports, Argentina purchased a total of 0.47 million tons of Wheat from Brazil and Romania in Jan – Aug 2023.
During the last ten campaigns, Brazil was the leading destination for Argentine Wheat exports, which, on average, has purchased just over 4 Mt per campaign. In the previous five years, excluding the unsuccessful 2022/23, the neighboring country has acquired – on average – 5 Mt from Argentina. Then, Southeast Asia and North Africa follow as the most critical buyers.
The Asian market is supplied mainly by Australian Wheat. However, Argentina sees increasing opportunities in these distant destinations when Australia registers poor productive campaigns. The primary buyer in that area – of Argentine Wheat – is Indonesia, which, during the 2018/19 and 2019/20 campaigns acquired 1.9 Mt and 2.6 Mt, respectively.
Productive cuts are expected on Australian soil and globally for the upcoming 2023/24 campaign. In fact, for the seven countries that export the most Wheat (including Argentina), declines in exportable volumes are projected by almost 9%.
Therefore, it could be possible to increase exports again in these markets of interest to Argentina, where it has already participated with large volumes and continues to do so, although in modest quantities. However, it is also subject to the volumes that Argentina finally produces; if the harvest continues to be cut, Argentina’s FOB prices tend to rise, complicating competitiveness in more distant destinations with more sales to Brazil.
Argentina quoted Bangladesh the highest CFR price, USD 415 on average, in Jan – Oct 2023. The country also offered higher CFR prices for Asian countries (India: USD 411, Iran: USD 395, and Japan: USD 393). For selected countries, Brazil was offered the lowest CFR price of USD 363. Middle Eastern and African countries were quoted medium CFR prices between USD 382 and USD 375.
Trends of CFR price showed a similar situation for Brazil, Jordan, and Japan in Jan – Oct 2023. The price started falling from the last January till April. Then it increased in May, and after that, it declined gradually.
Wheat Value Chain
In 2021/2022, the Wheat complex’s export basket was divided into US$ 4,655 million in Wheat Grain exports and more than US$ 201 million in Wheat flour and various byproducts. Throughout the campaign, Wheat contributed more than US$607 million in export duties (DEX), according to the BCR’s estimates.
However, as has been highlighted on more than one occasion, 70% of the tax contribution of agriculture does not come from export duties but from the various internal taxes in force in Argentina. In this sense, it is worth highlighting that agriculture contributed practically $1 of every $4 collected by the National State in 2021.
The Wheat chain is an essential generator of private employment at the federal level, with more than 414,000 jobs. With employment growth of 7% compared to the previous campaign, Wheat stands out as responsible for almost 12% of Argentine agro-industrial employment. Likewise, three-quarters of these jobs generated by Wheat are explained by the commercialization and industrialization of this crop.
According to the latest report by Lódola and Picón (2021), among the 31 Agri-Food Chains (CAA) surveyed, Wheat is ranked as the fourth agricultural chain with the highest value generation, only behind the Soy, Beef, and Corn chains. In this sense, Wheat is responsible for 8.8% of the Gross Production Value (VBP) of Argentine Agriculture while contributing 9.3% of the Added Value (VA) generated by these chains.
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