Due to the pandemic, investment in the agribusiness sector fell in 2020

Investment in the agribusiness sector is estimated to have been USD 8.48 billion in 2020, 7% below the previous year due to the quarantine. It includes expenditures in construction, machinery, and transport equipment.

We have proceeded to estimate the annual investment made by the agro-industrial sector in the Argentine economy, which reaches an approximate value of USD 8,480 million, 7% below last year (BCR, 2019).

The “Agroindustrial Sector” is the set of activities of the agro-industry itself as well as the primary activity, which allows obtaining the raw materials necessary for processing. Agriculture, livestock, beekeeping, aquaculture, fishing and forestry make up the primary sector of the economy, which includes the productive activities of obtaining raw materials for consumption or industry, from the natural resources. Agribusiness is the economic activity that includes the industrialization and commercialization of agricultural, forestry and biological products. It is in charge of the fundamental task of transforming the products generated in the primary sector, adding value to them. Due to its relative importance, this activity is strategic for the economic and social development of Argentina and has huge growth potential. Together, the companies that work in agribusiness on a daily basis are fundamental pillars to ensure a higher level of production, added value, exports and employment with their consequent positive impact on income distribution and social equity.

We can define investment as the inputs and expenses associated with planting by producers in a given campaign. The inputs acquired and the services contracted constitute an investment at the microeconomic level since we are talking about the working capital that is made available to productive activity in any given cycle.

At the macroeconomic level, when we speak of investment, we refer to the flow of goods that increase the capital stock of a sector or an economy in a given period, generally a year. According to the System of National Accounts 2008 (SNA, 2008), the capital stock of a sector or an economy is defined as the value of all fixed assets in use, where fixed assets are described as produced assets (that is, we do not include the land where it is produced) that are used repeatedly in the production process for more than a year. Fixed assets include not only buildings, structures, machinery, and equipment, but also “cultivated assets that produce repeat products such as livestock, dairy, draft, etc., or perennial trees, crops, and plant resources”.

To simplify the analysis, the “cultivated assets or growth in the stock of animals” are not included in the investment calculation as it is considered very complex when estimating and comparing the capital stock of the agricultural sector in many countries. In this way, the investment of the sector includes mainly expenditures in constructions, machinery, and transport equipment.

Methodology:

A large part of the investment made in the Argentine economy, year after year, corresponds to both residential and non-residential construction. According to INDEC data, 55% of the investment in 2020 was assigned to construction. The rest of the Gross Fixed Capital Formation (GFCF) is grouped into machinery, equipment, and transportation. This classification arises from the considerations taken in the measurement of national accounts, prepared by INDEC. According to INDEC calculations, in 2020 the total investment in Argentina reached a value of 54,068 million dollars.

In Valverde’s methodology (2018), approximate participation of the investment in the agriculture and fishing sector is applied, to 9.5% of the total investment in machinery and equipment and 6.8% of the investment in non-residential construction. As agribusiness is considered to encompass additional manufacturing, transport and trade sectors, based on the shares of the activities included in Coremberg (2018), the share of agribusiness in the investment of machinery and transport is approximated in the order of 20.8% and 11.8% of the total construction. Applying these participations to the raw data of INDEC, added to the investment in other assets, we arrive at a total investment of the sector of the order of 8,490 million dollars in the year 2020.

This value is a specific approximation to the investment made by the agro-industrial sector in 2020. If we take the approximation method described in the previous paragraph, the investment of the agro-industrial sector for the period 2004-2020 can be approximated. For a more precise estimate, the methodology of Valverde (2018) should be replicated using and adding the sectors from the primary sources of information that make up the agro-industrial sector and calculating them for the entire period determined. The investment data for the agricultural, forestry and fisheries sector are close to the data estimated by Vander Donckt and Chan (2019) through other imputation methodologies such as the “pooled” OLS estimation of regression models in countries for which some data is available.

A significant drop in the values ​​calculated for the year 2018 to 2020 can be noted in the series. The reduction in investment in these years had to do with several factors that came together at the time, such as:

  1. a) the most important drought of the last 50 years, in 2018;
  2. b) the increase in the domestic interest rate in 2019;
  3. c) lower international commodity prices, compared to the 2011-2014 cycle;
  4. d) the increase in the exchange rate and the increase in export duties in various sectors of the agro-export matrix;
  5. e) By 2020, the COVID-19 quarantine strongly affected many sectors included in the agro-industrial complex.

In 2020, it should be noted that investment in the sector continued to decline. The fall in investment in the sector in 2020 can be corroborated with other indicators, such as the patenting of heavy commercials and trucks, the sale of agricultural machinery, or imports of capital goods in general.

In the recent literature, there are two works where the FCBF is calculated by different sectors. One prepared by Coremberg (2009) carried out within the framework of the ARG ARKLEMS project and the work by Valverde (2018) carried out within the framework of the LA-KLEMS project coordinated by ECLAC and financed by the IDB. In the most recent work, which was used as a basis, Valverde (2018) calculates the GFCF of the agricultural and fishing sector based on different sectorial data: the INDEC Agricultural Machinery Sector Reports, the Agricultural Machinery Industry Report of the INDEC, the Report of the Agricultural Machinery Sector of the Province of Santa Fe, supply tables – use of INDEC, Budget of the National Administration – Expenses by purpose, function and economic nature and Savings Accounts – Investment on an accrual basis of the Ministry of Finance.

It is considered that to have a true dimension of the investment of the agro-industrial sector in Argentina, we must not only take the contribution of the added value of the agricultural and fishing sector, but also the contribution to the production of the manufacturing stages that make up the agro-industrial sector and therefore add value to these downstream primary products. In Valverde’s methodology (2018), only an aggregate calculation of the GFCF has been made for the manufacturing sector. In later works, this methodology could be reproduced to obtain investment from the agro-industrial sector, using the primary sources of data to infer the contribution of the sector to the gross capital formation of the entire economy.

Source: https://bcr.com.ar/

Photo: REUTERS/Stringer

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