Importance of the wheat value chain in Argentina’s economy

Importance of the wheat value chain in Argentina’s economy

One of the main characteristics of the value chain of Argentine wheat is the high industrial added value, employing more than 387,000 people. Heading for a record harvest, the 2021/22 cereal will generate more than USD 4,000 million in exports and USD 461 million in tax income.

December kicks off a new commercial year for wheat, a cereal with strong historical roots in the country that is currently grown in 13 Argentine provinces. Its notable territorial expansion makes possible a direct supply to the 285 milling plants distributed throughout the country, which supply urban centers. However, the milling industry is not the only source of regional value derived from wheat. Cereal exports, which in recent seasons amounted to more than 60% of the harvest, constitute an important engine of Argentine regional development.

The wheat chain stands out among the different agroindustrial value chains as one of the most important in terms of socio-economic impact at a national level. The wheat complex plays an important role in adding value, employing people, contributing to the treasury, and generating net dollars from foreign trade.

Production

Wheat is the main winter crop, and the third most sown product in Argentina, after soybean and maize. In the 2021/22 season, producers have sown an area of ​​6.9 million hectares. With average yields estimated at 3.10 MT/Ha, the harvest is expected to reach 20.4 Mil MT, reaching an all-time high.

Regarding the destinations of Argentine wheat, it is estimated that 31% of the total supply is destined for the milling industry and 58% is exported as grain.

Employment and Added Value

The wheat chain is a very important source of employment for the country, with a particularly relevant contribution to regional economies. According to Rosario’s Bolsa de Comercio estimates, the wheat complex employs 387,459 people, equivalent to 11.6% of the employment generated by Argentine agri-food chains.

Furthermore, this cereal is an important source of added value (VA) for the economy, understanding by this the difference between the final sale value of what is produced and the cost of the inputs. In 2018, the wheat value chain was the fourth agribusiness chain in terms of added value creation, accounting for 18% of the VA, according to the MAGyP Agrifood Value Chains report. The value added that year amounted to USD 4,454 million. It should also be noted that unlike what happens in the SB and maize chains where the primary activity originates more than 80% of the added value, in the wheat chain an important portion of the VA is captured in later stages of its production. The manufacturing industrial link originates 46% of the VA (vs. 12% in SB and 7% in maize), cereal transportation contributes 2% and the primary link originates only 52% of the value added by the chain to the economy. This greater forward linkage naturally results in greater positive externalities that reach more diversified and dispersed economic agents.

Foreign trade

The complex is the fourth agro-industrial export complex, behind SB, maize, and cattle. In 2020, the complex’s exports amounted to USD 2,471 million, representing 5% of the value exported by Argentina, according to INDEC. In the twelve years considered for the series shown, the currencies originated by the wheat complex are at a maximum share, which was also reached in 2017 and 2018. However, it is worth noting the substantial difference in context, since in 2020 the complex’s share grew largely due to the 15% year-on-year drop suffered by total exports, while in 2017 and 2018 it reached and sustained its share with increasing total exports.

The relative importance of the complex in the cereal sector (which also includes maize, barley, and rice) was 26% in 2020. Wheat has been losing its share in recent years, due in part to a lower value exported by the complex, but mainly due to the strong growth experienced by maize exports.

Argentine wheat exports 2021/22 are estimated to reach a volume of 13 Mil MT, for a FOB value of USD 3,891 million. In addition, flour exports are expected at 550 Mil MT, for a FOB value of USD 179 million. Based on these estimates, and taking into account the Exports Sworn Statements (DJVE) of grains registered up to November, it is expected that the export duties paid on the FOB value (12%) will add up to USD 448.7 million this season, of which they would have already been rendered USD 306.8 million. In the case of flour, the export tax contribution (7%) of USD 12.5 million is expected, with DJVE just beginning to be noted. Together, the two largest export products of the value chain would contribute USD 461 million to the treasury, only in export duties.

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

Photo: REUTERS/Stringer

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