Argentina’s Worst Drought Undermining Economy

Jorge Josifovich is silent and downcast as he walks under the pounding sun in one of Argentina’s most fertile agricultural regions, staring at soy crops parched by the country’s worst drought in years.

The drought, which began in November, has caused big losses, reduced expectations of economic growth and raised concerns among farmers, government officials and experts in the world’s third-largest exporter of soybean and corn, AP reported.

“It’s dramatic,” said Josifovich, a farmer and agricultural engineer who provides advice to growers. He picked up soy seeds from a plant that stands at about half its normal height. “Not only is there the physical loss of grain yield, but there’s also the loss of quality, which lowers the product’s final price.”

That’s a blow to Argentina, where farming is the economy’s main engine, and high or low prices for soy and other commodities can either help sustain or bust government investment plans.

President Mauricio Macri was counting on a near-record soy crop this year to boost economic growth to 3.5% in 2018. Instead, what is expected to be the poorest harvest in at least a decade has already cut growth forecasts by up to a percentage point.

While Macri struggles to reduce the country’s high fiscal deficit and tame inflation, Argentines continue to lose purchasing power and many are growing increasingly frustrated with rises in fuel and transportation costs.

The value of grain exports this year could be cut by up to $3.4 billion as a result of the drought, according to recent estimates by the Buenos Aires Grains Exchange. But the impact could be even more bruising if related industries are taken into account.

“This situation is frustrating because it impedes the government from reaching its expected growth, and it hits other sectors,” said Fausto Spotorno, an economic analyst at Orlando Ferreres & Asociados, a Buenos Aires-based consulting firm.

Argentina’s famed meat and dairy industries, which depend on corn and soymeal for animal feed, are facing more than $600 million in losses, according to the exchange. The drought has also hurt the poultry and pork sectors as well as the silos that store grain and the trucking and shipping companies that transport it.

“You’ll have less beef and a problem with (a rise) in prices,” Ezequiel de Freijo, chief economist at the Argentine Rural Society, said about the outlook for next year.

He said the consumption of Argentine diesel fuel will also be reduced by 2.5% in 2018. And about a million fewer trucks will be used to transport grain in 2018 compared to last year because of the drought. That translates into an estimated $1.1 billion in losses.

Soy makes up more than a third of all Argentine exports, and Argentina is the world’s top supplier of soy oil and meal.