Changes to Argentina's Grain Marketing System Are Expected To Improve Efficiency

By Randall J. Hager

Argentina's grain marketing system has recently been changing. Some changes are due to Argentina's privatization program and other economic reforms instituted over the past 10 years. Others are the result of the agricultural sector's realization that improved linkages to world markets are critical, given both the high percentage of Argentine agricultural products that are exported and the role agricultural export earnings play in the country's economic health.

Much remains to be done, however. At the producer level, Argentine farmers lack knowledge of grain marketing techniques, as demonstrated by the relatively low percentage who take advantage of basic marketing mechanisms, such as futures markets, puts and calls, warehouse receipts or warrants.^1/ They also lack basic, timely information on market developments, limiting efficient sales of their products. At the national level, markets themselves still have some outmoded concepts, including price setting via committee.

Actions Have Been Taken; More Are Expected

Recognizing these deficiencies, the Argentine government, marketing institutions and private consultants are working to transform the grain marketing system by providing education and promoting reform.

Although the Argentine government does not play a direct role in marketing grains and oilseeds, it has taken several steps to reform the country's grain marketing system.

For example, the government recently eliminated the 27-percent sales and profit tax on foreign commodity trading firms doing business in Argentina. According to estimates by Argentine traders, this change could increase total commodity futures exchange volume to about 50 million metric tons, providing additional liquidity to the market. It could also dramatically expand participation in the local market by firms based in other nations, with traders from Brazil expected to take the lead since that country imports a large share of Argentine commodities.

Brazilian firms have already expressed an interest in opening offices in Argentina, prompting local government officials and trade experts to provide educational seminars for them.

In another move to reform the grain marketing system, the Argentine government suspended trading of "to-be-fixed" contracts for sunflowerseeds. To-be-fixed contracts are a common form of commodity trading in which an advisory board sets price terms that are valid for 24 hours. They are a holdover from a time when marketing was more problematic, especially during periods of high inflation.

This action was taken because the government perceived that one party to the transaction could have greater negotiating power, and thus greater influence, on setting the final price.

It reflects the current belief that the market should set prices, not the Camara Arbitral, which is the non-profit advisory board charged with setting prices for the to-be-fixed contracts, even though the board does look at market conditions in its deliberations.

Efforts are now underway to develop and implement a more transparent and efficient trading system. This will affect the Camara Arbitral's role in price-setting, which extends beyond sunflowerseeds to other grains. But the changes will probably not affect the Camara Arbitral's other role as an unbiased arbiter of grain contract disputes between buyers and sellers.

Other changes to Argentina's grain marketing system may be forthcoming. Local trading hours at the Bolsa de Cereales commodity futures exchange in Buenos Aires and the Bolsa de Commercio commodity futures exchange in Rosario may be expanded to more closely match those of the Chicago Board of Trade. The current shorter hours and earlier closing time have hampered Argentine traders' ability to price grain on world markets using other major trading exchanges for price reference.

Another proposed change is to reduce the number of contract months. Potential trading volume is spread too thinly, putting Argentine grain markets at a disadvantage. This change should increase market liquidity.

These changes and others yet to come should create an efficient and more orderly grain marketing system with fewer and less violent price swings, benefiting all in Argentina's agricultural industry, meanwhile sharpening their competitive edge.

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^1/A mechanism available to Argentine farmers to market grain. The warrant system provides farmers with a method to price their grain while holding it in country storage facilities, instead of rushing it to the port to sell.

Total Market Volume Has Grown Nearly Fivefold Since 1992

The overall increase in global agricultural competitiveness has pushed Argentina's agricultural sector to become more familiar with the use of futures, options and other marketing tools to price grain. The Argentine government, through the Secretariat of Agriculture, has championed their use to promote the orderly marketing of grain to stabilize commodity price swings. These factors have played a role in increasing traded volumes nearly fivefold since 1992.

^1/Estimate.
Source: Mercado a Termino.

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The author is the U.S. agricultural attaché at FAS' Agricultural Affairs Office in the U.S. Embassy in Buenos Aires, Argentina. Tel.: (011-54-1) 777-8054; Fax: (011-54-1) 777-3623; E-mail: agbuenosaires@fas.usda.gov

Last modified: Thursday, October 14, 2004 PM