March 8, 2019 / 12:18 PM / 3 months ago

Crushed: Argentina's soymeal plants battered by trade war and taxes

ROSARIO, Argentina/CHICAGO, March 8 (Reuters) - In the grains hub of Rosario on the banks of Argentina’s Parana River, the local soy crushing factories are feeling the chill of a trade war between the United States and China.

Some of the massive plants along the river have been idled; some have laid off workers. All of them are hurting, as the industry loses market share for the soymeal produced from raw soybeans.

In the past, much of the Argentine soymeal has been exported to markets such as Vietnam and Indonesia. But those sales have been supplanted by the United States, just one of the many shifts in global trading patterns that have resulted from Washington’s trade dispute with Beijing.

Those shifts have far-reaching consequences. In this case, Beijing imposed retaliatory tariffs on U.S. sales of soybeans, which, in turn, stranded millions of tonnes of soybeans in the United States, pushing down prices. That has made it more economical to crush the beans and export soymeal to Southeast Asia - undercutting Argentina’s industry in the process.

“We are normal people stuck in the middle of the U.S.-China tariff war,” said Javier Spinelli, an official with the union that represents about 1,300 workers in Rosario’s soy crushing industry. “We are constantly watching the news to see if there is a change in tariffs, or a tweet from Donald Trump announcing a truce with China.”

While China and the United States are in talks to resolve the dispute, it is unclear what the final agreement would look like or what impact it would have on future trading patterns.

But the damage, at least for now, has been done in Argentina, which turns more soy into processed meal for export than any other country. Nearly half of the country’s soy crushing capacity could be idled this year, the highest rate since 1987, according to the country’s chamber of crushing companies, known by its Spanish acronym CIARA.

“U.S.-China trade tensions have had one effect in the United States and the opposite effect in Argentina,” Emilce Terre, research head at the Rosario grain exchange, told Reuters. “We are seeing more exports of raw beans to the detriment of value-added soymeal and soyoil production.”

As is always the case in trade, there have been winners, including Archer Daniels Midland Co, a global grains merchant with no crushing in Argentina. Last month, it reported a nearly 80 percent jump in oilseeds profits, citing crushing volumes in the fourth quarter “among the highest ever”. .

Other global players, including Bunge, Cargill and Dreyfus, have adjusted by shifting crushing from Argentina to the United States.

Local Argentine companies, which have invested heavily in soy crushing over recent years, don’t have that flexibility. Instead, they have been forced to cut production, despite healthy soymeal demand from Argentina’s traditional export markets, said CIARA crushing chamber chief Gustavo Idigoras.

“Idle capacity should not be more than 20 or 25 percent,” he said.

Adding to the disruption, Argentina’s soy crushing industry is coping with a new national tax scheme that put an equal levy on soymeal exports and raw beans. Previously, soy byproducts were taxed at a lower rate to stimulate the crushing industry.

“Tax irrationality and the trade war is battering the crushing sector in Argentina,” Idigoras said.

JOBS LOST ALONG THE RIVER

In Rosario, where soybeans are crushed into soymeal and loaded on ships along the river, some 250 processing jobs have been lost over recent months, said Federico Calderon, an official with the Rosario Soy Crushers Union.

Instead of soy byproducts, ships are being loaded with raw beans. Argentina soybean exports are expected to hit 16 million tonnes this year, up from the normal 10.5 million. But exports of soy byproducts are forecast to drop to 35 million tonnes from around 42.5 million normally.

An executive with a crushing firm with operations in Rosario said over half of local capacity was unused in December. “Those companies with crushing capacity in the United States or the European Union are taking advantage of the trade war,” he said.

U.S. exporters shipped out a record 13.6 million tonnes of soymeal in 2018, a 29 percent jump from 2017, according to U.S. Department of Agriculture data.

U.S. shipments to Vietnam and Indonesia, Argentina's top markets, rose 295 percent and 326 percent, respectively. (Graphic: tmsnrt.rs/2VkVblX)

Argentine crushers say the trade issue is being compounded by the tax policy change, adopted in September as part of a $56.3 billion finance deal with the International Monetary Fund.

That hit soymeal and other products with a levy that amounted to about 28 percent.

“It’s a strategic mistake to have the export tax on soybeans and processed soy products at the same level. It’s a policy that will cost jobs,” said Daniel Yofra, head of the Federation of Oilseed Industry Workers labor organization.

Argentine President Mauricio Macri said he wants to get rid of export taxes. But he is under pressure from the IMF to raise funds and cut the fiscal deficit.

“We had an (economic) emergency and we had to raise taxes on all exports. Not just the farm sector,” Santiago del Solar, chief of staff at Argentina’s agriculture secretariat, told Reuters.

He added it would be tough to tax raw beans and crushed products at different rates, given the importance of the country’s grain farmers.

“That would be taking money from someone’s pocket and putting it in someone else’s,” he said.

Reporting by Hugh Bronstein and Karl Plume; Editing by Adam Jourdan and Paul Thomasch

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