Sunday, September 24, 2006

Argentina's Agricultural Forecast Dampened by Diesel Shortage

Sources: Bloomberg

Gas stations in Buenos Aires and across Argentina have been experiencing shortages in the supply of diesel fuel. These shortages can be attributed to an annual economic growth rate of about 8% (for the fourth straight year) that has outstripped the supply, as well as price caps on energy that were instituted in 2001 and tend to discourage foreign investment. Argentina’s agricultural industry represents about 25% of the nation’s diesel fuel consumption. Repercussions from the shortage that the country is experiencing could adversely effect that industry’s output.

The limited amount of diesel fuel that is available to each individual, whether due to rationing or lack of supply, has forced some farmers to reduce the numbers of acres they will be planting. Coinciding with the start of the planting season, the shortage is causing potentially critical delays in sowing the fields—delays that can result in weaker yields per acre planted. With decreases in areas planted and a slow down in planting the remaining fields, agricultural production and exporting could drop.

Argentina is currently the third largest exporter of soybeans. Last year, all of Argentina’s exports totaled around US$ 40 billion, with agricultural products accounting for 54% of that number. Decreases in agricultural production may negatively and acutely affect Argentina’s economy as a whole. Although some officials may downplay the impact and severity of the shortage, President Kirchner has instructed companies like Petrobras Energia Participaciones S.A. and Repsol YPF S.A. to import additional fuel to lessen the impact.

Will the additional imports suffice to lessen the impact of the fuel shortage on agricultural production?

Will the fuel shortage lead officials to scrutinize the nation’s energy policies?

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