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La Niña

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Crops in ArgentinaThere is recent indication that weather patterns stemming from “la niña” will be affecting negatively many argentine crops, namely soybeans and corn. Drought may extend to vast areas of the country and very likely estimated records crops for 2010/2011 at 100 million tons will not be achieved. Lack of rain has made farmers delay sowing numerous crops, in particular the ones mentioned earlier as dryness is affecting mostly the center region of the country. Nevertheless, the effects will not be as severe as those of 2008/2009 crop where output was 33% less than what was estimated at the time.

It is also estimated that most of Cuyo, the southern part of Cordoba and the west of Buenos Aires province will not be receiving rain for some time, as opposed to the NOA region, southeast of Buenos Aires and Chaco as well as north mesopotamia. These weather patterns are expected to stay in place till March and while yield would be reduced, farmers and agents might find compensation in the already higher grains prices which are in turn pricing potential argentine bad crops.

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Corruption in Argentina

A few weeks ago, one of the most watched political TV shows had as a guest Jorge Molina -a former director of Aerolineas Argentinas- as part of a segment on corruption in Argentina. Specifically, the segment was devoted to report a possible complex, widespread and sophisticated network of systemic corruption at a high level that has been operating methodically resembling the works of a mafia organization of sorts. During the interview by host Mariano Grondona, the interviewee stated that sometime around September 2007 right before elections, he was visited by Manuel Vázquez -a former assitant to Secretary of Transportation Ricardo Jaime- who requested “aid” for u$d 1.5 millions for the electoral campaign. Molina then described how he instead offered to contribute what was legally permitted by the “ley de partidos politicos”, a sum considerably smaller.

Succintly, Molina made clear that he was not only coerced into funding the official political campaign at the time but also threatened with roadblocks on his actions as manager of the company if he didn’t cooperate by making it easy for Aerolineas to engage in certain transactions of very large amounts, in which pressumably Vázquez et al. would have had a bite. Interestingly, right after Aerolineas Argentinas was nationalized, the company finalized the purchase of 20 embraer planes from Brazil. The same transaction Molina refused to greenlight, adding that prices set for buying the planes looked stretched in many ways.

Ever since the death of Nestor Kirchner many political figures with ties to the administration have been voicing the need to “profundizar el modelo”. That is, to complete the structural changes initiated by Nestor Kirchner… whatever that means. In reality, digging deeper is hard to find anyone that can precisely explain what is or even how to “further Kirchner’s vision for Argentina”. It is possible that the common person in the street would view this change as one where unions acquire even more power and a bigger piece of the cake just as Moyano has been declaring recently that it is time for argentines to have a “worker” in the Pink House. For yet another group of perhaps more sophisticated citizens, this furthering may entail even more widespread redistribution of income dangerously depleting any wealth left. But for the more savvy bunch, it could just be that what all this really means is pursuing a method of governing where the figure of the government is used to access and acquire power over both private (nationalizing) and public resources with the ultimate goal of manipulating existing structures to facilitate the channeling of funds to those in charge.

Molina’s tale seems to point in this direction as much as many of the recent emails that have been made public through the investigation of the Jaime/Vazquez affair. It may be that a leftist and radical government may find it easier to enrich its own comrades by the use of their special powers. Something that can be vastly more difficult to accomplish if free market forces that make competition and efficiency mandatory where the order of the day. Unfortunately, the average criollo will hardly be able to connect the dots when not even 5 judges working on these and other cases of corruption in official agencies may be able to bring any light or prove any wrongdoing.

Here goes a hope and a wish for Argentina’s bright future… and a new rising model.

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Icy news

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Like a bucket of cold water, news of ice cream parlors increasing their prices 15% for the summer season was received with equally cold feelings. Just as it is happening with other foods, ice cream cannot escape the inflationary wrath. Bigger chains stated that prices won’t change till the season is over so ice cream lovers are looking for roughly the same prices for their favorite flavors up until March of next year. Just to put things into perspective the price for a 2 pounder (1 kilogram) may range from 23 pesos/kg (u$d 6) to 70 pesos/kg (u$d 17-18) in the case of premiums.

Manufacturers think they can get away with the increases given that they are well below official inflation figures of about 25%/year. As it usually happens, they blame their own cost chain to have pushed prices up (raw materials, etc.) and thus, increases are only being transfered to the final consumer.

With this latest increase, prices have gotten to where they were before the collapse of the currency in 2002. At the time, 1 kg of ice cream was approximately u$d 16/kg.- Just like with many other items, prices have reached the same comparative value they had with the old parity of  $ 1 – u$d 1 pre-collapse. Still, inflation has not been an obstacle for some of the national chains to keep their expansions current. One of the cheapest products in the market belongs to the Grido chain, with 850 branches and headquarters in Cordoba. They are pricing their products at around $23/25 pesos /kg. Grido will be opening another 40 ice cream shops in the city of Buenos Aires and the outskirts during 2011.

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Auto industry outlook

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Production of biodiesel and alternative energy is not the only pocket of strength in the argentine economy. More recently, we have learned that the outlook for the local auto industry is also bright. This year, production looks to reach the 700,000 units mark and those in charge already have plans to increase capacity given the strong demand that comes from Brazil. More efficiency, more productivity and factories expansion programs are all part of the picture and are all being discussed by the leaders of the auto industry.

The benefits are enormous. Increased capacity means better and more thorough training of workers, expansion of distributorship as well as the opening of new chanels of distribution and the need to solve some logistic problems which will require continuous investments. The Ministry of Industry estimates that in the near future, about usd 1 billion will be required to modernize and expand plants and that this funding is almost guaranteed to be used in the period right ahead, 2010-2012. Fiat, Ford and Peugeot Citroën will all participate in this “upgrade”.

According to some industry insiders, Brazil demands close to 3,4 million units per year. A figure that is expected to increase over time as the ratio of units owned per capita is actually lower than in countries such as Argentina. The same insiders opined that if Argentina is able to produce the expected quality, then the demand will be there. This, is already being seen in some manufacturers who have increased shifts and extended working hours. The more serious stats point to a 10% increase in production for 2011, at least. Almost all auto industry executives believe that the demand coming from Brazil is “sustainable, strong and would continue for at least another 3 years”.

However, not everything may fall into place. Some of the decision-makers are afraid that the autoparts agents they rely on for capacity expansion may not be there when they are needed the most. Same fears apply to training both new and old workers. Executives are accutely aware that any of the above can become major roadblocks so they are only “cautiously” optimistic. In addition, many count on the federal government to come forth to create additional infraestructure in the form of power generation and the like. Something that they have learned not to count on. But in spite of these potential problems and that the whole industry is not and cannot be completely and vertically integrated, there is a general sense that finally the auto industry has reached maturity.

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Biofuels and Argentina

When it comes to alternative energy generation Argentina is no beginner. According to some experts in the field, the country will produce twice as much biodiesel by the time 2010 is over compared to what the production was in 2009. In addition, it is estimated that exports of biofuels in general would increase over 35% y-o-y. It is important to note that Argentina began its domestic production very recently, 2007, and by 2009 was among the main exporters of the energy compound. These figures have been confirmed by AABH, the “Asociación Argentina de Biocombustibles e Hidrógeno” who has also estimated the 2010 production to be close to 2 million tons.

Argentina exports almost all of its production at a clip of 1,5 million tons. In numbers this represents u$d 1.3 billion, a considerable amount. Some of what is produced is also targeted to the domestic market as the government has been advancing legislation that favors the mix of biodiesel to gasoil in about 7% of the total output. This would impact local consumption in about 1 million tons a year for 2011, which will support and sustain production going forward. Specially since that ratio will increase to 10%.

The President of “Cámara Argentina de Biocombustibles (Carbio)” told a selected crowd in a recent interview why the country was making such a stride in regards to biofuels and in particular to biodiesel. The answer: Argentina has great processing infraestructure, abundant raw material and vast experience in the production of the needed crops. These benefits extend to the production of other crops such as “cártamo,  jatropha o camelina”, all of which would not compete for land with traditional crops destined to food such as soybeans. Analysts believe the prospects and the outlook for Argentina are great given the international trend of developing alternative energy sources to combat global warming as well as the recent oil spills / accidents both in GOM and Dalián, China.

There are 23 industrial processing plants devoted to the production of biodiesel, ten of which are “next generation”. Combined, they are able to produce as much as 2 - 1/2 million tons a year and there are already plans to increase capacity to 3 – 1/2 million tons a year in the near term. Still, locals continue to rely on fossil fuels being natural gas the preferred one with 49% of the market and oil with 41%.

Argentina can be criticized for many things but alternative energy production is not one of them.

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