Lost export market harms Argentina’s poultry sector

The ending of a trade agreement with Venezuela and export duties on grain and oilseeds are being blamed for the serious state of Argentina’s poultry industry.

Cherkizovo Egypt

The ending of a trade agreement with Venezuela and export duties on grain and oilseeds are being blamed for the serious state of Argentina’s poultry industry.

According to a report in Valor Soja, these factors are a direct result of mismanagement by the previous government. Since coming to power late last year, the government of President Mauricio Macri has brought to an end a trade agreement with Venezuela and removed export duties on grains. These moves caused the poultry industry to lose a major export market while feed prices have increased sharply, creating a perfect storm of rising costs of production with oversupply on the market. Add to this an unfavorable exchange situation and plentiful supplies of the main competing meat – beef - on the domestic market and the poultry sector is under severe pressure.

Poultry production down in attempt to balance market

Latest official data show that Argentina slaughtered just under 280 million chickens during the first 5 months of this year, 8.6 percent fewer that the same period of 2015, as the industry attempted to balance the market.

However, this contraction is not enough to compensate for the loss of export volume, which was down to 54,631 metric tons for the first 6 months of 2016 from 72,165 metric tons for the first half-year of 2015.

These negative market factors have put pressure on retail prices for chicken. While official figures show increases in prices of dairy, meat and egg prices over the latest quarter (April to June), chicken prices were down by almost 6 percent, according to Valor Soja.

Poultry company Cresta Roja feeling economic impact

Argentina’s economy and businesses are suffering from multiple challenges.

Poultry company Cresta Roja is one example. According to a report by the USDA Foreign Agricultural Service (FAS) published in March this year, Cresta Roja was Argentina’s second largest poultry company prior to its closure at the end of 2015. New owners came forward and it was hoped that production would soon resume.

According to La Nacion, output has not returned to normal owing to a prolonged labor dispute.

A senior managers of Ovoprot – one of the partners that is operating Cresta Roja – told the newspaper that 1,800 workers had been taken on for the plant up to July, but a further 900 are demanding employment by the company, and their protests are disrupting production. With the aim of reducing Argentina’s very high unemployment rate, the government called for all former workers at Cresta Roja to be reinstated.

The justice department has now intervened and is seeking a new owner for the company. One condition of sale will be the reemployment of all employees of Rasic Group, Cresta Roja’s owners prior to bankruptcy.

According to La Nacion, Argentina’s poultry sector enjoyed the support of the previous government under Cristina Kirchner for 10 years. Companies such as Cresta Roja received an export subsidy of US$650 per metric ton for their products sent to Venezuela under an “oil-for-food” agreement. When the oil price collapsed, so too did the agreement, leaving Cresta Roja with a catastrophic burden of debt that led to bankruptcy.

These adverse developments in the market for the Argentinian poultry meat industry have arisen since the FAS published its forecasts for the sector for this year. In March of 2016, FAS had revised its expectation for chicken meat output upwards by 105,000 metric tons to 2.2 million metric tons for this year on the basis that domestic demand and exports would increase. While costs of production for the poultry meat sector were forecast to rise in Argentina, FAS forecast that this sector would continue to be more profitable than beef production.

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