There is a lot of discussion these days about the significant dependence that the government will have on foreign exchange earnings in 2024, for the success of its economic plan.
The increase in withholdings promoted by the government changes the entire production, agro-industrial and agro-export matrix of the country. It leads us to a model of agro-export of raw materials without added value (takes us back to the beginning of the century) and puts at serious risk all the competitiveness that we have managed to consolidate as exporters of value-added products.
This analysis shows that foreign currency income under the current withholding tax system is almost the same as foreign currency income under the government’s proposed scheme. This is because there is a sharp increase in soybean exports and a subsequent decline in milling volume, which reduces exports of soybean oil and meal, all this in combination with a sharp decline in the price of soybeans. countryside. A crisis in foreign currency earnings is brewing for the second and third quarters.
Many value chains have this differential withholdings the rate of which varies depending on the greater added value deriving from the agro-industrial process. This is the case for wheat, corn and poultry and beef production. For example, export duties (DEX) on wheat flour have a lower DEX than exporting wheat as a cereal. This allows mills to export wheat flour, in a world with a high level of protection.
An old and experienced trader said “This is not a good deal, exchange six for half a dozen”. And this appears to be the case with the government’s decision to increase export taxes. The expected foreign exchange earnings for 2024 are very similar if we compare the current withholding system with the government’s proposed system to increase them. So what’s the point of increasing withholdings if foreign currency income doesn’t change? With the further seriousness that with this measure we destroy the competitiveness achieved in the export of products with greater added value.
This foreign exchange earnings analysis is based on an estimate of global wheat production in 2024, 138.6 million tons. For reference, we are facing the third largest harvest in our history, following the record of 145 million tonnes in 2019/20 and the second record of 140 million in 2018/19.
Export volume in 2024 is forecast at 98.6 million tonnes, an increase of 40.9 million tonnes compared to 2023 exports of 57.6 million tonnes.
Foreign currency income is estimated from total cereals, fodder and oilseeds (including soya and sunflower oils and meals) for a total of 35,411 million dollarsan increase of $10,020 million compared to 2023 foreign exchange earnings ($25,391 million).
The income from withholdings is expected to be equal to 8,536 million dollars by 2024, an increase of 2,972 million dollars compared to the tax revenue of 5,563 million dollars during 2023.
If we take into account the government’s desire to increase withholding taxes from 12% to 15% on wheat and corn, and the increase in withholding taxes on soybean oil and flour from 31% to 33%, the foreign exchange revenue projection foreign is placed 35,378 million dollars a level very similar to the situation without the increase in withholding taxes. Happens The sharp increase in soybean exports more than offset the decline in soybean meal and oil exports.due to the resulting decline in milling as the oil sector loses competitiveness with the withholding system proposed by the government.
Foreign exchange earnings are expected in 2024 35,411 million dollars an increase in 10,020 million dollars regarding the 2023 income (US$ 25,341 million). Under the current withholding tax system, foreign currency income in 2024 (US$ 35,412 million) This is very similar to foreign currency earnings with the increase in withholding taxes proposed by the government (US$ 35,378 million). We traded six for half a dozen.
The increase expected for 2024 in the volume of production (third historical record) and exports could not express the maximum potential increase in foreign exchange earnings, due to the sharp decline in the prices of agricultural raw materials for the next 2024 campaign.
Tax revenues from withholdings under the system proposed by the government could increase by 832 million dollars compared to the current withholding tax system ($9,367 million versus $8,536 million), which risk being much lower if international prices continue to fall and producers decide to hold back their harvest even longer and not sell it, pending new measures or changes in the dollar parity.
Equalizing the withholdings on soybean oil and meal with the withholdings on soybean exports actually implies a large increase in exports of soybeans as unprocessed grains: Let’s go back to primalization. The estimate is 15 million tons and a sharp decline in soybean milling equal to or greater than the increase in soybean exports.
Argentina is the world’s leading exporter of soybean oil and in the previous campaign it lost first place as an exporter of soybean meal to Brazil.
If the government’s intention to increase withholding taxes on the oilseed complex (soybean meal and oil) is realized, the foreign exchange income for this concept would have a neutral effect. Foreign currency income from soybean exports increases by 4,559 million dollars (From From $2,275 million to $6,825 million).
While foreign currency income from lower soybean oil exports decreases by US$ 1,494 million (from US$ 6,142 million to US$ 4,648 million)and in the case of soybean meal the decline in foreign exchange earnings is US$3,075 million (from US$13,530 million to US$10,455 million). Balancing between soybeans, oil and soybean meal, foreign currency earnings do not change significantly.
The government views its policy of increasing withholding taxes as a battle in which it is unwilling to give in or lose, He doesn’t realize that this measure will be a boomerangsince it does not generate a significant increase in foreign exchange earnings in the first place, there will be a decline in agro-industrial export activity, with the serious danger of closure of oil plants, mills and other industries, a decrease in labor demand, a decline in prices that producers will receive, and consequently there will be a greater contraction in the available supply of soybeans (the main product affected by the increase in withholding taxes) and other products such as wheat and corn.
Foreign exchange earnings in the second half will be seriously affected by the change in the marketing model of soybeans and corn, given the change in the sales strategy of producers. Starting in April, with the start of the soybean and corn harvest, there will be a sharp decline in foreign currency earnings: is the government ready to face a currency crisis in the second and third quarters?
Source: Clarin
