Argentina’s recent announcement that it will “rescue” major oilseed crusher Vicentin is raising concerns about nationalizing the country’s farming industry as the government faces a political storm set off by the move. The Argentine government says the state takeover is meant to save jobs while critics say it poses a threat to free markets and might be unconstitutional.

Keep in mind, this move would require Argentina’s insolvent government to assume the $1.5 billion in debt and liabilities of Vicentin weeks after the country defaulted on tens of billions of dollars in foreign debt for the ninth time in its history.

Vicentin, which was Argentina’s top exporter of soymeal and soybean oil before hitting financial trouble late last year, entered bankruptcy in February. The Argentine government on Monday announced that it will temporarily seize control of Vicentin for 60 days while seeking approval from Congress for a formal state takeover. The government of President Alberto Fernandez proposes Vicentin be overseen by the agricultural arm of state energy firm YPF, which is itself the product of a state takeover in 2012.  

Vicentin reported $3.2 worth of soy product sales in 2019. The company allegedly owes around $350 million to grain suppliers with overall debt estimated at $1.5 billion. Since defaulting on its payments to suppliers in December, the companies crushing operations have been largely idled, save for a joint venture with Glencore.

Glencore’s joint venture with Vicentin is called Renova and includes one of the world’s biggest soy-crushing plants. Glencore bought an additional 16.7% of Vicentin’s stake in Renova in December, bringing its total stake to 66.7%. Interestingly, Glencore entered a bid to acquire Vicentin’s remaining one-third stake for $325 million earlier this year but the offer expired the end of March. The Swiss-based company reportedly entered another offer in April as part of Vicentin’s bankrupcy process. Local press reports at least two other investment groups had planned to make offers as well. Argentine officials have said the details on how a partnership with Glencore would work is still being worked out.  

Argentina’s politics are complicated, filled with decades of corruption and mismanagement that have kept the country’s finances in chaos. In May, Argentina defaulted on its sovereign debt for the ninth time in the last 20 years. The country gains most of its revenue from agricultural exports. Argentine farmers are notorious for holding on to their grain as a hedge against inflation, which in turn can delay revenue flows to the state. Some see the government takeover as a way for the state to seize control of the market, particularly soybeans, and essentially forcing farmers to sell their grain. This generates both tariff revenue and brings in foreign currency, something the cash-strapped country desperately needs. Others worry a state-run Vicentin could effectively shut-out competitors and even dictate prices.

Other political motivations are also suspected, including that former President Cristina Fernández de Kirchner, who happens to be the current Vice President, is behind the move. Kirchner is blamed by many for previous nationalizations that ended with massive losses for the state, such as the oil company YPF and Aerolineas Argentinas. Her administration was also embroiled in numerous corruption scandals. The country’s main opposition coalition says the state’s plan to seize Vicentin is illegal and warns it is “a first step in the road to nationalizing the agricultural market.”

Argentina’s powerful farm group, Society for Rural Argentina or SRA, said “History has shown us that state interventions in the grain trade in particular and the agricultural markets, in general, have always created severe distortions that ended up creating more serious problems than those they intended to solve.” (Sources: The Wall Street Journal, Bloomberg, Union Journal, MercoPress, AgriCensus)

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