In the first nine months of 2024, dollar bank financing to Argentina’s agricultural sector reached 40% of loans granted, the highest percentage in the last five years, according to a survey published by the rosario Stock Exchange.
This growth occurs in a context in which total financing to the sector, although recording a decline of 7% compared to the same period last year, remains high compared to the average of the last five years, which amounts to 2,400 million dollars.
Field credits
In absolute terms, dollar loans grew 87% year over year, while peso loans fell 30%.
“The increase in dollar financing reflects a series of factors that include the greater availability of foreign currency deposits,the progressive deregulation of the foreign exchange market and a context of exchange stability,” explained the authors of the Rosario Stock Exchange report (.BCR), Belén Maldonado and Julio Calzada
They explained that these conditions favored easier access to dollar credit.
The loans, which include a wide range of instruments from bank account advances to personal loans, totaled $2,662 million, of which $1,076 million was granted in foreign currency.
Despite the growth in dollar loans, analysts highlighted that the decline in total financing is mainly explained by the contraction of peso loans, which decreased by 30%.
The analysis of agricultural financing
Maldonado and Calzada stressed that “the increase in dollar financing is the reflection of a structural change in the supply of bank credit” and noted that, although the prospects for economic stabilization may maintain this trend, the competitiveness of interest rates and monetary policy will continue to be key factors in the future evolution of agricultural credit.
Field credits
Over the last decade,the share of bank financing destined for the agricultural sector compared to total bank loans has fluctuated between 2.9% and 5.4%, with a marked increase in the last five years.
In 2023, the sector reached an all-time high, with an average share of 5.2% of total loans,reaching a record peak of 5.4% in the third quarter of the year.
This increase was largely explained by the need for financing due to the poor harvest of the 2022/23 cycle, due to three consecutive years of drought, which led producers to depend even more on credit to face the following campaign.
Though, this percentage fell to 4.7% in the first three quarters of 2024, returning to levels similar to those of 2020.
Field credits
Despite the large generation of foreign exchange by the agricultural sector, the participation of domestic banks in its financing remains relatively low.
Historically, manufacturers have turned to other sources of financing, such as capital markets and trade credit, due to the limited supply of bank credit for inputs and working capital.
Over the past decade, compliance rates have remained high, between 90% and 98%, reflecting strong ability to repay.
During 2024, the portfolio of debtors in a normal situation, without arrears exceeding 31 days, stood at 97%.
Most notable, the drought crisis does not appear to have substantially affected repayment capacity, as default indicators remained above 96% throughout 2023.
What are the main causes behind the increase in dollar bank financing in argentina’s agricultural sector?
Interview: Time.news editor Talks with Agricultural Finance Expert on Argentina’s Growing Dollar Bank Financing
Editor: welcome to our Time.news interview series. Today, we’re diving into a meaningful development in Argentina’s agricultural sector, where dollar bank financing has surged to 40% of loans granted. To shed light on this topic, we have with us Dr. Lucia Gómez, an expert in agricultural economics. Dr. Gómez, thank you for joining us.
Dr. Gómez: thank you for having me! I’m excited to discuss the current state of Argentina’s agricultural financing.
Editor: Let’s start with the big picture. Within the first nine months of 2024, dollar bank financing reached its highest percentage in five years. What do you think are the driving forces behind this trend?
Dr. Gómez: Several factors are at play. Firstly,the volatility of the Argentine peso has prompted many farmers and agribusinesses to seek dollar-denominated loans for security against inflation and currency devaluation. Additionally, the global agricultural market has seen fluctuating commodity prices, incentivizing producers to secure financing for both operational expenditure and investment in productivity improvements.
Editor: That’s fascinating. Despite this increase in dollar financing, you also mentioned that total financing to the agricultural sector has seen a decline of 7% compared to last year. What do you think are the implications of this figure?
Dr. Gómez: It’s a vital point to consider. While the percentage of dollar financing has risen, the overall decline in financing indicates challenges within the sector. One possible implication is that some financial institutions may be increasingly wary of lending, possibly due to economic uncertainties or risk assessments. This reduction could lead to tighter cash flows for farmers, impacting their ability to invest in essential areas, such as technology or crop diversification.
Editor: So, while farmers are adapting to currency fluctuations, they are also facing tighter lending conditions. how do you see this impacting production levels in the agricultural sector moving forward?
Dr.Gómez: If the trend of reduced overall financing continues, we may see stagnation or even decline in production levels. Access to credit is crucial for the sector, especially with Argentina being a significant player in global agricultural exports. If farmers aren’t able to invest properly due to a lack of funds, it could ultimately affect yield, productivity, and competitiveness in the global market.
Editor: Insightful analysis, Dr. Gómez. With a five-year average of financing around 2,400 million, how does the current scenario compare, and what should stakeholders be mindful of?
Dr. Gómez: Although financing has declined slightly this year, it’s essential to contextualize it within the overarching framework of global economic conditions and local agricultural policies. Stakeholders should be vigilant about maintaining financial health—exploring option funding mechanisms and diversifying crops to mitigate risks associated with fluctuating market conditions. It’s crucial that both farmers and lenders remain adaptable in this surroundings.
Editor: That adaptability seems key. what advice would you offer to farmers in Argentina who are navigating these uncertain waters?
Dr. Gómez: I would advise farmers to focus on building strong relationships with their financial partners. Transparency about their needs and projections can lead to better tailored financing solutions. Additionally, they should consider leveraging technology for better agricultural practices, as this can lead to increased efficiency and, ultimately, better profitability—even in a fluctuating economic environment.
Editor: Thank you,Dr. Gómez, for your insights on this complex topic. It certainly seems like a pivotal moment for Argentina’s agricultural sector. We appreciate your time and expertise!
Dr. Gómez: Thank you! It’s been a pleasure discussing these critically important issues.
