ARGENTINA'S GRAIN OUTLOOK: CHALLENGES FOR ALFONSIN

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP86T00586R000200150005-8
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 45
• Document Creation Date: December 22, 2016
• Document Release Date: November 8, 2010
• Sequence Number: 5
• Publication Date: February 1, 1985
• Content Type: REPORT

Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
Directorate of Secret
Intelligence 25X1
Argentina's Grain Outlook:
Challenges for Alfonsin
Secret
GI 85-10038
February 1985
367
Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
 Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
 Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
a ua. va I.JI{.11.1
Intelligence
Argentina's Grain Outlook:
Challenges for Alfonsin
This paper was prepared by
US Department of Agriculture.
Comments and queries are welcome and may be
directed to the Chief, Economics Division, OGI,~
Secret
GI 85-10038
February 1985
Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
 Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
Argentina's Grain Outlook:
Challenges for Alfonsin 25X1
Summary The year-old government of President Raul Alfonsin is counting on a major
Information available expansion in Argentina's grain exports to help it service its $46 billion debt.
as of 8 February 1985 The new grain program-designed to generate an additional $2-3 billion in
was used in this report.
annual earnings by the early 1990s-has implications that reach well
beyond Argentina's financial health, however. Whether Argentina is
successful could well depend on its relationship with the Soviet Union, its
largest grain buyer and a key bidder on a number of infrastructure
projects.
From a US perspective, a Buenos Aires success in nearly doubling its
current grain exports would be a two-edged sword. While attainment of
this goal is a necessary condition for setting the Argentine economy back
on a long-term growth path, it would also mean keener competition for US
grain sellers in markets likely to be glutted for the remainder of the decade.
Lost US sales, especially in traditional Latin American markets, would be
the result if Buenos Aires were consistently to undercut US prices, as it has
promised to do.
To accomplish its grain goal Buenos Aires will have to put in place policies
designed to expand planted area and improve yields, and it will have to
make sizable investments to modernize and expand grain storage, transpor-
tation, and port facilities. The Alfonsin government is already pursuing
some new policies and programs to meet these objectives and is likely to be
greatly aided in its task by a growing progressive farmer movement.
From an agronomic standpoint we believe that the goal of the program-
production of 60 million tons by the early 1990s-is achievable. Consistent
annual production between 50 million and 55 million tons appears more
realistic, however, given domestic infrastructure constraints and world
market demand prospects. Even this outcome would mean a significant
advance from current production and export levels.
Among the many hurdles that could derail the program are serious
infrastructure shortcomings. Argentina's internal transport, storage, and
port facilities are barely adequate to accommodate current production and
will need to be expanded considerably to handle the higher production and
export volumes that are being planned. A centerpiece project-expansion
of the main export terminal for wheat at Bahia Blanca-is a key indicator
of the Alfonsin government's commitment to these new grain goals.
iii Secret
GI 85-10038
February 1985
Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
 Secret Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
Moscow would very much like to engineer this multimillion-dollar project,
but, recently, the Alfonsin government has opted to seek World Bank
financing for the project. Despite this setback, Moscow continues to push
for Argentine purchase of Soviet machinery and technology. In recent
weeks, the Soviets have expressed particular interest in the approaching
decision on turbine contracts for the Piedra del Aguila hydroelectric
scheme. Buenos Aires must tread cautiously in its dealings with Moscow,
however, because Soviet grain purchases from Argentina have generated
an average of $1.9 billion annually during 1980-83, about half of
Argentina's total grain exports in that period. Slowdowns in Soviet grain
purchases during the second half of 1984 and protracted negotiations for a
long-term grain accord may be an attempt by Moscow to exert leverage on
Buenos Aires regarding the purchase of Soviet machinery and technology.
Indeed, the USSR-Argentina Long-Term Grain Agreement-guarantee-
ing Argentina annual grain sales of 4.5 million tons to the Soviet Union-
comes up for renewal this year, and we expect Moscow to be an especially
hard bargainer. Argentina could ill afford to lose steady grain sales to the
USSR and still have hope of meeting its ambitious new grain export goals.
If Buenos Aires's grain program is successful, it would set Argentina on a
course toward economic recovery and substantial resolution of its foreign
debt obligations. This would improve the financial situation of US banks
with large loan portfolios in Argentina and provide an opportunity for
expansion of US-manufactured exports to Argentina. On the other hand,
increased grain exports by Argentina would add pressure to a world grain
market already marked by fierce competition, soft prices, and declining US
sales. US-Argentine competition would be particularly intense in the 20-
million-ton-per-year Latin American grain market, a market already being
targeted by other exporters such as Australia and Canada.
We do not believe Argentina has a good alternative to grains for increasing
export earnings by as much as $2-3 billion. While the United States might
well benefit from reduced competition from Argentina in Latin American
grain markets, it would then have to continue to deal with an Argentina af-
flicted by lingering economic and political instability. Failure on the grain
front would greatly reduce the chances that Argentina could maintain the
foundation for the democratic two-party system established by Alfonsin.
Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
 Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
,v _I rI
Grain-A Key to Export Expansion
New Marketing Policies and Programs
12
Argentine Perspective
14
1. Argentine Grain Production and Exports
2. Argentina: National Map With Provincial Boundaries
3. Argentina: Buyers' Shares of Argentine Grain Exports
Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
 Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
Secret
1.
Argentina: Export Value of Grains and Oilseeds, 1980-84
2
2.
Argentina: Grain Production by Major Producing Province,
1983/84
5
3.
Argentina: Value of Trade With USSR, 1977-83
4.
USSR: Imports of Wheat and Coarse Grains From Argentina,
1977/78-1984/85
15
5.
Argentina: Trade With the United States, 1977-83
Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
 Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
Argentina's Grain Outlook:
Challenges for Alfonsin
The government of President Raul Alfonsin has desig-
nated the agricultural sector to be the main engine of
growth to help reduce Argentina's foreign debt, pay
for imports, and stimulate more intensive develop-
ment of rural Argentina. The administration's stated
goal is to raise annual grain ' production to 60 million
metric tons-about 50 percent above the present
level-and channel the bulk of the production in-
crease into export markets.
Whether Argentina fully or only partially meets the
goals it has set for grains will have an important
bearing on how it resolves its foreign debt obligations.
This paper examines the Alfonsin government's com-
mitment-policies and actions-to its grain goals and
the major obstacles that have to be overcome. It also
evaluates the chances for success and the implications
for the United States of potentially greater competi-
tion from Argentina in world grain import markets.
Grain-A Key to Export Expansion
Argentina is one of the world's largest grain suppliers
(see appendix tables A-5 to A-8), ranking behind only
the United States in export sales of corn, sorghum,
and soybeans. In the wheat trade, Argentina is the
world's fifth-largest exporter and the only one in
Latin America. In sunflower seed oil and linseed oil
(derived from flaxseed) exports, Argentina is currently
leading the world. Grain exports, along with beef,
have been for decades Argentina's major source of
foreign exchange (table 1). In addition, through export
taxes, they provide about one-third of annual govern-
ment revenues. We believe that the grain economy
offers Buenos Aires the best chance for eventually
reversing its critical economic situation:
An understanding of the evolution of Argentina's
farm policies provides a foundation for analyzing the
economic and political philosophy of farm programs
currently being implemented by the Alfonsin govern-
ment and provides clues to the grain sector's probable
response to current governmental initiatives. Twice
during the last 50 years-for periods totaling 15
years-the system was completely government man-
aged and controlled. In the intervening 35 years the
system was essentially market oriented, although
various aspects were regulated (appendix B). Against
this backdrop, the Alfonsin government began its Jive-
year term of office in December 1983 espousing a
noninterventionist stance on the grain sector.
According to press reports, President Alfonsin and his
Minister of Economy, Bernardo Grinspun, set three
economic goals for the new administration: lower
inflation, higher real wages, and faster economic
growth. Minister Grinspun has emphasized that ex-
change rates should be set at levels aimed at boosting
exports. Grinspun believes that the Argentine peso
was seriously overvalued during the previous regime
and that under President Alfonsin the rate should be
set to allow for an annual trade surplus of $3-4
billion. A sharp boost in exports-especially grain-
and the reduction in import growth implied by this
policy are aimed at redressing Argentina's growth
and debt repayment problems.
Policies are aimed at continuing the growth in the
grain sector begun by the military, but without the
economic distortions that were created for example,
hyperinflation and indebtedness. According to press
reports, Foreign Minister Dante Caputo has insisted
that efforts be made to seek new markets for grain
exports, to reestablish Argentina's presence in region-
al trade within Latin America, and to back away
from overdependence on the Soviet Union as Argen-
? Argentina has already been successful in signifi-
cantly increasing grain and oilseed production and
exports; sorghum and soybean production have in-
creased by almost 2.2 million tons and 5.5 million
' Argentine grain estimates comprise wheat, corn, sorghum, barley,
oats, rice, and milled grain as well as the major oilseeds-soybeans,
tina's principal trading partner.
Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
 Secret Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
Table 1
Argentina: Export Value of
Grains and Oilseeds, 1980-84
Total
Exports
Agricultural
Exports
Grains
Oilseeds and
Products
Grain and Oilseed Exports
as Percent of
Total
Exports
Agricultural
Exports
1980
8.02
6.01
1.61
1.44
38
51
1981
9.14
6.84
2.82
1.27
45
60
1982
7.62
5.42
1.81
1.21
40
56
tons, respectively, over the last decade. Sunflower
seed production has nearly quadrupled as a result of
increased acreage and rising use of new high-yield
hybrid seed varieties (see figure 1 and appendix
tables A-10 to A-14).
? Grain production can be boosted in a short period,
thus providing rapid earnings increases in the criti-
cal years ahead. By the early 1990s, assuming
current grain prices, added exports of 15-20 million
tons could generate additional annual earnings of
$2-3 billion.
To accomplish its export goal of 35-40 million tons by
the early 1990s, a near doubling of current export
volumes, Buenos Aires will have to succeed in three
areas: increasing grain production; modernizing and
expanding storage, transportation, and port infra-
structure to handle greater volumes of grain; and
marketing grain aggressively and successfully in an
increasingly competitive environment and in both
traditional and nontraditional markets.
Increased Production
Production increases can be achieved by increasing
output per unit of land and devoting more land to
grain production. In political terms, production in-
creases can be encouraged by development of a
general faith in the stability of Argentina's future as a
leading world grain exporter. This would foster grass-
roots investment in productive assets by the tradition-
ally conservative, risk-avoiding farm population. Al-
fonsin may well be aided in his efforts by the recent
emergence of a fairly large and growing population of
technologically progressive Argentine grain farmers.
Argentina's farmland is among the best in the world,
with a high potential for increased productivity.
Yields, however, particularly for wheat and corn, are
relatively low compared to those of the United States
and have been slow to increase. Argentine wheat
yields over the last 15 years, for example, averaged
1.6 tons per hectare, compared with 2.2 tons per
hectare for the comparable period for the United
States. The difference in corn yields is even more
striking, 2.9 tons per hectare for Argentina and 5.9
tons per hectare for the United States. A lack of high-
yield hybrid seed varieties and insufficient use of
fertilizers-only one-fifth as much on wheat as in the
United States-largely explain these yield differ-
ences. For soybeans, sunflower seed, and sorghum-
all of which expanded significantly during the 1970s
and early 1980s-yields are roughly comparable to
those in the United States. In fact, for soybeans,
which do not require nitrogen fertilizer, Argentine
yields are almost 5 percent higher than those of the
United States, primarily because Argentina devotes a
higher share of its prime arable land to soybeans.
25X1
Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
 Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
,ecret
Figure 1
Argentina: Grain Production and Exports, 1965-85
Production
Exports
1,11:11 I H I 1111111111-111
0 1965 70 75
171
1 1 1 1 1 1 1 1 1 1 II I011111111111111111111111111
80 84a 0 1965 70 75 80
f I I I I- I LI I I LI
0 1965 70
a Estimated.
Source: US Department of Agriculture, January 1985.
ri ll
70 75
Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
 Secret Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
Volparaiso
SANTFAGO
South
Pacific
Ocean
San Eaftos de
Puerto Mogtt,..y1 Bariloche - -
'Bahia
Blanca
/t Faikaandtslands
(1afar-Ma_Mnas)
(administered by U.K.,
claimed by Argentina)
e`_~igllagos G " -
8oundary_repcteentitco is -=
net n eceswtyr_ authpdtaYya
Major grain-producing
provincias
Provincia-level boundary
Railroad
Road
0 200 400 Miles
Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
 Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
? Significant areas of potential farmland are also
Table 2
Argentina: Grain Production
by Major Producing Province,
available in northern Santa Fe Province and part of
southern Chaco Province. Poor drainage and high
levels of mineral salts in the soil make the region
1983/84
unsuitable for anything other than very extensive
e and fertilizer
er draina
i
but
ro
ttl
g
e graz
ng,
p
p
ca
could turn it into good cropland.
? Sizable potential new agricultural land also exists in
Santa Fe 1.8 1.3
1.1
2.5
the Rio Salado basin in east-central Buenos Aires
Cordoba 1.2 2.5
2.4
1.7
Province. Located in a depression and currently
La Pampa 0.8 0.3
0.7
NA
being used for cattle raising, it will continue to be
unsuitable for crops until it is properly drained.
a Estimated totals for 1985/86: wheat, 12.5 million tons; corn, 10.5
million tons; sorghum, 7.0 million tons; and soybeans, 6.0 million
tons.
b Includes 0.6 million tons from San Luis Province.
c Includes 0.5 million tons from Entre Rios Province and 0.5 million
tons from Santiago del Estero Province.
d Includes 0.2 million tons from Tucuman Province.
With respect to potential expansion of cultivated
areas, much of the prime agricultural land in Argenti-
na is already under cultivation-most of it in a crop-
livestock rotation of some kind. Traditionally, Argen-
tine farmers plant crops for eight years followed by
four years in pasture to nourish and rest the soil. This
area in rotation amounts to about 30 million hectares,
most of it in the humid Pampas of east-central
Argentina (see figure 2). The Provinces of Buenos
Aires, Santa Fe, Cordoba, La Pampa, and Entre Rios
have accounted for approximately 90 percent of annu-
al wheat, corn, sorghum, and soybean production in
recent years (see table 2).
Although most of the land area outside the Pampas is
marginal for grain crop farming, an additional 6-8
million hectares-about one-third of present grain
acreage-potentially could be brought into
cultivation:
? Underdeveloped wooded land totaling 3-5 million
hectares is available in Tucuman, Salta, and west-
ern Santiago del Estero Provinces in northwest
Argentina. According to a recent USDA study, this
land is suitable for dryland grain production or
cattle grazing. Little or no marketing infrastructure,
however, is in place to service this area.
Production Policies
The Alfonsin regime is already pushing several pro-
grams designed to boost grain production, according
to US Embassy reporting. To reduce farmers' produc-
tion costs, the Argentine Government has reduced the
value-added tax on fertilizer and herbicides from 18
percent to 5 percent, abolished the 25-percent import
duty on nitrogen-based fertilizer, established a
fertilizer-for-wheat program whereby farmers are en-
titled to pay for urea with wheat at the rate of 2.5
units of wheat for 1 unit of urea (based on relative
prices, Argentine wheat producers are accustomed to
paying as much as 10 units of wheat for 1 unit of
urea, compared with 3.8 to 1 in the United States),
and authorized the National Bank of Argentina to
provide short-term production loans to cover grain
and oilseed planting expenses.
To increase the availability of modern grain produc-
tion technologies, especially in the areas of seed
technology and crop rotation, Buenos Aires also has
taken several important steps. It has increased re-
search funds through the National Institute of Agri-
cultural Technology (INTA) to develop and distribute
high-yield, fertilizer-responsive, hybrid seeds. Particu-
lar attention is being given to development of hybrid
corn adaptable to the shorter growing seasons of some
of the southern provinces and sorghum varieties suit-
able for the dryer areas of the western and northwest-
ern provinces. The administration also is trying to
improve dissemination of information on agronomic
Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
 Secret Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
techniques such as crop rotations. INTA researchers
have found that fertilization programs-coupled with
winter-summer rotations such as wheat-soybeans,
fallow-soybeans, or fallow-corn-can lead to higher
yields over time and improved soil conservation. Fi-
nally, programs are being implemented to improve
wheat quality and to raise its protein content to make
Argentine wheat more attractive-and more valu-
able-to foreign buyers.
Other recent measures are designed to improve grain
farming profitability and thus are likely to have the
greatest immediate impact. Some of the most impor-
tant policy changes recently implemented include:
? Early establishment of the annual wheat support
price. For 1984 the announcement was made in
April, prior to the May-August planting season. In
the past, support prices were not usually announced
until shortly before the beginning of the wheat
harvest in mid-November. Support prices are ad-
justed at harvest in line with inflation and interna-
tional price variations.
? An increased export tax differential between soy-
beans and soybean products. This move is aimed at
improving crushing industry profit margins-thus
encouraging exports of products and increasing
domestic employment in the expanding oilseed
crushing industry.
? Reduction in the export tax on wheat from 25
percent to 19.5 percent. Taxes on the other grains
are currently set at 26.5 percent. Moreover, an
increased share of export tax revenues from grain
and oilseed crops is to be returned to the agricultur-
al sector through capital investment programs, in-
creased funding of applied agricultural research,
and increased credit assistance-especially for me-
dium and small farms. Beginning last April, 1.5
percent of all grain export taxes has been earmarked
for INTA for expanding agricultural research and
extension.
The measures announced to date provide an indica-
tion of the Alfonsin government's commitment to
increase production within existing fiscal constraints.
The channeling of a greater share of export taxes
derived from agriculture into that sector departs
sharply from policies of the Peronist government,
which sought to fund industrialization by decapitaliz-
ing the agricultural sector. If followed through, the
new agricultural policy initiatives, coupled with poli-
cies aimed at solving the hyperinflation problem,
should result in a vibrant, growing farm sector.
Production Prospects and Problems
With consistent year-to-year increases in the use of
hybrid seed and fertilizer, we believe Argentina
should be able to achieve a substantially higher level
of productivity from its grain sector. In addition, the
outlook for a continued contraction in Argentine meat
exports, as a consequence of reduced import demand
in Europe and heightened competition for major
Middle East beef markets, appears to favor a shift in
land use away from pasture and into grain acreage.
Recent press reports
indicate that such a shift is already under way
in the Pampas and appears to be accelerating, particu-
larly among progressive young farmers who have
formed an organization to help the government's
extension service disseminate modern agricultural
know-how. With increased use of fertilizer and the
adoption of modern crop rotation, Argentine farmers
in the productive Pampas could increasingly move
away from traditional crop-livestock rotation to great-
er reliance on grain alone (appendix C).
Despite these favorable long-term prospects, the
Alfonsin government recently has received sharp criti-
cism from the farm sector. According to press report-
ing, the president of the Rural Confederation of
Argentina recently stated that grain producers are
disoriented because the government has yet to enact a
coherent farm policy. Humberto Volando, president
of the Agricultural Federation of Argentina, protests
that inflation-now running at about a 700-percent
annual rate-is eroding producer profit margins and
has complicated capital spending and planting deci-
sions. In early October, Jorge Moronta, vice president
of the Rural Confederation of Argentina, noted that
farmers will plant less because of the lack of govern-
ment credit guarantees for seed, fertilizer, agrichemi-
cals, and storage facilities. The government responded
to these criticisms with an early announcement of
Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
 Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
OVIZICL
minimum prices for several summer crops and by
promising to boost the availability of fertilizer and
ordering the Central Bank to provide special produc-
tion credit lines to farmers.
Responding to pressure from the livestock industry,
the Alfonsin government ended the 15- to 20-percent
export tax on beef exports on 1 October 1984. Pres-
sure from the grain sector for export tax reductions
continues, however. We believe it highly unlikely in
the short run, because of budget constraints, that the
government will increase price support operations or
significantly reduce grain export taxes; the focus will
remain on lessening production costs and on reducing
marketing costs by improvements in infrastructure.
In the longer run, the Alfonsin government is commit-
ted to reducing agricultural export taxes in order to
stimulate increased production. According to the Al-
fonsin government's five-year economic plan issued in
early January, duties on agricultural exports are to be
gradually reduced. To counteract the reduced reve-
nues and to further stimulate production, a new land
tax is planned that will place a heavy tax burden on
those who hold valuable agricultural land without
cultivating it.
In part because of remaining uncertainties in Alfon-
sin's farm policies, we believe that the production goal
of 60 million tons, while achievable agronomically,
appears somewhat overoptimistic. A somewhat small-
er advance to 50-55 million tons by the early 1990s
seems more probable-largely because of more mod-
est farmer response to production expansion incen-
tives. This production growth could be accomplished,
for example, with a 20-percent increase in both
average yield and harvested area for the major grains,
including soybeans and sunflower seeds. USDA ana-
lysts estimate that by raising yields to near US levels,
Argentine production of wheat and corn would dou-
ble, sunflower seed output would increase by one-
third, and sorghum by one-fifth.
Improved Storage and Transport Systems
The second area where Buenos Aires must make
marked improvements is the grain storage and trans-
port system. Of the 35-40 million tons of grain
produced annually, about 5 million tons remain on the
farms where grain is produced, about 9 million tons
are marketed domestically, and some 20-25 million 25X1
tons are exported. These levels are already straining
the limits of existing storage, transport, and port
facilities (appendix D). In our opinion, Argentina must
undertake an extensive upgrading and expansion pro-
gram, or it will fail to meet its production and export
goals:
? Grain storage, both in the countryside and at port
terminals, is inadequate, creating major inefficien-
cies in the overall grain transportation system.
Recent government estimates set total bulk grain
storage at about 29 million tons; however, industry 25X1
sources indicate that the quality and state of disre-
pair of many silos make them unusable, reducing
the effective storage to about 20 million tons.
? Costs of truck transport, which carries close to 60
percent of grain to market, are high because of the
poor condition of many rural roads, according to a
recent USDA study. Rail transportation of grain-
while generally cheaper than trucking-is often
slower because of structural and equipment prob-
lems: the rail system has three different track 25X1
gauges, which limit railcar switching; rail lines and
yards were built to handle only about 10 million
tons; tracks are in generally poor condition, reduc-
ing operating speed; and a large part of the boxcar
fleet is made up of small, old railcars, which reduces
efficiency.
? Aside from physical grain storage capacity limita-
tions at port terminals and a general lack of modern
grain-handling equipment, World Bank studies have
determined that the major problem of ports is the
shallow draft of the sea and river channel accesses
and the depth of the water alongside loading piers.
Heavy rains often cause additional silting, especially
along the Parana River, further reducing navigabil-
ity and limiting the size of grain ships that can 25X1
load-typically around 35,000 tons, compared with
the more efficient 50,000- to 60,000-ton vessels that
can be used in other countries' grain trades
Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
 Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
Closeup on Current
Production Prospects
Wheat
Following erratic weather during the May-August
planting season and a 14 percent decline in expected
harvest area, near-ideal growing conditions in the
latter part of the crop cycle along with increased use
of fertilizer have pushed up this year's wheat crop
estimate to 12.5 million tons, compared with 14.5-
and 12.3-million-ton crops produced the previous two
seasons. The quality of the crop is rated as good
overall, yielding export availabilities of about 8
million tons.
Argentine officials had hoped for a crop comparable
to the record crop of 1982/83. However, this mild
setback for wheat is expected to be temporary; part of
the falloff in this season's plantings is attributable to
farmers' expectations that better prices could be
achieved by waiting to plant corn or soybeans. Yields
from the reduced acreage are currently estimated at a
record 2.12 tons per hectare, 7 percent above the
previous record of two seasons ago. The new fertilizer
program encouraged an estimated doubling in fertil-
izer use to 1.2 million hectares, 20 percent of the
total harvested acreage. Alfonsin has stressed that
more fertilizer will be made available to farmers for
next season's wheat crop as well as future coarse
grain and oilseed crops.
Corn
According to US Embassy reporting, corn production
for the crop now being planted is expected to reach
10.5 million tons, up 10 percent from this season's
outturn. The bright prospects reflect the positive
influence of reduced wheat area, government pro-
grams, and price relationships that favor corn. In the
heart of the Pampas, for example, recent press re-
ports indicate farmers' profit margins on summer
grains such as corn are almost twice as high as on
livestock, encouraging the shift from livestock to
grain. With a crop of 10.5 million tons, export
availabilities from the harvest beginning in March
are estimated at 7 million tons, 21 percent above the
current-season level.
Sorghum
As a result of low prices relative to corn and sunflow-
er seed, estimates of sorghum sowings have varied
more than those for the other grains. Furthermore,
rains have delayed plantings. Given current informa-
tion, production from the harvest beginning in April is
expected to reach 7.0 million tons, 5 percent below
the current crop. About two-thirds of the upcoming
crop, or about 4.3 million tons, will be available for
export.
Soybeans
While rains slowed soybean planting, recent USDA
reports indicate a 10 percent increase in acreage
devoted to soybeans. The increase reflects favorable
prices for soybeans relative to livestock, especially in
the humid Pampas. Production forecasts currently
range between 6.0 million and 6.6 million tons,
compared with this season's record 6.2 million tons.
While soybean exports are expected to be down about
1.1 million tons, policies favoring soybean meal and
oil exports are expected to push product exports to a
record of 3.1 million tons, 6 percent above this season
and 1.5 times the product exports two years ago (see
appendix tables A-10 to A-13).
Sunflower seed
Current plantings (September-January), according to
USDA, are expected to be up 16 percent to 2.3 million
hectares. Assuming normal weather conditions and
yields of about 1.2 tons per hectare, the crop to be
harvested beginning in March is estimated at 2.7
million tons, compared with 2.2 million tons this
season. Argentine sunflower seed oil exports for
1985/86 are anticipated to reach a record 700,000
tons, one-fifth higher than this season, and account
for more than one-half of world exports. The contin-
ued upward trend in sunflower seed oil production
and trade reflects Argentina's increased use of hybrid
seed, expanding processing capacity, and the relative-
ly high world price for vegetable oils vis-a-vis protein
meals. Sunflower seed contains about 38 percent oil
compared with only 18 percent for soybeans (see
appendix A, tables A-14 and A-15 for price informa-
tion).
25X1
25X1
Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
 Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
,ecrer
Government Policies and Programs
The Alfonsin administration is moving ahead vigor-
ously with programs to remedy Argentina's grain-
handling problems. According to US Embassy report-
ing, the new government has reactivated a World
Bank loan for $87 million to finance basic infrastruc-
ture improvements. About $20 million of the loan
amount will be used to build small (8,000 tons) bulk
grain storage facilities, especially in areas of northern
Argentina and Buenos Aires Province where serious
storage problems emerged during the record 1982/83
grain production year. Another $30 million is ear-
marked for improvements in the railway grain-han-
dling infrastructure, including the modernization of
hopper cars. An additional $20 million will go toward
improving private-sector grain facilities. The remain-
der of the loan will be used to resume dredging at the
port of Rosario and to design a comprehensive project
to upgrade the port of Bahia Blanca.
well as by the Soviets, has the following key features
and goals:
? A special use, fully automated elevator will be
erected so that grain transshipments can continue
throughout the construction process. The two exist-
ing elevators-one of 1930s vintage and one dating
to 1957-will be substantially reworked, allowing
for total automation.
? A 760-meter wharf is planned to accommodate as
many as four 60,000-dead-weight-ton (dwt) grain
carriers simultaneously.
? Two new 750-car rail marshaling yards will be
computer controlled for improved efficiency.
? Dredging of approximately 50 km of channel at a
depth of 12 meters initially and 13.7 meters at a
later date is planned to increase significantly the
size of vessels the port can accommodate.
According to Argentine press reports
this project would increase Ba-
Several port construction projects also have been
under consideration, including the construction of a
new deepwater port at Punta Medanos, north of Mar
del Plata; a new port at Belem d Escobar, on the
Parana River some 146 km upstream from Buenos
Aires; and a $50 million dredging scheme to deepen
the access channel to the port of Buenos Aires. The
focus of attention, however, has been on an integrated
modernization scheme for the port of Bahia Blanca,
the primary export terminal for wheat.
Initiated by the military government, this project
would significantly upgrade grain-handling facilities
to accommodate larger bulk carriers.
he general design package currently
being bid on by various international companies, as
heaviest grain shipping period (March-August).
hia Blanca's annual grain-handling capability from 4
million tons to 11 million tons and would effectively
eliminate the typical situation where as many as 20
ships wait 30 days or more to load grain during the
operating in Argentina,
The major multinational grain trading companies
indicate that they also would be willing to
invest in grain facilities-but only under a stable
political and economic environment (appendix B).
they are generally
optimistic about the present administration, stating
that grain trade is now profitable in Argentina, and
that the potential for return on investment in the
grain sector is good.
While international grain traders are optimistic, how-
ever, some Argentine farm groups are not. Recently,
Jorge Moranta, vice president of the Rural Confeder-
ation of Argentina, expressed his skepticism of gov-
ernment followthrough on promises to expand avail-
ability of rail service to farmers, improve upriver
25X1
25X1
25X1
25X1
25X1
25X1
25X1
25X1
25X1
25X1
Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
 Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
Argentina: A Major Actor
in World Grain Trade
In spite of its relatively low grain yields and signifi-
cant infrastructure problems, Argentina is a major
factor in world grain trade. It is the only major Third
World exporter of grains and ranks as the top net
grain and oilseed exporter in Latin America. Accord-
ing to the most recent USDA estimates for the
current season, Argentine wheat, corn, and sorghum
exports accounted for 7 percent, 10 percent, and 35
percent of global trade in these commodities (see
appendix tables A-5 to A-8). Argentina's presence in
the world soybean market has risen from virtually
nothing in the early 1970s to its current share of 2.1
million tons, about 8 percent of global soybean
exports. With increased processing capacity now on
line, coupled with favorable prices-especially for
soybean oil-Argentina is expected to export record
tonnages this season of both meal and oil. Argentine
sunflower seed oil and linseed oil exports are also
substantial-accounting for about two-fifths and
two-thirds of global exports in these commodities.
In 1983/84 (July/June) Argentina exported a record
9.6 million tons of wheat-up 28 percent from the
previous year. The Soviet Union, China, and Iran
were the dominant markets, taking 80 percent of the
total, but sales to smaller markets in Latin America,
the Middle East, North Africa, and Asia also showed
considerable growth (see figure 3). Corn exports for
1983/84 (October/September) totaled 5.9 million
tons, with Argentina ranking as the world's second-
largest supplier after the United States. Major buyers
were the USSR, Iran, and several countries in West-
ern Europe and Latin America. In sorghum, Argenti-
na rivals the United States as the leading supplier to
the world market. Of the 4.8 million tons exported by
Argentina in 1983/84 (October/September), Japan
and the Soviet Union were the major markets, taking
about 80 percent of total exports. Other markets were
Spain, Taiwan, and South Korea. Likewise, Argenti-
na's soybean exports are second only to the United
States-with major sales going to Western Europe,
the USSR, and Asia. Sunflower seed oil and linseed
oil exports during 1983/84 totaled 0.7 and 0.2 million
tons, respectively. Western Europe is the major mar-
ket for both commodities.
Argen-
tina's main market goal in the 1980s is to recover and
increase its share of the Latin American grain mar-
ket. For example, Argentina's share of the 4- to 5-
million-ton Brazilian wheat import market, the larg-
est in Latin America, fell from more than 40 percent
in the late 1970s to about 3 percent in the past three
years. Argentina has largely ignored this area in
recent years while trying to build premium priced
sales to the Soviet Union in the wake of the US grain
embargo to the Soviets. Wheat, corn, and sorghum
exports to Latin America, for example, averaged only
1.4 million tons for the period 1980-83, compared
with more than 2 million tons for the four-year
period prior to the growth in Soviet sales. Soviet
wheat, corn, and sorghum purchases during the 1980-
83 period, in contrast, averaged 10 million tons,
compared with 1.6 million tons for the previous four-
year period (see figure 3).
Another goal is to develop markets for its grains in
the Pacific region, which Argentine officials see as the
main food growth market in the 1990s. Aside from
established markets in Japan for sorghum and the
recently expired long-term grain agreement with Chi-
na, the Alfonsin regime has yet to make major
inroads in this market-especially among the newly
industrializing countries.
In addition to recapturing Latin American grain
trade and developing nontraditional markets, the
Alfonsin regime has often stated its goal of reducing
the high level of dependence on Soviet grain pur-
chases. This dependence
leaves Argentina vulnerable to
increasing Soviet economic and political pressure.
25X1
25X1
25X1
25X1
Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
 Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
Secret
Figure 3
Buyers Shares of Argentine
Grain Exports, 1975-83
Latin America 41%
Middle East 2%-
Eastern Europe 4%
Asia 8%
Africa 11%
Western
Europe 14?/
ncen snot
Western Europe 57%
Eastern Europe 2%_
Middle East 2/
Africa 2%_
Asia 5%_
Latin
America 13%
Asia 57%
Africa 1%
Middle East 3%-
Eastern Europe 9%
Latin
America 9%
Western
Europe 21%
Soybeans
Western Europe 87%
Eastern Europe l%_
Middle East 1%
USSR I%-
Asia 4%
Latin
America 6%
USSR 63%
Africa 1%
Western Europe 1%
Middle East 7%
Asia 13%
Latin
America 15%1.
Asia 3%
Africa 4%
Latin
Middle_
East 6%
Middle East 2%_
Western Europe 5%
Latin
America 7%
Asia 19% -
Western
Europe 44%
Latin
America 18%
shipping channels, and expand port facilities. In re-
sponse, the Alfonsin government has recently an-
nounced that the state-owned railroads would limit
the tariff on grain to 15 percent of the value of a
producer's harvest. Furthermore, in early January,
Rogue Carranza, Minister of Public Works and
Services, informed the US Embassy that the Alfonsin
government had decided to proceed with expansion of
the Bahia Blanca port with World Bank financing and
not accept a longstanding Soviet proposal for the
project. According to Embassy reporting, the Argen-
tine Government wants to proceed immediately with
the first phase 2 of the project-initial construction is
envisaged to begin in the September-December peri-
od, when there is reduced grain traffic at the port-
with a scheduled completion date by the end of 1986.
The full project from engineering to completion will
We believe prompt initiation of projects such as Bahia
Blanca is essential. This will be a pivotal year for
action as the interested parties put increasing pressure
on the Alfonsin government to reach decisions and
begin an array of infrastructure projects. Foot-drag-
ging in making decisions on major infrastructure
projects will certainly delay and may even prevent
achievement of Buenos Aires's grain export goals.
Sharpened Trade Opportunities
The Alfonsin regime's call for a 50-percent increase in
grain production to 60 million tons by the early 1990s
is chiefly intended to provide significant growth in
exports-from the current 20 million tons to a level of
35-40 million tons. Thus, Argentina will be butting
25X1
25X1
2 The initial stage of the port project calls for the following:
deepening the access channel to the port to 12.2 meters; removal of
an old steel pier, which restricts access to the primary grain-loading
pier (no. 9); removal of a sunken hull and other obstacles to provide
a waiting area near pier 9; deepening the water around pier 9 to
12.2 meters; improvement of pier 9 and its grain-handling facilities;
and improvement of rail facilities at the port to speed unloading of 25X1
grain freight cars. The cost of this phase of the project is $33
Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
 Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
heads with other major grain exporters who also have
production expansion programs under way. Much will
depend on the growth in world demand, especially for
animal protein, over the next several years. Without
good demand growth from LDCs and other countries,
the major exporters will be forced to compete even
more keenly for increasingly small incremental pur-
New Marketing Policies and Programs
Since taking office the Alfonsin administration has
attempted to capitalize on Argentina's developing
country status to establish rapport and trade prefer-
ences with other Third World countries. The ap-
proaches being taken include:
? Cutrate prices. In Chile's 1-million-ton wheat mar-
ket, for example, Argentina has been selling wheat
in recent months at US $131 per ton compared with
US and Australian wheat at $154 and $162 per ton,
f.o.b., respectively. In early December, according to
Embassy reporting, Peru purchased 50,000 tons of
Argentine wheat for US $117 per ton with 120-day
credit at 9.75-percent interest for early January
shipment. The closest US offer on the tender was
$153, f.o.b. Gulf ports.
? New long-term agreements (LTAs). The Alfonsin
regime recently signed a new LTA with Mexico for
a minimum of 1 million tons of grain annually for
five years. Buenos Aires also has standing LTAs for
grains with a number of countries, including Algeria
and Iran as well as the USSR. The National Grain
Board (NGB), for example, recently announced a 1-
million-ton wheat sale to Iran under their existing
LTA.
? Larger trade credits.
Argentina, in early 1984, negotiated-in--
crease trade credits with Cuba, increasing Havan-
a's line of credits to purchase food products to $105
million, compared with $68 million in 1983. A
recent report from the US Mission in Havana
indicated that Argentine export credits to Cuba for
1984 total about $200 million. Trade credits are
also financing grain sales to Bolivia, Haiti, the
Dominican Republic, and Nicaragua.
? Increased countertrade. According to a trade re-
port, Argentina's National Congress has passed
legislation that directs the government "to foster ...
the expansion of countertrade and other internation-
al marketing modalities" as part of its international
trade policy. According to US Embassy reporting,
the regime has already been active in Eastern
Europe, using this method to expand trade with
Poland, Yugoslavia, Czechoslovakia, and Romania.
? Trade missions. The Alfonsin administration is
sending more trade missions abroad and is inviting
trade delegations from around the world to visit
Argentina-seeking business with Mexico, Iran,
Nicaragua, and Poland, among others. In early
November, for example, Embassy reporting re-
vealed that officials of the NGB would soon leave on
a grain sales mission to the,
India, and Czechoslovakia
We believe Argentina will be able to sell increased
volumes of grain successfully on world markets. Ac-
cording to a recent press statement, Nestor Stancan-
elli, a ranking official with the Ministry of Com-
merce, stated that Argentina can and will undercut
world prices to make market inroads in Latin Ameri-
ca. Heightened marketing efforts in Latin America
are already bearing fruit; wheat, corn, and sorghum
exports for the first eight months of 1984 exceeded
average exports to the region during 1980-83 by 1.5
million tons-largely because of renewed large wheat
sales to Brazil and Peru. In contrast, while there is
also some room for expansion in nontraditional mar-
kets, such as the Middle East and Eastern Europe, we
believe substantial increases in sales above current
levels will be considerably more difficult because of
limited demand growth potential in these markets.
Following some initial successes during 1984, howev-
er, we foresee Argentina encountering heightened
competition from other major grain exporters-the
United States, the EC, Canada, and Australia-in
the years to come. The competition comes not only in
the form of greater credit availability, but also in the
freight advantages that these countries have in serving
their traditional markets. US advantages in shipping
25X1
25X1
Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
 Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
secret
to most of the Caribbean basin and Mexico, the EC
advantages in shipping to the Middle East, and
Australian advantages in shipping to the Pacific
region will be costly to offset. Moreover, Argentina's
unreliability-because of variable crop sizes and qual-
ity and its extensive labor and transport problems-
will continue to place it at a disadvantage in garnering
sales.
Given constrained new market prospects in Latin
America, Asia, Europe, and the Middle East, we
believe Argentina will continue to look to the Soviet
Union as its principal grain market. Although Soviet
grain imports are expected to reach record levels in
the current marketing year, we estimate that, with a
return to trend production, Moscow will need to
import an average of only about 25-30 million tons
through the end of the century. In addition, LTAs
with other grain exporters and Moscow's desire to
have diversified sources of grain will further limit
Argentina's opportunities to expand grain exports to
the USSR. Finally, Soviet dissatisfaction with the
large trade deficit with Argentina is likely to hamper
trade expansion.
Grain represents the centerpiece in commercial deal-
ings between Argentina and the Soviet Union. Mos-
cow became a fairly steady customer for Argentine
grain during the 1970s, emerged as Argentina's lead-
ing buyer following the US grain embargo of 1980,
and in 1981 entered into a long-term agreement to
regularize its access to the Argentine grain market.
The current LTA, which expires in December 1985,
calls for minimum annual purchases of 4 million tons
of corn and sorghum and 500,000 tons of soybeans.
All wheat sales fall outside the agreement. In each
year since the LTA was initiated, Moscow has pur-
chased grain well in excess of the 4.5-million-ton
minimum. As a result, grain imports from Argentina
have accounted for some 20 to 30 percent of total
Soviet grain imports over the last four years. For
Argentina, sales to the USSR have accounted for
about one-half of its annual grain exports over the last
four years.
Table 3
Argentina: Value of Trade
With USSR, 1977-83
Exports
Imports
Net
Exports
1979
415.3
30.7
384.6
1980
1,614.2
14.6
1,599.6
1981
2,963.2
32.4
2,930.8
1982
1,586.4
33.3
1,553.1
1983
1,604.7
32.7
1,572.0
Source: International Monetary Fund, Direction of Trade
Statistics Yearbook, 1984.
Grain trade, in large part, accounts for Argentina's
huge trade surplus with the Soviet Union. Exports
averaged $1.9 billion annually for the period 1980-83
while imports averaged only $28 million. According to
US Embassy reports, this trade imbalance has be-
come a major focus of economic relations between the
two countries. The Soviets for some time have been
pressing first the military and more recently the
Alfonsin government to increase imports of Soviet
machinery, military hardware, hydroelectric equip-
ment, nuclear material, and roadbuilding equipment
to correct the imbalance (see table 3). The Soviets
have recently placed particular emphasis on the ap-
proaching turbine contract for the Piedra del Aquila
hydroelectric scheme planned for Patagonia, in south-
ern Argentina.
Recent Strains
In recent months, the Embassy has noted increasing
concern in Buenos Aires that the Soviets may not buy
the quantities of grain stipulated in the current LTA.
This concern has been spurred by heightened Soviet
purchases from the United States under terms of the
new Soviet-US LTA signed last August (with mini-
mum annual purchases of 9 million tons annually over
the next five years) and a slowdown in exports from
Argentina. According to press reports, Argentine
Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
 Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
grain exports to the USSR for the first nine months of
1984 totaled 6.4 million tons, as compared with more
than 9 million tons for all of 1983.
In recent weeks the trade situation has brightened
somewhat. According to grain trade analysts, total
Soviet purchases of new-crop wheat for delivery dur-
ing the first quarter of 1985 now stand at 2.8 million
tons, roughly in line with purchase levels for the
corresponding period last year. In addition, press
accounts of the Eighth Soviet-Argentine Mixed Com-
mission meeting held in Buenos Aires in early Novem-
ber indicate that the Argentines are committed to
increasing their purchases of Soviet goods in order to
reduce the trade surplus.
Soviet and Argentine talks in Buenos Aires in
mid-January concerning the current LTA produced
no apparent agreement. According to press reports,
further discussions on the subject of a new LTA or an
extension of the current one will take place in Moscow
in June.
Outlook
While short-term issues between the Soviet Union and
Argentina are likely to continue to be relatively
contentious, prospects for the long term appear to
present incentives for both sides to seek accommoda-
tion in their economic relations.
Soviet Perspective
Moscow apparently puts a relatively high store on
keeping Argentina as a reliable long-term supplier,
but grain traders report that the Soviets have grown
increasingly impatient with Argentina concerning the
large trade imbalance and persistent grain shipping
delays. The Soviet Union is now in a better negotiat-
ing position because of the current worldwide grain
glut, soft grain prices, the new five-year US grain
agreement, and the emergence of the EC as an
alternative source of wheat supplies (see appendix
table A-5). While using this perceived leverage to
extract concessions from Argentina, the Soviets will,
we expect, renew the LTA when the current one
expires in December 1985 because of the economic
interdependence that has grown up over the past
several years between the two countries and the long-
term strategy of the Soviets to main in div rse
sources of grain.
Argentine Perspective
The Argentine economy has benefited greatly from
the trade relationship that has evolved since 1980 with
the Soviet Union. Both the military and now the
Alfonsin government are well aware of the economic
significance of the current LTA with the Soviets.
Despite a general reluctance to buy Soviet goods,
Argentina has attempted to respond to Soviet de-
mands that the trade deficit be reduced. This is
reflected in recent agreements to purchase Soviet
trolley cars for the city of Mendoza and hydroelectric
equipment and in the institution last year of weekly
Aeroflot flight service to Buenos Aires.
In spite of these concessions, we believe the Alfonsin
government shares the nationalism and deeply rooted
anti-Communist views of the military and the Peron-
ists and their suspicions of Moscow's intentions in
Argentina and in Latin America in general. As a
result, we foresee Alfonsin's continuing his wariness
toward Soviet penetration of the economy.
Nevertheless, Alfonsin is likely to be cautiously re-
sponsive where possible in order to protect Argen-
tina's share of the Soviet grain import market. This is
especially so now, with Soviet grain imports expected
by USDA to reach a record 50 million tons during the
current grain marketing year, July 1984/June 1985
(see table 4). With current Soviet pressures and
heightened competition from other grain exporters,
Alfonsin may well become amenable to Soviet com-
mercial proposals in order to satisfy Moscow's de-
mands for increased imports.
25X1
25X1
Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
 Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
secret
Table 4
USSR: Imports of Wheat and Coarse Grains
From Argentina, 1977/78-1984/85 a
Wheat
Corn
Sorghum
Total
Argentina
Total Grains,
All Sources
Imports From
Argentina as
Percent of
Total
1979/80
2.0
3.1
5.1
30.4
16.8
1980/81
3.0
8.2
11.2
34.0
32.9
1981/82
3.1
10.2
13.3
45.0
29.6
a July/June.
b Less than 50,000 tons.
c Estimate.
Outlook and Implications
While we believe that Buenos Aires is likely to
achieve a significant expansion in grain production
and exports by the early 1990s, the goal of 60 million
tons is probably beyond reach. In any case, major
infrastructure improvements must be started in 1985
and a consistent set of policies established to provide
farmers with incentives to grow more grain and to
produce less beef on prime Pampas land. Despite a
general sense of optimism within the country, Alfon-
sin faces several significant economic problems-the
huge debt and hyperinflation-as well as potential
political problems that could derail his grain program.
We believe the largest stumblingblock could well be
the political environment. As a result of the elections
in 1983, optimism concerning Argentina's political
future appears stronger than at any time in the recent
past. According to some political analysts, the major-
ity support given to Alfonsin and the Radical Civic
Union Party provides the foundation for a democratic
two-party system within which governments could
change through orderly elections, thus establishing a
more stable political environment. Alfonsin's triumph
has created high expectations and generated consider-
able enthusiasm even among traditional opponents-
an aura that is critical to attracting large amounts of
investment capital. At the same time, however, he has
inherited a legacy of contentious, seemingly intracta-
ble problems that make governing Argentina difficult,
especially in the near term.
The recent agreement with the International Mone-
tary Fund (IMF) appears to be a solid step in the right
direction because it enables Argentina to get $7
billion in IMF, commercial bank, and government
loans to help put its economy on a sounder footing.
Nevertheless, the austerity measures implicit in the
agreement could cause serious political discord, par-
ticularly among urban labor. While urban labor will
play a leading role in the ultimate success or failure of
the regime, much of Alfonsin's longer term success
depends on how well he can inspire farmers to believe
in the viability of his goals and the ultimate monetary
returns that would flow back to them if they are
willing to invest-with the government's help-in
grain agriculture. To quote one progressive Argentine
Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
 Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
Table 5
Argentina: Trade With the
United States, 1977-83
Exports
Imports
Net
Exports
1977
396.8
781.5
_
-384.7
1978
551.1
712.4
-161.3
1979
582.3
1,414.7
-832.4
1980
717.6
2,380.4
-1,662.8
1981
863.5
2,093.7
-1,230.2
1982
1,022.1
1,177.1
-155.0
1983
737.4
940.5
-203.1
Source: International Monetary Fund, Direction of Trade Statis-
tics Yearbook, 1984.
In world grain markets, on the other hand, successful
export expansion by Argentina would add significant
pressure to an area already marked by fierce competi-
tion and soft prices. We expect Argentine-US compe-
tition for grain sales to be most intense in the 20-
million-ton Latin American market. US agricultural
exports to Latin America, according to Bureau of the
Census data, were valued at $5.2 billion in 1983,
representing 14 percent of global US agricultural
exports. This important market, especially for grains,
will be increasingly fought over as Argentina's aggres-
sive marketing tactics in Brazil and Peru have already
shown this year. To be successful on a large scale in
this market, however, Argentina will have to over-
come the advantages the United States has through
its grain credit guarantee programs and its reputation
as a reliable supplier of high-quality grain.
farmer in the heart of the Pampas, "In five years the
animals will be gone-it's our destiny to become a
great grain producer."
If Buenos Aires is successful in its grain export drive,
it would give Argentina a much better chance of
meeting its foreign debt obligations. For the United
States, this would ease the precarious financial situa-
tion of US banks with large loan portfolios in Argenti-
na. An economically healthier Argentina would also
provide an opportunity for an expansion in US as well
as non-US manufactured exports to Argentina. Be-
cause of its financial situation, Argentina has sharply
cut back imports. Imports from the United States in
1983, for example, dipped to under $1 billion for the
first time in five years (see table 5).
We do not believe Argentina has a good alternative to
grains for increasing export earnings by as much as
$2-3 billion. While the United States might well
benefit from reduced competition from Argentina in
Latin American grain markets, it would have to
continue to deal with an Argentina characterized by
lingering economic and political instability. Failure on
the grain front would greatly reduce the chances that
Argentina could maintain the foundation for the
democratic two-party system established by Alfonsin.
25X1
25X1
Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
 Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
3ecrer
Appendix A
Grain Production, Trade,
and Price Tables
Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
 Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86TOO586ROO0200150005-8
Table A-1
World Wheat Production,
1980/81-1984/85-
World total
442.7
448.6
478.6
489.4
509.5
Argentina
7.8
8.3
14.5
12.3
12.5
Australia
10.9
16.4
8.9
21.9
17.5
Canada
19.2
24.8
26.8
26.6
21.2
China
55.2
59.6
68.4
81.4
85.5
Eastern Europe
34.6
30.6
34.7
35.4
39.8
EC Ten
55.1
54.4
59.8
59.3
75.7
India
31.8
36.3
37.5
42.8
45.1
USSR
98.2
80.0
86.0
78.0
75.0
United States
64.8
75.8
75.3
65.9
70.6
Others
65.1
62.4
66.7
65.8
66.6
a July/June.
b Estimate.
Table A-2
World Corn Production,
1980/81-1984/858
Brazil
22.6
22.9
19.5
21.0
21.5
China
62.6
59.2
60.3
68.2
72.5
Eastern Europe
29.7
32.2
36.3
33.7
32.7
EC Ten
17.5
18.4
19.8
19.6
19.4
Thailand
3.2
4.3
3.4
4.0
4.5
USSR
9.5
8.0
13.5
16.5
12.1
United States
168.6
206.2
209.2
105.8
191.2
Others
55.2
57.2
55.5
57.8
58.9
a October/September.
b Estimate.
Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86TOO586ROO0200150005-8
 Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86TOO586ROO0200150005-8
Table A-3
World Sorghum Production, 1980/81-1984/85 a
1980/81
1981/82
1982/83
1983/84
1984/85b
Argentina
7.1
8.0
8.0
7.2
7.0
Nigeria
4.3
3.2
4.1
2.7
3.7
a October/September.
b Estimate.
Table A-4
World Soybean Production, 1980/81-1984/85 a
a October/September.
6 Estimate.
Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86TOO586ROO0200150005-8
 Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86TOO586ROO0200150005-8
Table A-5
World Trade in Wheat, 1980/81-1984/85 a
1980/81
1981/82
1982/83
1983/84
1984/85b
United States
41.9
48.8
39.9
38.9
41.5
Others
6.0
4.0
6.1
5.3
7.6
World total imports
94.1
101.3
98.5
103.2
107.3
China
13.8
13.2
13.0
9.6
10.0
Eastern Europe
5.9
6.3
4.6
4.1
3.2
EC Ten
4.5
4.7
4.0
3.6
2.7
USSR
Others
a July/June.
b Estimate.
Table A-6
World Trade in Corn, 1980/81-1984/85 a
World total exports
78.5
67.9
64.2
59.9
66.8
Argentina
9.0
4.9
6.4
5.9
7.0
South Africa
3.9
4.7
2.3
0.1
0.1
Others
3.7
5.0
5.8
3.5
5.2
World total imports
78.5
67.9
64.2
59.9
66.8
China
0.8
1.2
2.4
0.1
0.3
13.9
13.3
14.5
14.5
14.4
2.3
2.8
3.9
3.4
3.2
3.8
0.6
4.0
2.8
2.6
2.9
2.2
2.2
2.1
2.1
a October/September.
b Estimate.
Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86TOO586ROO0200150005-8
 Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
Secret
Table A-7
World Trade in Grain Sorghum, 1980/81-1984/85 a
a October/September.
b Estimate.
1980/81 1981/82 1982/83 1983/84 1984/85b
Table A-8
World Trade in Soybeans, 1980/81-1984/85 a
a October/September.
b Estimate.
Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
 Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
Table A-9
Latin American Imports of Major Grains, 1981-83
Commodity
Imports
Commodity
Imports
by Country
by Country
1981 1
982
1983
1981
1982
1983
Total
23,270 1
8,052
24,294
Wheat (including flour
11,120 1
0,231
10,541
Sorghum
2,789
1,478
3,304
in wheat equivalent)
Mexico
2,789
1,478
3,304
Mexico
1,128
398
423
Soybeans
2,190
2,054
1,142
Cuba
1,250
1,270
1,300
Mexico
1,110
518
894
Dominican Republic
175
160
200
Dominican Republic
32
23
30
Haiti
173
155
158
Haiti
23
70
50
Jamaica
190
175
180
Jamaica
65
62
72
Trinidad and Tobago
125
105
110
Brazil
900
1,300
33
Costa Rica
87
100
115
Peru
10
2
8
El Salvador
126
100
119
Venezuela
50
79
55
Guatemala
110
104
125
d
H
78
81
70
on
uras
Nicaragua
63
57
50
Panama
62
59
62
Cuba
85
90
85
Brazil
4,360
4,170
4,100
Dominican Republic
50
55
58
Colombia
334
564
531
Chile
43
43
50
Chile
1,041
992
1,158
Peru
47
47
30
927
968
972
Venezuela
414
500
475
Peru
Venezuela
891
773
868
Corn
6,023
2,988
8,068
Mexico
3,065
233
4,687
Dominican Republic
30
34
35
Cuba
525
410
405
Bolivia
27
0
0
Dominican Republic
180
165
255
Chile
76
75
85
Jamaica
175
150
170
Colombia
98
126
90
Trinidad and Tobago
115
120
125
Ecuador
40
40
48
570
0
500
Peru
61
69
86
Brazil
Chile
315
397
144
Peru
344
480
402
Venezuela
734
1,033
1,380
Secret 22
Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
 Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
secret
Table A-10
Argentina: Wheat Trends, 1970/71-1984/85 a
Area Harvested
(million hectares)
Yield
(million metric
tons per hectare)
Production
(million metric
tons)
Exports
(million metric
tons)
Exports as
Percent of
Production
1982/83
7.32
1.98
14.50
9.90
68
1983/84
6.88
1.79
12.30
7.90
64
1984/85 b
5.90
2.12
12.50
8.00
64
a December/November. Source: USDA, January 1985.
b Estimate.
Table A-11
Argentina: Corn Trends, 1971/72-1985/86a
Area Harvested
(million hectares)
Yield
(million metric
tons per hectare)
Production
(million metric
tons)
Exports
(million metric
tons)
Exports as
Percent of
Production
1971/72
4.07
2.44
9.93
6.44
65
1973/74
3.57
2.52
9.00
4.70
52
1974/75
3.49
2.84
9.90
5.72
58
1975/76
3.07
2.51
7.70
3.49
45
1980/81
2.49
2.57
6.40
3.42
53
1981/82
3.39
3.80
12.90
9.10
71
1982/83
3.17
3.03
9.60
5.77
60
1983/84
2.97
3.03
9.00
6.06
67
a March/February. Source: USDA, January 1985.
b Estimate.
Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
 Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
Table A-12
Argentina: Grain Sorghum Trends, 1970/71-1985/86
Area Harvested
(million hectares)
Yield
(million metric
tons per hectare)
Production
(million metric
tons)
Exports
(million metric
tons)
Exports as
Percent of
Production
1970/71
1.87
2.04
3.82
1.99
52
1971/72
2.24
2.09
4.66
2.34
50
1972/73
1.42
1.66
2.36
0.51
22
1973/74
2.13
2.16
4.60
2.28
50
1974/75
2.32
2.54
5.90
2.95
50
1975/76
1.94
2.49
4.83
2.34
48
1976/77
1.83
2.76
5.06
3.43
68
1977/78
2.38
2.78
6.60
4.12
62
1978/79
2.25
3.19
7.20
4.65
65
1979/80
2.12
3.07
6.50
3.76
58
1980/81
1.28
2.31
2.96
1.49
50
1981/82
2.10
3.38
7.10
4.94
70
1982/83
2.51
3.19
8.00
5.54
69
1983/84
2.52
3.18
8.00
5.20
65
1984/85
2.37
3.10
7.35
4.20
57
1985/86 b
2.20
3.18
7.00
4.30
61
a March/February.
b Estimate.
Secret 24
Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
 Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86TOO586ROO0200150005-8
OVIU I
Table A-13
Argentina: Soybeans and Products Trends,
1970/71-1985/86a
Area Harvested
(million
Yield
(million metric
Soybean
Production
Soybean Crush
(million metric
Exports
hectares)
tons per
hectare)
(million metric
tons
tons)
Soybeans
(million metric
tons)
Soybean Meal
(million metric
tons)
Soybean Oil
(million metric
tons)
1971/72
0.04
1.64
0.06
b
1972/73
0.07
1.15
0.08
b
1973/74
0.16
1.73
0.27
0.20
1974/75
0.34
1.44
0.50
0.28
0.01
0.03
1975/76
0.36
1.36
0.49
0.53
0.20
0.02
1976/77
0.43
1.60
0.69
0.50
0.11
0.25
0.07
1977/78
0.66
2.12
1.40
0.59
0.62
0.33
0.06
1978/79
1.25
2.16
2.70
0.69
1.97
0.37
0.06
1979/80
1.60
2.31
3.70
0.64
2.78
0.26
0.10
1980/81
2.03
1.77
3.60
0.72
2.73
0.28
0.09
1981/82
1.74
2.01
3.50
1.08
2.19
0.59
0.08
1982/83
1.99
2.09
4.15
1.91
2.15
1.21
0.22
1983/84
2.28
1.75
4.00
2.37
1.35
1.75
0.30
1984/85
2.68
2.31
6.20
3.00
3.10
2.05
0.41
1985/86 c
2.95
2.03
6.00
3.70
2.00
2.56
0.53
a April/March.
b Less than 50,000 tons.
c Estimate.
Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86TOO586ROO0200150005-8
 Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86TOO586ROO0200150005-8
Table A-14
Argentina: Sunflower Seed Trends, 1973/74-1985/86 a
Area
Harvested
Yield
(million metric
Sunflower Seed
Production
Sunflower Seed
Crush (million
Exports
tons per
hectare)
(million metric
tons)
metric tons)
Sunflower Seed
(million
metric tons)
Sunflower Seed
Meal (million
metric tons)
Sunflower Seed
Oil (million
metric tons)
1973/74
1.34
0.66
0.88
0.97
0.29
0.01
1974/75
1.19
0.82
0.97
0.97
0.22
b
1975/76
1.00
0.73
0.73
0.60
0.21
b
1976/77
1.26
0.86
1.09
0.94
0.30
b
1977/78
1.23
0.73
0.90
1.09
0.41
0.13
1978/79
2.00
0.80
1.60
1.19
0.20
0.48
0.16
1979/80
1.56
0.92
1.43
1.48
b
0.56
0.24
1980/81
1.86
0.89
1.65
1.65
b
0.59
0.30
1981/82
1.28
0.98
1.26
1.201
0.03
0.47
0.21
1982/83
1.67
1.19
1.98
1.839
0.02
0.47
0.44
1983/84
1.90
1.21
2.30
2.304
b
0.97
0.66
1984/85
1.99
1.11
2.20
2.050
0.15
0.85
0.57
1985/86 c
2.30
1.17
2.70
2.400
0.25
0.99
0.69
a March/February.
b Less than 50,000 tons.
c Estimate.
Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86TOO586ROO0200150005-8
 Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
Secret
Table A-15
Representative Grain and
Oilseed Prices, 1970-84
Wheat a
Corn b
Sorghum c
Soybeans d
Soybean
Meal e
Soybean
Oil r
Sunflower
Seed g
1976
123
112
105
231
198
438
581
1977
99
95
88
280
230
575
639
1984
140
136
118
282
201
724
766
1985h
142
125
113
257
191
627
659
a Wheat, US No. 1 Soft Red Winter, f.o.b. Gulf ports.
b Corn, US No. 2 Yellow, f.o.b. Gulf ports.
Sorghum, US No. 2 Yellow, f.o.b. Gulf ports.
d Soybeans, US c.i.f., Rotterdam.
e Soybean meal, 44 percent, US c.i.f. Rotterdam.
f 'Soybean oil, crude, Dutch, f.o.b. Ex-Mill.
g Sunflower seed oil, any origin, Ex-Tank Rotterdam.
h Chase forecast as of 24 January 1984.
Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
 Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
secret
Appendix B
Government Role in
the Grain Sector 3
Throughout the 19th century the Argentine grain
economy evolved with relatively little government
control. Landed oligarchies supplied increasing grain
surpluses-more than 8 million tons of wheat and
corn annually during the mid-1930s-which were
channeled through an export-oriented marketing sys-
tem created by private multinational and national
grain firms. By the mid-1930s Argentina was the
world's largest grain-exporting country, accounting
for 23 percent and 61 percent of global wheat and
corn exports, respectively, for the period 1934-38.F-
The laissez faire policies toward the grain sector
began to change in the 1930s as the depression
brought about the establishment of the National
Grain Board (NGB). The NGB was given some
control over export sales and had the authority to fix
minimum prices for wheat and corn. A price support
system was developed at that time, but, because
supports were set at relatively low levels, only occa-
sional intervention by the Board was required through
1940. During World War II the NGB became more
predominant, purchasing a high proportion of all
grain crops, although private exporters could still
acquire grain either on the domestic market or from
the NGB.
By 1947 Peron had tightened the government's grip
on grain exports by establishing the Argentine Insti-
tute of Promotion and Trade (IAPI). The IAPI for-
malized the government's monopoly over the grain
trade with the express purpose of raising money for
industrialization. During the life of the Peron regime,
most of the nation's storage, railroad, and port facili-
ties were nationalized. The private sector-grain mer-
chants, brokers, and farmer cooperatives-acted pri-
marily as commissioned agents for the IAPI. Farms,
however, were left in private hands, and land use and 25X1
production decisions continued to be made by grain
producers.
for corn.
Peron's domestic grain price policies-which sought
to maintain low food prices in order to appease his
urban labor power base-ultimately discouraged farm
output. In the face of unattractive prices, farmers
spread their risk by allocating their land to a mix of
grain, oilseeds, and livestock. They kept costs down by
minimizing the use of inputs such as fertilizer and the
modern agronomic methods that were being devel-
oped in North America and elsewhere. The result was
a significant drop in grain production and exports. For
the period 1951-55, annual wheat and corn exports
dropped to 2.3 million tons and 916,000 tons, respec- 25X1
tively. Argentina's share of world grain exports fell
dramatically to 10 percent for wheat and 19 percent
First Peron Government (1946-55)
Upon taking power in 1946, the government of Juan
Peron sought to shift the economy away from a
lopsided emphasis on agricultural exports by fostering
industrialization. Peron sought to finance the industri-
alization of Argentina with proceeds from agricultur-
al exports, and this meant getting control of the grain
trade
'This review was developed from the following books and articles:
"Argentina and Democracy" by Edward Schumacher, Foreign
Affairs, Summer 1984; Argentina Agriculture: Trends in Produc-
tion and World Competition by John N. Smith, US Department of
Agriculture, 1968; Grain Production and Marketing in Argentina,
US Department of Agriculture, FAS-M222, 1970; Merchants of
Grain by Dan Morgan, Viking Press, 1979; Latin America-A
Concise Interpretive History by E. Bradford Burns, Prentice Hall
Press, 2nd Edition, 1977; Argentine Agricultural Policies in the
Grain and Oilseed Sectors by Myles Miekle, US Department of
Agriculture, ERS-206,1984.
Post-Peron Period (1955-73)
This 18-year period was characterized by a relaxation
of government regulation of the grain sector. Never-
theless, ownership of most of the port facilities and the
railroads remained under government control, as they 25X1
do today. Despite higher purchase prices, grain pro-
duction did not really begin to expand again until
about 1959, reflecting lingering political instability
during this period. The major government policy
initiative during the period was the setting of mini-
mum support prices for each grain. In contrast to the
Peron era, the NGB was obligated to purchase grain
only at the support price. 25X1
25X1
Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
 Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
Second Peron Government (1973-76)
As the Peronists sought to reestablish their former
control over the economy, the country witnessed one
of its worst political and economic crises-with a rise
in terrorism, recordbreaking inflation of 335 percent
in 1975, a large trade deficit, a slide in the commer-
cial exchange rate, and, because of the rise in oil
prices, a large trade deficit. By March 1976, inflation
had hit an annual rate of 1,000 percent, and, with the
government clearly out of control, the military
stepped in
During the 1973-76 period, private traders were again
reduced to mere agents of the NGB-which offered
weekly tenders to international grain traders to han-
dle grain for export. Producers were required to sell
their grain to the NGB at fixed prices, and brokers
received commissions of 1.25 percent for handling the
movement of grains from country elevators to proces-
sors and port terminals. Heightened foreign demand
and good world grain prices, coupled with generally
good weather, however, fostered a certain degree of
stability in grain production and exports. Neverthe-
less, farmers, like their urban countrymen, were dev-
astated by the hyperinflation
Military Regimes (1976-83)
The military took over from the faltering Peronist
government with a mandate to end terrorism and
right the economy by reinstating the free enterprise
system. In the grain sector trading was returned to a
free market orientation. While the NGB still retained
the power to buy and sell grain, it competed with
national and international traders, who were permit-
ted to operate freely within the economy. As an
incentive to farmers to expand grain production,
export taxes were slashed. In April 1976 the export
tax on soybeans was reduced from 42 percent to 10
percent. In August of the same year the export tax on
wheat was reduced from 40 percent to 10 percent.
Later in 1976 the export tax was removed on wheat
and lowered from 50 percent to 10 percent on corn
and sorghum. In addition, producer price supports
were raised, and credit for expanding and improving
grain storage was provided. In 1979 the government
began to sell grain elevators to the private sector,
giving first choice to private Argentine cooperatives.
By 1981 the government began to encourage private
grain companies to invest in their own grain elevators
and port-handling facilities. Also during 1981 the
peso underwent massive devaluations, making Argen-
tine agricultural exports more competitive while at
the same time limiting the attractiveness of imports.
The government also negotiated several long-term
agreements (LTAs) for grains, guaranteeing a custom-
er base for expanded production. The grain sector
responded to Buenos Aires's initiatives by an explo-
sion in productivity. Wheat, corn, sorghum, and soy-
bean exports, for example, jumped by almost three-
fourths from 13.0 million tons in 1976/77 to 22.6
million tons in 1983/84 (see tables, appendix A)
While the expansion in grain output and exports
represents perhaps the brightest economic success of
the eight-year military rule, it also introduced crip-
pling distortions into the economy. For example, the
initial policies of lowering or removing import duties,
coupled with a strongly overvalued exchange rate,
allowed farmers to buy increasing quantities of im-
ported farm equipment and consumer goods at drasti-
cally reduced prices. While the overvalued exchange
rate prior to 1981 created a boom, imports became so
cheap that local industry began to collapse. Concomi-
tantly, while agriculture productively expanded with
the increased use of yield-improving inputs, farmers,
tempted by cheap money, went deeply into debt.
Increasing debt also characterized other segments of
the economy.
The military government had gambled that it could
solve inflation largely through monetary policies.
However, these policies were not matched by fiscal
restraint, and the economy plunged into recession,
with skyrocketing inflation and unemployment. The
government bought out much of the private debt
through exchange guarantees financed largely by
foreign loans. Moreover, the government itself needed
a higher level of loans in part because of the huge loss
of revenues from the reduction and elimination of
export taxes. By the end of 1982, the public and
private external debt stood at $42 billion, compared
with $6.5 billion when the military took over in 1976.
Given this serious economic situation, compounded by
the Falklands war, considerable pressures were built
up to return the government to civilian control-
under either Peronist or democratic rule.
25X1
25X1
Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
 Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86TOO586ROO0200150005-8
Secret
Appendix C
Land Use in the Pampas-
Livestock Versus Grain
Half of Argentina's land is natural grassland, largely
devoted to extensive cattle operations. According to a
recent World Bank study, natural grassland accounts
for roughly 140 million hectares, or about six times
the land devoted to grains and oilseeds (see table C-1).
Within the major crop zones of the Pampas (the large
treeless grassland in east-central Argentina), cattle
production historically has been extremely important.
USDA analysts estimate that, of Argentina's 59
million head of cattle in the late 1970s, about one-half
were still being raised on the Pampas. The scale of
cattle production on the Pampas is a reflection of the
historic importance of beef for the Argentine economy
as well as a manifestation of Argentina's history of
political instability and high inflation. Farmers have
responded to these uncertainties by adopting cultiva-
tion practices that spread risks over alternative possi-
bilities-including growing cattle on some of the
world's richest agricultural land.
The traditional mixed-farming system on the Pampas
has been undergoing gradual change, which may
accelerate in years to come. The World Bank has
identified increases in the use of land for grazing in
fringe areas adjacent to the Pampas. These areas are
either too dry or too wet for crop farming. Tradition-
ally, cattle have been brought to marketable weight in
Argentina by allowing them to graze on planted
forage crops-for example, alfalfa and white clover.
Increasingly now, however, cattle are being fattened
on improved permanent pastures-grasslands seeded
with nitrogen-fixing legumes-on the extensive natu-
ral grasslands on the periphery of the Pampas.'
According to the World Bank study, forage crop
acreage has dropped from 6.2 million hectares in 1970
to only 3.6 million hectares in 1981. Grazing of fallow
' Feed-lot techniques, such as those used in the United States, are
not economical in Argentina. According to World Bank and USDA
studies, feedlots are feasible only when grain prices are low relative
to beef prices-in the range of 1:10 to 1:12. In Argentina, where
both beef and feedgrains are exported, price ratios rarely exceed
1:6. Since grain-to-beef conversion ratios are normally 6:1 or
higher, there is no economic gain from feeding grain to cattle.
Argentine farmers, then, have been better off selling grain to the
market and seeking optimal grazing regimes. This situation is not
Table C-1
Argentina: Land Area
by Principal Use,
1960/61-1981/82
Land Use 1960/61 Increase Percent
1981/82
Total continental
land area
Unusable land for
agriculture
Improved permanent
pastures
Annual and permanent
crops
Oilseed crops
Other crops
279.2
279.2
49.5
50.0
1
9.8
15.0
53
2.6
4.8-
85
2.2
1.6
-27
a Area planted to grain and oilseed crops in the current season are
estimated at 15.5 million and 6.9 million hectares, respectively.
Source: Adapted from World Bank and Argentina's National Rural
Economic and Sociological Service (SNESR) data.
and stubble lands on the Pampas, which traditionally
has played an important role in the Argentine live-
stock economy, is also shrinking. This trend has
developed mainly as a byproduct of intensified crop
production-expansion of double cropping-85 per-
cent of soybean land is now double cropped with
wheat. World Bank analysts indicate that this is
contributing to an exodus of cattle from the main crop
areas of the Pampas to areas less suitable for crop-
ping.
The trend away from cattle grazing on the Pampas
and toward greater intensification of grain cropping is
likely to accelerate with better incentives to grow
grain and the declining foreign markets for Argentine
beef exports. Argentina's beef exports for 1984 are
Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86TOO586ROO0200150005-8
 Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
estimated at only 270,000 tons, the lowest level since
1975. The downturn largely reflects loss of competi-
tiveness of Argentine meatpackers in export markets
vis-a-vis the European Community-formerly a large
import market-and Brazil. In addition, because of
protectionist measures against hoof-and-mouth dis-
ease, Argentina has lost fresh beef markets in many
developed countries and has had to turn increasingly
to processed meat exports. Processed meat production
is a high-cost endeavor for Argentina, but can utilize
lower quality beef. This trend, along with the fact that
residual markets in developing countries are largely
based on price markets, point to increasing emphasis
on lower quality beef production. This outlook would
appear to reinforce the trend away from producing
high-quality beef, fattened on rich Pampa lands, and
toward increased production of lower quality beef on
the fringes of the Pampas. The extent of the transition
and its rapidity will, of course, depend on relative
prices and on a perception by Pampas farmers that
the risks of switching from mixed farming to grain as
the principal form of land use have been greatly
reduced.
Secret 32
Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
 Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
Secret
Appendix D
Condition of the Infrastructure
Argentine farmers typically deliver their production
to country elevators by truck for grading and sale.
Limited on-farm bulk storage-currently estimated
by USDA at about 5 million tons-and a desire on
the part of farmers to acquire ready cash have
generally resulted in a rapid flow of grain to country
elevators and into the main grain ports at harvest-
time. Wheat is the first to arrive (December), then
corn and sunflower seed (March), and sorghum and
soybeans (April). Wheat and other winter grains
usually do not require drying; therefore, most of the
bulk storage facilities on farms are used for these
crops. About 70 to 80 percent of the summer crops-
mainly corn, sorghum, and soybeans-require some
drying, which is usually done at off-farm facilities.
and the transfer of grain from elevators to ships. Rail-
cars entering port terminals are often used for residu-
al storage, resulting in further backups and inefficien-
According to a recent USDA study, 80 to 90 percent
of the grain marketed in Argentina is handled by
registered merchants and cooperatives that operate
country elevators. Annually, these internal marketing
facilities handle about 20 million tons of grain-
providing grading, cleaning, drying, and fumigating
services. As with grain production, the bulk of country
elevators are concentrated on the Pampas (see figure
4). According to USDA, country elevator storage
capacity increased 15 percent from the mid-1970s to
about 11.6 million tons in the early 1980s. Ownership
of these facilities is mainly in private hands-10.5
million tons versus 1.1 million tons owned by the
National Grain Board (NGB). Typically, the NGB
leases its facilities to private merchants.
According to the NGB, there is currently only 4
million tons of bulk grain storage capacity at port
facilities around the country, most of it operated by
various government departments. There are 23 major
port grain elevators, but they average only 47,000 tons
each, compared with an average of 133,000 tons in
the United States. The shortage of port storage
capacity hampers the efficient receipt of grain at ports
cies in the overall grain transportation system.
Aside from the physical storage capacity restrictions,
the volume of grain handled is limited by the short
workweek at port elevators-only 114 hours, com-
pared with the rail system, which funnels grain into
the port 24 hours per day, seven days a week.
From country elevators, grain moves to port terminals
via truck, rail, and barge. According to the NGB, 25X1
trucks and rail accounted for 58 percent and 40
percent, respectively, of the total grain transported to
ports in the late 1970s. Since about two-thirds of
exportable grain surpluses are produced within 240
km of ports, the trucking industry has evolved as a
major component of the marketing system for grains.
Nevertheless, trucks in Argentina operate at a high
cost, in part reflecting the expensive maintenance
necessitated by the poor condition of many rural
roads. In addition, costs are high because of the
limited use of each truck. According to a recent
USDA study, trucks in Argentina used mainly for
hauling grain average less than 100,000 km annually,
compared with more than 250,000 km for trucks in
the United States.
Argentina's rail network-totaling 32,200 km-
annually transports about 10-12 million tons of grain
(see figure 4). Although rail transportation is general- 25X1
ly cheaper than trucking, it is often slower because of
structural and equipment problems of the rail system.
Railways in Argentina were built specifically for the
movement of commodities from the farmer and coun-
try elevator to the nearest port, but their operational
efficiency is reduced by the fact that three different
Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
 Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
Figure 4
Major Grain Ports and Transportation Network
COMM
'Rivadavia
Villa Con rtucii n (W-Wi ft is de
san w carES los Arr yos
de.los x],roroa -IM
mallo ~. say
San,Pedro P~d ~'
OR .... i,
Punra
OA+edaaas
Grain port
Existing
Under consideration
Railroad
Broad gauge (1.676 meters)
Standard gauge(t.asa meters)
Meter gauge (1.0 meter)
H,/EEE#1F29F ~ -~-~-
lEt Rio
?S tfe
AIRES 1a data
La
Plata
7Tres 1uo
Arroyos Becocfi
VIar doiPtate
Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
 Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
Secret
gauges of track exist in the system. This limits
switching of railcars and prevents easy transfer of
grain from one system to another. In addition, the
condition of tracks is generally poor, and this has
resulted in average operating speed of about 10 km
per hour as well as frequent derailments. Efficiency is
further reduced by the average boxcar capacity of
only 45 to 50 tons, compared with 75 tons in the
United States.
A shortage of usable railcars also has been a perennial
problem. According to a recent USDA study, the total
fleet consists of about 12,200 cars, of which 85
percent can be used only on broad-gauge track (1.67
meters), 11 percent on standard gauge track (1.43
meters), and the remainder on 1-meter gauge lines
(see figure 4). Only the standard gauge system has a
high percentage of modern cars equipped for efficient
grain handling. During harvest, country grain eleva-
tors often encounter shortages to
port.
the shortages are not
necessarily due to insufficient numbers of railcars, but
more often because the cars are used for storage at
ports during peak shipment periods.
On top of the structural problems, the organization of
the rail system results in perennial coordination prob-
lems. Although the Government of Argentina nation-
alized the railway system in 1946, the system consists
of six different lines-Roca, Sarmiento, Mitre, San
Martin, Urquiza, and Belgrano Railway Companies.
The government has attempted to make the railroads
more competitive with trucking through seasonal rate
adjustments and discounts. Furthermore, demurrage
is not charged for unloading delays since all railcars
and most port elevators are owned by the government.
Trucks, on the other hand, do incur demurrage
charges and are given unloading preferences at termi-
nals. This procedure results in considerable lengthen-
ing of turnaround time for the rolling stock.
The third component of Argentina's internal grain
transportation system is the barge fleet. The main
inland waterway is the Parana River, which leads
from northern Argentina to the port of Rosario and
other ports on the Rio de la Plata Estuary. While the
Parana River is navigable for barges over much of its
length, they have remained uncompetitive for grain
transportation. According to USDA analysts, a gov-
ernment regulation requiring a minimum number of
laborers on board has tended to make barges more
costly than they would otherwise be. Moreover, the
fact that only a small volume of exportable grain is
produced annually in areas not accessible to oceango-
ing vessels limits barge use. Should grain production 25X1
expand northward, barges could become a more im-
portant mode of grain transport.
The Port System
Because of Argentina's historic orientation as an
export economy, most of its major truck routes and
rail lines converge at the major ports (see figure 4).
Argentina has several major grain-exporting ports:
Bahia Blanca, on the Atlantic Ocean; Buenos Aires, 25X1
at the mouth of the Rio de la Plata Estuary; and 25X1
Rosario, upstream from Buenos Aires on the Parana
River-as well as a number of minor ports (Quequen, 25X1
Mar del Plata, San Pedro, Ramallo, San Nicolas de
los Arroyos, and Villa Constitucion).
In addition to the shortage of grain-handling facili-
ties, Argentina's grain export potential is limited by
the physical conditions of its major ports. According
to a World Bank study, the major problem is the
shallow depth of the sea and river channel accesses to
the ports and the water alongside loading piers. At
Buenos Aires the depth alongside loading piers ranges
between 9.4 and 10.7 meters, at Rosario between 7.9
and 9.1 meters, and at Bahia Blanca between 8 and 9
meters (see figure 5). Grain ships loading at Buenos
Aires are restricted to 34,000 dwt, compared with the
ships of 50,000 to 60,000 dwt with 12-meter drafts
used in many countries' grain trade. Even the smaller
ships must follow the slow process of loading 10,000
to 18,000 tons upriver at Rosario and then topping off
at Buenos Aires or Bahia Blanca. Heavy rains often
cause additional silting in the Parana River, further
reducing navigability.
25X1
25X1
due to silting and lack of mainte- 25X1
nance dredging, the important manmade Mitre Chan-
nel in the Parana River currently is only 7.5 meters
deep, compared with its design capacity of 8.5 meters.
Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
 Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
 Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
Secret
These conditions, coupled with the seasonal peaks of
grain flowing to port, invariably result in port conges-
tion and extended shipping delays. Delays can be
exacerbated by the frequent strikes that plague Ar-
gentina, such as the Stevedores Federation strike
during July 1983 and the tugboat crew strike in May
1984. Grain traders and shipping brokers have report-
ed shipping delays of 20 to 30 days and sometimes
longer in recent years, reflecting the above-mentioned
problems. The Soviets have been particularly vocal in
their complaints about port congestion and resulting
demurrage costs. Repeatedly over the last three years,
the Soviets have sent missions to Argentina to investi-
gate the delays. According to US Embassy reporting,
Eugene Shcherbakov, Soviet Minister of the Mari-
time Fleet, on a visit to Argentina during 1984
expressed renewed concern over delays that affected
grain shipments to the Soviet Union last season.
Shcherbakov's publicly offered solution was a propos-
al to redesign the port of Bahia Blanca so that ships of
up to 100,000 dwt could operate there within two
years.
Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
 Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86TOO586ROO0200150005-8
Secret
Table D-1
The Major
Location and
Background
Aires This natural river
port is located at the
mouth of the Rio de
La Plata Estuary
and services the cen-
tral part of the grain
and oilseed produc-
tion region.
Mix of grains han-
dled in recent years
(in percentage
terms): corn, 54; sor-
ghum, 17; soybeans,
14; and wheat, 8.
Due to its orientation
toward summer
crops, port activity is
heaviest during the
middle part of the
calendar year (April-
September).
Served by excellent
road system, which
provides convenient
access to southwest
Buenos Aires Prov-
ince and producing
areas in the north-
west and along the
Rio de La Plata
Estuary.
Served by all six rail-
way lines including
the standard-gauge
Urquiza line.
Of the 2.38 million
tons of grain entering
the port in 1979, 62
percent entered by
rail, 36 percent by
truck, and 1 percent
by barge.
Truck receiving ca-
pacity: two old hoist
units, 1,000 tons per
hour, and two new
platform scales, 600
tons per hour.
Rail receiving equip-
ment: 16 hoppers
and four conveyors,
500 tons per hour
each.
One large concrete
grain elevator with a
total storage capaci-
ty of 170,000 tons.
Ship loadout capaci-
ty: four old convey-
ors with 450-tons-
per-hour capacity
each, two new con-
veyors with 1,200-
tons-per-hour capaci-
ty each. Total ship
loadout capacity 4.2
million tons per year.
Port
Characteristics
Depth alongside
loading piers-9.4 to
10.7 meters.
Channel depth 7.9 to
9.1 meters.
Grain-handling facil-
ities include six 3-ton
cranes, one tube with
a 400-tons-per-hour
loading rate.
Height of grain-load-
ing spouts; 19.6
meters.
Shipping gallery
berths three to five
ships at a time.
Operational
Problems
Road system leading
into port good, al-
though traffic jams
tend to be a problem.
Grain coming into
the port area on the
standard-gauge Ur-
quiza line must be
transferred to other
gauge railcars before
entering port termi-
nal area.
Grain arrivals at port
sometimes exceed
storage capacity (for
example, grain cars
often remain unload-
ed for a week or
longer).
Delays in part reflect
incongruity of the
work hours for port
elevators versus
railroads.
Port congestion in-
creased by need for
ships carrying grain
from Rosario and
other ports along the
Parana River to be
topped off at Buenos
Aires.
a Informatior
including the
Grain-Handl
ment of Econ
Raleigh, Nor
System (Econ
US Departm,
views by anal
Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86TOO586ROO0200150005-8
 Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8
Secret
Sanitized Copy Approved for Release 2010/11/08: CIA-RDP86T00586R000200150005-8