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April 17, 2013

Soybean Production Costs in Argentina About Half that of Brazil

As soybean farmers in Argentina harvest their 2012/13 soybean crop, they are concerned about their economic future, but one thing to their advantage is that they have a much lower cost of production compared to Brazilian soybean farmers. The cost of growing soybeans in Argentina is about half of what it is in their neighbor to the north. An average variable cost of producing soybeans in Argentina is in the range of R$ 500 per hectare (US$ 102 per acre), whereas in southern Brazil might be R$ 1000 per hectare (US$ 204 per acre) and in central Brazil it could be as high as R$ 1,800 per hectare (US$ 370 per acre).

According to Sebastian Gavalda from the Regional Association of Argentine Agricultural Experiment Stations (AACREA), the cost of growing soybeans in Argentina is much lower than in Brazil due to a number of factors including: the soils in Argentina are more fertile which in turn requires less fertilizer use, Argentine farmers plant a higher percentage of their crop to GMO soybean varieties which lowers their costs, soybeans grown in Argentina have less insect and disease pressures compared to soybeans grown in Brazil, and soybeans grown in Argentina travel much shorter distances to export facilities compared to Brazil.

The Pampas soils of Argentina are some of the most fertile soils in the world which allows farmers in Argentina to use very little fertilizer to produce their soybeans. In contrast, the highly weathered soils of central Brazil are very infertile and farmers in Mato Grosso need to apply significant amounts of phosphorus and potassium on a yearly basis to maintain high soybean yields. Fertilizers can account for up to 35% of the cost of producing soybeans in Mato Grosso, Brazil.

In many parts of Argentina, virtually 100% of the soybeans are GMO varieties, which allow farmers in Argentina to lower their costs even more. In Brazil, approximately 80% of the soybeans are GMO varieties. It's easier to introduce new technology into Argentina because the main production area of the country is at latitudes very similar to the southern Midwest. This allows farmers in Argentina to plant some of the very same soybean varieties that are grown in the U.S. Much of the production areas of Brazil are at latitudes closer to the equator, so varieties used in the U.S. cannot be planted in Brazil. Scientists in Brazil must develop varieties specifically adapted to the latitudes and climate of central Brazil. This in turn, has slowed down somewhat the introduction of new technologies in Brazil.

Even though soybeans are generally produced as a monocrop in Argentine, producers have been fortunate in that disease and pest pressures have not been a significant drag on soybean yields, at least not thus far. Brazilian farmers on the other hand have had to deal with ever increasing insect pressures and diseases such as soybean rust. They spend billions of dollars annually controlling insects and soybean rust, which is the number one yield-robing soybean disease.

One of the biggest advantages in Argentina is that the soybeans are generally produced in close proximity to the ports, thus reducing transportation costs. Nearly all the soybeans in Argentina are produced within 400 kilometers of the ports, whereas in Brazil, some of the soybeans need to be transported up to 2,000 kilometers in order to reach export facilities. Even though 84% of the soybeans in Argentina are transported to the ports via trucks, their transportation costs are only a fraction of what it costs to transport soybeans by truck to the ports in Brazil.

Approximately 50% of the soybeans in Argentina are grown on rented land where the leases are renewed on an annual basis. In the most productive areas, the rent is approximately 30 sacks of soybeans per hectare or 26 bu/ac. Much of the actual production activities such as planting, spraying, and harvesting are contracted out to third parties.

Even with a very low cost of production, farmers in Argentina are struggling with high export taxes (35%), raging inflation (approximately 30%), an artificially low exchange rate, and a very uncooperative federal government.