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Brazil's recovery is a good sign for Argentina
"If Brazil sneezes, Argentina gets a cold." Even though it's an old saying, it still holds truth. A large part of the national production, and that of Mendoza in particular, depends on the economic situation of the South American giant. In this sense, there is some good news for local entrepreneurs.
"After several years, the Brazilian economy has begun to recover. This is a good sign for Mendoza, because it is one of the main external buyers of its products," states a report by the Institute of Studies on the Argentine and Latin American Reality (IERAL) of the Mediterranean Foundation.
Brazil receives 18% of the exports from Mendoza, which represents approximately 250 million dollars. Some of the most demanded local products by the neighboring country are: wines, agricultural products (garlic, fresh fruits), agroindustrial products (canned and pasta dried plums and peaches) and olives (canned olives and olive oil).
The recession that Brazil went through had a strong effect on its imports. However, the trend was reversed and the situation is expected to improve in 2018. According to forecasts, Brazil's economy is expected to grow by 2.1%, If that happens, Brazilian purchases from other countries should increase at a faster pace. "It will probably have a bigger influence in volume than in prices", according to the work of economists Gustavo Reyes and Jorge Day.
"The situation should be better for these export sectors (agro and agroindustrial) of Mendoza in 2018. Not only can Brazil buy more, but one should also take into account the devaluation at the end of the year, and the greater harvests of fruits, and perhaps of grapes, which implies there will be more raw material and lower prices. According to estimates, on average when the Brazilian GDP increases 1%, its imports in dollars more than double," the research adds.
Beyond these optimistic expectations, the document emphasizes a problem that the regional economies have: the loss of competitiveness of their products, as Argentina's costs are very high compared to other countries. This explains why the evolution of relative prices (the relationship between sales prices and costs) has followed a declining trend.
"Argentina's lower competitiveness has also impacted the prices of raw materials. If the export sector has to pay more and more to export, they have less and less funds to pay for their raw materials, which is the price received by the producers. As a result, for example, there is a reduction in the cultivated area of fruit trees (plums and peaches, something that had already happened with apples and pears)," states the document.
This lower competitiveness also implies that Argentina is more expensive, and therefore, Brazil chooses products from other countries (wine from Chile or garlic from China).
"In summary, the recovery of Brazil is a good sign for Mendoza, and the sectors that export products will also benefit from the devaluation at the end of last year and the greater availability of raw materials. However, the competitiveness problem facing our country in general continues to play against them," the report concludes.
Publication date: 4/9/2018
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