As Argentina opens its economy to the world, its key agribusiness sector – long the mainstay of its economic growth – seeks a reinvention through technology and greater trade and commerce agreements worldwide. The Worldfolio sits down with Roberto Urquía of AGD, which is among Argentina’s most prominent agribusiness companies, to discuss these changes. AGD is a purely Argentine company which has made the change from simply exporting raw materials to a diversified portfolio including value-added, branded products.
The global middle class and consumption are growing worldwide, and there is more concentration of people in cities. In this context, countries that produce foodstuffs such as Argentina face great opportunities. What is your opinion regarding the opportunities in the international economy?
I see that the world economy is focused on food, and that the standards of life are improving and will continue to do so in the future. Argentina is one of the five countries that have natural conditions — particularly in terms of highly trained human resources — to become one of the most important food suppliers in the world. The current government plans to continue growing in the production of proteins and food. If Argentina has the capacity to feed 450 million people as it has today, by accomplishing the government’s goals the country will probably be able to feed 600 million.
There is considerable population density in the Far and Middle East, particularly in urban centers, as the rural population is moving into the cities. In China, almost 30 million people migrate from the countryside to the city per year, which has led to a change in the way the Chinese eat. They used to eat vegetables and what they were able to produce themselves, and are now incorporating more meat proteins. This, in turn, implies an increase in the demand for vegetable proteins, of which Argentina is the first world exporter in products like soybeans.
Soybean has an amino acid profile that performs better than its competitors such as peanut and sunflower seed in terms of fodder/meat yield ratios. Argentina has an important role to play, because when the African continent awakens thanks to political reforms, there will be a considerable number of people with unsatisfied basic needs.
Since agri-commodities have undergone periods in which prices were dropping, the population has widened the range of products they consume resulting in consumption habits that will still be there even after prices go up again, then we should not be afraid of price volatility
Does this mean that the sector can adapt to changes in the commodities’ prices better than before?
Food markets are connected with one another. When a certain region stops consuming a certain product its price might fall, but that means other regions will start consuming because of the product being cheaper. China has displayed a deceleration of its growth rate — from 10% to 7.5% — but most countries would very much like to have these growth rates.
Out of all the sectors on which the government is working in order to boost growth, the agricultural sector is the one that has the highest potential at the moment. Do you think agriculture is leading the other sectors in the country?
I think that the factors that make the sector develop and grow have a large impact in the rural areas of the country. As 75% of the population in Argentina is concentrated in five cities, this leaves the ‘interior’ of the country anemic. We must populate the cities in the countryside to offset this imbalance. If the agricultural sector grows, this is positive for the whole country as it stops the flow of people migrating to the big cities. People in the countryside stay in their hometowns because of the opportunities the job market has to offer. There is an increase in the demand for skilled labor, as the technology used in the agricultural sector has become more sophisticated. This stops the outflow of people to big urban centers.
Nowadays, Argentina has significant and high-quality human resources that are oriented towards agribusiness. Technology is proficiently managed, in a sustainable and professional way. People are able to use state-of-the-art technology in order to be more efficient, to save energy, time and effort. This has a positive indirect impact, because it generates a demand for accounting, legal, health and other types of services. We are not just talking about primary production, but of a source for the development of other non-primary industries. In sum, the agricultural sector is much more than just primary production, and when the sector is dynamic it prevents people from leaving the countryside, which is key to Argentina. Big cities suffer from security issues, drug trafficking and bad transport services. Although there are measures being taken to improve this, it will take time to better these conditions.
The projects led by the Ministry of Transport, which aim at improving the transport infrastructure of Argentina within four years, will mean more industrialization of the agricultural sector. Do you think this will lead to a faster outflow of people into the cities?
The more infrastructure there is, the more incentives to live in the countryside. This answers to the fact that there are many facilities the countryside can offer that the city cannot, such as security. Nowadays, thanks to enhanced means of communication, the countryside is more comfortable than the big city, but also safer and with a better access to good public education. I do not see the appeal of the big city.
These reforms will boost production and will lower the cost of transport. In Argentina, it is more expensive to transport a product from Salta to the port of Rosario, than from Rosario to Rotterdam. What are the main changes that could help the agricultural sector in this sense?
The Paraguay and Parana Rivers are two waterways that should be improved, as they have an impact on both the Northeast as well as the Northwest of the country. Fluvial transportation is more efficient and competitive.
We have also analyzed the railway plan devised by Minister Dietrich, and we believe it is a very interesting one—it includes the Belgrano Plan that will improve the Belgrano Freight Railway. They have correctly recognized the current issues and they are reforming the plan accordingly. This will greatly help the North of the country, which is the area that lacks connectivity the most, implying higher transportation costs to the port terminals. Within two or three years, production in this area will become economically feasible, which is not the case today. There are certain regions where production can only be transported by truck, and the highways that the Ministry is planning to build will reduce these costs. Furthermore, we live in a country where the number of road accidents per year is quite high, and new roads will help lower this number.
President Macri has stated that he wants Argentina to ‘go from being the world’s barn to the world’s supermarket’. You also uttered that sentence back in 2014.
Argentina’s chance of generating new jobs goes in hand with the country’s possibility of adding value to those sectors in which it is competitive. There are sectors, such as the production of cell phones, where job creation will not be easy. We need to add value to our natural resources. We need the Ministry of Foreign Affairs to play a meaningful role when it comes to international economic negotiations. This is why the Minister of Agri-Industry, Ricardo Buryaile, is travelling abroad: he is trying to develop markets for products with added value.
Historically, Argentina has sold raw materials, there was no interest in selling products with added value or any degree of industrialization. But this situation is changing, and we need governmental agencies for international economic relations that generate policies lasting longer than any given government; we need long-term policies. Otherwise, it will be prejudicial for industries. The Ministry of Agribusiness is working on this precisely.
In the case of Argentina, what is necessary for the country to be competitive?
Ten years ago, Argentina proposed a policy of zero tariffs to all international organizations. This conveys the idea of confidence and competitiveness from Argentina. China might have cheap labor, but this does not explain 100% of the cost of a product. Countries are certainly willing to sell their products however that is not the case when it comes to buying, which is why the concept of free trade ends up being hypocrisy. It is not good business for Argentina to sell raw materials as they are. We need to export canned oil, packaged tomato sauce, and products of the like.
You already are the example of what could be done in Argentina as you currently sell a product with added value, which is bottled oil. Do you regard your company as a role model?
There are other important companies in the sector, such as Molinos, that also add value. The problem is that only 10% of our exports are added value products, whereas the remaining 90% is sold without industrialization. Our goal is to transform this 10% into 50%.
When do you expect to accomplish this goal?
Four years is a relatively short period of time. A company like ours, which has a 65-year old story, has longer term goals. We need to get used to policies lasting over one government, they need to be agreed upon by all the different political parties. We need to avoid changes in these policies once there is a change in government, because it would imply a negative impact on the sector and many efforts would go to waste.
From the business point of view, there is a process and it takes time to adjust to it. However, we need to take this road in order to allow Argentina to develop.
Regarding AGD, most of the company’s exports are destined for Europe, Asia and Africa. Where would you like to export in the future?
The United States and Brazil are our competitors and Europe is a mature market that will hardly grow any faster. The biggest challenge is Africa. In the short and medium-term, our challenge lays in the Far and Middle East. The latter, however, is so affected by wars that it is hard to set a stable market route. Vietnam, Malaysia, Indonesia and Thailand are markets where we have a good business relationship, and we value their high growth rates.
Last year, people consumed more farmed fish than sea catch. Fish is the animal that can best transform maize and soybean meal into protein, which is why it has the lowest environmental impact. In order to produce 1 kilogram of beef, you need 10 kilograms of fodder (comprised by soybean meal and maize); in the case of pork, you need less than 3 kilograms; poultry implies 1.5 kilograms; and fish, only 1.1 kilograms. This means fish has the best conversion rate, which causes the sector to grow exponentially resulting in a larger demand of soybean meal —Thailand and Indonesia already demand large volumes.
As the agricultural sector grows in Argentina, what does AGD need to do in order to maintain its market position?
We are betting on renewable energies. We are currently developing a project to build a photovoltaic power park, which will allow us to produce with less environmental impact, generating a final product that will be a desirable option for the consumer—particularly the younger generations.
On the other hand, we are working on the logistics aspect, as it is a significant proportion of the final cost. As a consequence of the reduction of taxes on maize exports, we are building and inland elevator in Pampa del Infierno, in Chaco Province. Since taxes on soybean and its derivatives were lowered but not eliminated, there will be a larger production of maize which has come down to zero export tax.
During the 80s, when the prices of oil dropped, many AGD employees worked for no salary in order to keep the company afloat. However, not many people know this. Now that Argentina is in the spotlight, how would you make the company stand out?
I have always been lucky enough to work with a great team, particularly in the past 15 years. Individual efforts are good, but they amount to nothing if you do not have a great team that shares the same goals. We are a low-profile group and this is likely why our name and history do not stand out in the people’s eyes.
When I started working in this company after completing my Master’s Degree, I became in charge of the foreign trade sector. This allowed me to travel around the world, and I always had a question for every client. In most cases, the answers were much alike, but I still managed to get something new and different in each answer which allowed me to foster innovation in sales. We always tell our collaborators that we are not the best, but we work every day in trying to become so.
Interview by Nicolas Carver, follow him on Twitter at @WorldTempo