Financing of financial entities to the agricultural sector

Three consecutive years of drought, combined with a gradual tightening of the exchange rate since the end of 2019 and a growing dynamic of interest rates to combat inflation, have finally broken the trend of increasing bank financing to agriculture in foreign currency that extended during the period 2016-2019, as was opportunely analyzed in the publication of September 13, 2019, Strong growth in bank financing in foreign currency to the agricultural sector1.

Bank financing2 measured in dollars to the agricultural sector (cereal, oilseed and forage crops), reached a total of 2,612 million dollars as of December 31, 2022, 9% more than the same period of the previous year, although 15% lower than that recorded in December 2017. For its part, loans in pesos to this sector (converted at the exchange rate3) at the end of December 2022 reached a total of 2,207 million dollars. In percentage terms, the financing that took funds in dollars reached a participation of 15.5%; that is, USD 405 million, registering a sharp drop from the 64.4% that it registered in the same period of 2019. Among the factors that explain this dynamic are the reintroduction and subsequent tightening of the exchange rate, the impossibility of Argentina access international debt markets due to the restructuring of commitments with the International Monetary Fund, which increased the local risk premium measured in terms of country risk, and the greater uncertainty in macroeconomic terms regarding the evolution of inflation and the exchange rate.

Although to compare absolute amounts year after year, it is necessary to compare the stock of bank debt with various factors: planted area, input prices, the level of technology applied, the rotation or use of cover crops and the variation in the area destined to cereals and oilseeds in Argentina, the gross amount considering the rest of the factors constant (a reasonable assumption if we cover a limited period of time) serves as a proxy to understand the dynamics of the sector and the decisions of the producers.

Despite the increase in interest rates in both pesos and dollars, the volume of bank financing in 2022 was greater than in 2021. In terms of sowing and application of technology and inputs, the 21/22 and 22/23 campaigns They were very similar, while for 23/24 substantial changes are expected due to the impact of the strong drought.

In terms of the sector’s participation in the aggregate of bank financing, it is observed that this oscillates between 2.9% and 5.2% in the last 8 years, although with an increasing trend since the 2018/19 campaign, reaching second quarter of 2023 5.2%.

Despite the large amount of foreign currency and money generated by the agricultural sector, the level of financing it has with the national banking sector is very low. Over the years, he found other alternatives for financing inputs and working capital, which were analyzed in detail in the article entitled How were producers financed in the 2022/23 campaign?, from the last 14 of July.

In terms of delinquency and non-payment, it can be seen that the sector’s compliance remains at historically high percentages, between 93% and 98%, which denotes a great repayment capacity in the sector. Although some change in these figures could be expected between the last quarter of 2022 and the first quarter of 2023 due to the fierce drought, it can be seen that the incidence of the phenomenon was marginal, at least when this source of financing is analyzed. It is logical considering the relatively low percentage (15% is the calculation for the 2022/2023 campaign, according to the article mentioned in the previous paragraph) that financial entities represent as a source of financing on the total amount required by the sector.

In this sense, it is worth mentioning that the National Government has implemented measures to alleviate the agricultural crisis as a consequence of the drought, detailed in the publication of February 3: Measures adopted by the National Government to address the agricultural emergency and disaster. In the first instance, the agricultural emergency was established for all producers in the country, suspending fiscal and banking executions, and extending the payment of tax receipts and advances.

1 It should be taken into account that in the previous note stocks were taken as of June of each year, so there are differences in the amounts and participation, mainly due to variations in the official exchange rate.

2 Includes those derived from advances in current or other demand accounts, from the purchase of documents, those implemented under the modality of documents with a single signature, discounted documents, mortgage loans, pledges, personal loans and holders of the credit card system and any other cash loan not included in the above.

3 Quarterly average of the A3500 exchange rate of the BCRA.

By Francisco Rubies Emilce Terr
Source: Rosario Stock Exchange