just-food’s Latin America correspondent Paula Krizanovic analyses how Argentina’s recent packaged of emergency economic measures could impact the food sector. 

After four years of centre-right government, led by Mauricio Macri, December marked the return of a centre-left Peronist alliance into office in Argentina.

This time, the ruling party, Frente de Todos, is commanded by President Alberto Fernández – representing traditional Peronism and so far enjoying the blessing of provincial governors – and by Vice President Cristina Fernández de Kirchner, who ruled Argentina for two consecutive terms before Macri.

In large part, Macri’s defeat in the national elections last October was due to the economy, with the country in a deep recession and once again largely in debt with the International Monetary Fund.

The new government, which took office on 10 December, took the reins of a country where consumer demand is under pressure and where the annual rate of inflation is 53.8%, according to Argentina’s Statistics and Census Institute (INDEC). Data from INDEC shows prices for food and non-alcoholic beverages rose by 56.8% in 2019.

In December alone, according to a Nielsen Scantrack report, sales of grocery products fell by 4.8% year-on-year, while sales of fresh products, dairy and frozen goods dropped 10%.

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Argentina’s food industry – which doesn’t look back fondly at Cristina Kirchner’s terms in office, which included export tariffs and increasing taxes – was nonetheless still affected by Macri’s more open market policies.

The last data available shows industrial production in Argentina fell by 4.5% in November year-on-year. Even the food and beverage sector saw output drop 2%, while sales fell across a number of segments.

Just before the turn of the year, President Fernández and Martín Guzmán, Argentina’s Economy Minister, got the necessary support in Congress to pass a Solidarity and Productive Re-activation Law, emergency legislation with over 80 articles designed to boost economic activity and consumer demand. 

What has come to be known as the Emergency Law included new regulations for many aspects of the economy: from higher taxes for grain exports, a 30% tax on foreign currency purchases and even the possibility for the President to determine minimum compulsory salary increases.

That last measure has recently been executed by decree: in the private sector, employees saw a rise of ARP3,000 (US$49.65) on their January salaries and will see another one of ARP1,000 in February. The numbers will be the same – in February and March, respectively – for employees in the public sector with salaries of under ARP60,000 a month.

There are other government initiatives that could have an impact on food manufacturers operating in Argentina. One is the renewal of the Precios Cuidados plan, a programme initiated during Cristina Kirchner’s administration and continued with some changes during Macri’s term, under which producers, supermarkets and the Government agree on a list of basic necessity products and freeze their prices, generally for a three-month period. 

The most recent list – drawn up last month – included 310 products at fixed prices, of which 196 are food and beverages. However, past experience shows Precios Cuidados may not boost food and beverage consumption overall but instead lead consumers to switch purchases to the products on the agreed list.

“Sales usually increase for the items included in the programme, and probably they will again with this new edition of Precios Cuidados, but it will not lead to a rise of consumption of food and beverages in general,” Facundo Aragón, commercial manager for Nielsen in Argentina, says.

Aragón argues there is another limitation to the effects of the initiative, pointing out the reach of Precios Cuidados only goes as far as Argentina’s supermarket chains, which account for about 25% of food and beverage sales. In smaller stores, where it is harder for the government and manufacturers to track prices, owners still end up charging whatever they want.

For manufacturers, the combination of Argentina’s inflation and a freezing of consumer prices could lead to a squeeze on margins. However, Aragón suggests some manufacturers have worked out how to manage the impact of the Precios Cuidados programme.

“The companies that participated in past have actually done very well, especially in the latest editions of Precios Cuidados, since the first lists of products usually left very small margins for producers when costs rose during the months prices were frozen,” he says.

Overall, Argentina’s food-industry association says it supports the Precios Cuidados mechanism.

Daniel Funes de Rioja, president of the largest food industry chamber in Argentina, the Coordinadora de las Industrias de Productos Alimenticios (Copal), agrees the prices consumers pay need to fall but points out the separate impact of tax on prices.

“Currently, the average tax cost in the final price of a basic consumer basket of goods in Argentina is of 41.3%. In the case of foods in particular it is of 42%, of which the value added tax [IVA in Spanish] is 21%,” he says.

Funes de Rioja cites a study issued in January by the Argentine Institute of Fiscal Analysis (IARAF), which concluded the food industry sees taxes levied by different levels of government amounting to – for products such as biscuits, rice and noodles – a 42% tax in the final retail price of some products.

Last August, Macri suspended taxes on a series of basic products – from milk and sugar to bread and flour – until the end of the year but Fernández’s administration has not continued the freeze. Therefore, Copal argues that, even with the Precios Cuidados in place, food prices will rise again due to the IVA.

Another initiative, which began to be implemented on 20 January, was a card from Banco Nación, one of Argentina’s main banks, handed out to families with the lowest incomes in order to tackle the problem of hunger among young children. 

Low-income parents with children under the age of six, pregnant women in their third trimesters on low incomes and people with disabilities that are already beneficiaries of social assistance, receive the card, which can only be used to buy food and basic goods. Each card will hold ARP4,000-6,000 a month.

As well as helping some of the poorest in Argentina, another goal of the programme “is to get the economy moving”, Social Development Minister Daniel Arroyo has said.

When asked by just-food about the potential impact this programme could have on business, Funes de Rioja said: “At Copal, we agree with the diagnosis behind the programme, in the card as a method of direct return of the IVA that consumers pay when purchasing food, and its reach which is limited to products from the basic consumer basket of goods.

“But also we support the creation of opportunities for a multi-sector debate to seriously work on solutions to the country’s structural problems such as hunger.”

Nielsen’s Aragón argues the impact of the card on industry will depend on the programme’s reach and if it is really implemented throughout the whole country as planned. 

“Obviously, the money will be all invested in food and beverages, the question will be what the beneficiaries do if they are left with some extra cash to spend. In the lower-income segment it will probably go onto primary goods purchases,” Aragón says.

Overall, industry watchers appear to agree the new government’s measures make sense in the context of Argentina’s economic problems and are not aimed to benefit the sector per se. 

“We still don’t have conclusive data on the impact of these recent measures,” Sebastián Corzo, director of the insights division of Kantar in Argentina, says when asked about how Fernandez’s plans could affect the local food industry. 

“We will have to keep monitoring how different variables of the economy interact. It is key to see if purchasing power in middle- and low-income populations increases, and for that we need to take into account also the growth rate of salaries, pensions and social subsides, which would need to surpass the inflation rate.” In 2018 and 2019, the average salary in Argentina did not rise as quickly as inflation.

“Our perception is that the measures will not add up to internal demand but give people who were struggling some air in order to spend,” Nielsen’s Aragón says. “To really boost the economy, we will have to see a significant increase in the purchasing power of the population. This can only be achieved if salaries increase more than inflation or if you create more jobs for people who are not working today.”

Nonetheless, Corzo has some optimism for the food sector. “Food and beverages is one of the categories in which demand has fallen the most in the last two years, therefore a recovery in purchasing power would surely imply a change of this trend for these categories.”