Argentina: Energy tariff increases hit regional economies
Various productions will face sharp increases in costs due to the removal of subsidies ordered by the Government.
Due to its intensive nature, a large part of Argentina’s regional economies are dependent on irrigation, whose importance grows in times of drought such as the one that is being experienced in much of the country.
Irrigation requires the use of electricity, so from Coninagro fear that the increase in tariffs for the removal of subsidies «generate a significant impact on the cost structure of the primary producer».
The entity gives as an example a vine producer, whose electricity bill will increase at least 118% over the previous season, and multiplies by 3 if compared to the 2020/21 season, according to data from the Observatory of the Association of Wine Cooperatives of Mendoza (ACOVI).
In the case of a small producer of 10 hectares, the cost of electric power for the irrigation season, which goes from August to March, the bill would be at least $195,797, against $89,825 in the past season and $62,023 in the previous season.
From Mendoza, Nicolás Vicchi, deputy manager of the Association of Wine Cooperatives, said: «We are very concerned about the untimely implemented removal of subsidies without any criteria, we have begun the irrigation season and faced with the mega drought that we are going through, the availability of water is diminishing, making the use of groundwater more necessary through extraction by wells».
«There are areas in Mendoza where the only form of irrigation is through the pumping system with wells. The increase in production costs has been very strong this year and there are risks that producers will not be able to light the wells due to the increase in energy due to the removal of the subsidy. If so, many small producers may lose quintals with a view to the next harvest,» said Vicchi.
FEDECOP President Edgardo Schneider, producer of pecan in Entre Ríos, explained that the effect depends on the particularity of each productive activity in the province: «It impacts but not yet significantly. There are poultry producers, eggs, who accuse the increase although they recognize that it still does not impact negatively in that sector since they are in a good position. It does suffer those who produce integrated chicken, since they have a high consumption of energy and their profitability is very low».
Schneider adds that «the same thing happens in the dairy and rice production, due to high consumption through the pumping of water. There is no high share of energy consumption in agricultural production. To the productive sector that is the particular scenario of each, according to what they perceive in dairy, integrated chicken and rice production.»
Rice production is another example, as its cultivation uses well water powered by electricity. According to data from Proarroz, the cost of this energy affects 9% of the costs of primary rice production.
Claudio Francou, Secretary of Coninagro and president of the Rice Cooperatives Federation, commented that the situation in Entre Ríos is disparate: «In the area of wells and industries like San Salvador there are irrigation engines of rice mills and industries in which until now there would be no substantial impact despite the quarterly increases. It is expected that this measure shakes strong in the city and towns, commercially and homes exceeding 400 kilobytes, in a progressive increase of up to 100%. For now in our area the map would follow as we are. Among Ríos already had the differentiated high tariff, in this case the sector that is most concerned is the traders».
Coninagro concludes its report stating that «The damage to consumers’ pockets also cuts regional economies’ chances of shifting cost increases to prices, especially in products heavily dependent on the domestic market».