Paola Pecora says: “Every crisis is an opportunity. Today, Uruguay exports some of the soy that Argentina doesn’t. And it produces soy that Argentine producers don’t want to produce, thanks to the brutal tax increases recently imposed on them by the their government. Argentines like Uruguay very much, and not only the Argentine tourists…”
Buenos Aires, Argentina June 25, 2008

In October 2007, I took a trip to Montevideo in Uruguay and was surprised by the boom in the real estate market there. It’s full of new construction.

The real estate market in Uruguayan cities has been performing well lately. The conflict between Argentine farmers and their government is having a positive impact on the Uruguayan real estate industry.

However, Uruguay is experiencing more than just a real estate boom. From the air I could see large expansions of crop fields… ones I later discovered were primarily soy fields.

The expected annual growth rate for Uruguay is 6.89%. Its economy is growing due to internal factors as well as external ones. But it is the external factors that are creating both opportunities and threats for Uruguay.

The strong price increases for agricultural commodities, coupled with the Argentine government’s recently implemented higher tax rate on farm exports, has created a strong expansion in Uruguay’s grain sector. The soy boom is not limited to only Argentina and Brazil…

As we pointed out last Monday, Uruguay recently shipped its largest consignment of soy ever, sending 38,000 tons of the grain to China. This opens up the possibility of accessing new markets and continuing its expansion.

Argentine newspaper Clarín reports: “Lately, soy has become part of the Uruguayan agenda. In 2003 there were 4,000 cultivated hectares. Today they surpass 400,000. According to the Ministry of Agriculture, Livestock and Fisheries, soy has expanded throughout the country, replacing fields that were once allocated to livestock, dairies and other crops.”

Many Argentines have seen very good investment opportunities in Uruguayan farmland and the number of Argentine-owned fields there has increased.

Although this large wave of Argentine investment has generated benefits for the Uruguayan farmers, such as contributing to the modernization of technology and creating fresh capital for the sector, its “locust like” behavior represents a threat to the future of Uruguayan farmlands.

The main cause for alarm is soy farming methods: leases are short-term and companies want to extract the greatest yield from the land in the shortest amount of time. This practice, in turn, depletes the soil.

For this reason the Uruguayan Ministry of Agriculture, Livestock and Fisheries has said it will force farmers to explain their methodology and to rotate crops. It says this is the “best way to conserve the soil.”

The Uruguayan government’s concern over soy farming has risen with the influx of Argentine farmers who, escaping the taxes imposed at home, have moved to Uruguay to plant soy.

Andrés Berterreche from the Ministry of Agriculture, Livestock and Fisheries said to local newspaper El Espectador: “The State is the guarantor of natural resources, and even when they are in use, they belong to the State, even if the land has a registered owner”.

It is probable that greater control by the Uruguayan government will put pressure on the soy boom there, or it will reduce the obtainable yields (since it will closely monitor planting methods). But the government hopes that soy production will keep on growing it tries to limit the negative effect this boom could have on farmland.

Uruguay is not only trying to take advantage of international food prices regarding soy. It is also growing strong in the meat sector. Uruguayan newspaper El Observador de Montevideo reports that, so far in 2008, meat exports increased 58%.

It is important to note, however, that this strong growth of exports is linked, to a large extent, to the rise in meat prices (an increase of 60% from January to May). During this same period the volume of exports increased by only 4%.

Even though the increase in the amount of meat exported might be low, the outlook for this sector is more than favorable thanks to the rise in prices.

I have tasted Uruguayan meat. It’s top quality. And I have no doubt that its growth potential is huge.

The Uruguayan government is extensively promoting beef. It’s doing so now at Expo Zaragoza 2008 (a three-month exposition in Zaragoza, Spain) — the goal being better penetration in the European market.

Uruguay also wants to continue growing in the lamb market. During his trip to Mexico, Uruguayan president Tabaré Vazquez opened the Mexican market to lamb meat. Uruguayan’s Ambassador in Mexico José Korzeniak said to ADNMundo: “Mexico is a market that imports 40% of its bovine meat and 56% of its ovine meat. That’s the reason why we believe that it is a market interested in our ovine meat”.

One final thing. If investments in the food sector don’t interest you, on Tuesday there was a natural-gas-field discovery in the Uruguayan continental shelf, and the government has said it is very probable that there is an oil field in the territorial waters facing the city of Punta del Este, 100 km from the coast line.

Raul Sendic, the president of Ancap, the Uruguayan company that discovered the fields, said: “There is evidence that in various areas of the shelf natural gas reserves exist, but we cannot yet determine if there is oil there, which is what really interests us.”

The magnitude of this discovery cannot yet be precisely determined. But Uruguayan authorities are hoping it will help them reduce their energy dependence.

Additionally, Sendic announced the Uruguayan government is contacting international companies to sell that information. It is calling interested parties regarding exploration in the area by the middle of next year.

We will meet again tomorrow,

Horacio Pozzo