Of course this begs the question of why not substitute gold for grain. Gold has all of the commodity properties desired by the Argentines, but with cash like attributes.
- John Kyle --- http://cambist.net http://www.nytimes.com/2002/12/01/business/yourmoney/01BART.html -------------------------------------------------------------------------- December 1, 2002 For Wary Argentines, the Crops Are Cash By LESLIE MOORE UEBLO ESTHER, Argentina -- THEIR hens are too old to lay eggs and they till their fields with a 33-year-old tractor, but Roberto Natale and his wife, Mabel Ciribe, are sitting on what has become this country's most precious currency. This season they bartered 44 tons of soybeans and a used car for a shiny four-door Toyota Hilux pickup. Next year, they hope to swap soybeans for a harvester. "The only thing we have is soybeans," Ms. Ciribe said. "Without them we wouldn't have bought the pickup." With the collapse of the peso nearly a year ago, corn, soybeans, sunflowers and wheat have become a preferred legal tender in Argentina, often more welcome than cash, because they are priced in dollars. Despite some concern from the government, the nation's farmers and agriculture businesses, which constitute one of the country's richest economic sectors, are bypassing the dysfunctional banking system where they can and are venturing into swap contracts known as trueques (pronounced tru-E-kays), to keep business going. "It's like a return to the Phoenician era," said Sebasti·n DÌaz Riganti, a grain broker based in Buenos Aires. His family-owned company, DÌaz Riganti Cereales, has completed $168 million in deals among farmers, corporate customers and grain exporters this year, he said. Almost 60 percent of his business is based on bartering, up from 30 percent last year. Automobile sales have slid 61 percent this year, but rural dealerships say bartering has helped to cushion the blow. Many independent auto dealerships began taking grains in lieu of cash months ago. Ford Motor, General Motors and Toyota Motor have started countrywide sales pitches and are teaching employees how to swap vehicles for grains. Last month, DaimlerChrysler joined the trend with its "Grain Plan," which allows customers to use grain to buy Mercedes-Benz, Chrysler, Jeep and Dodge vehicles sold in Argentina. "This form of trade goes back to the very beginning: you give me a pencil and I'll give you a glass," said JosÈ Alberto GarcÌa, an accountant at Giorgi Automotores S.A. in Rosario, Argentina's grain capital, about 200 miles north of Buenos Aires. "After the peso devaluation, we were all standing around looking at each other and not selling cars. We had to do something," he said. In three months, the Ford dealership has swapped 50 vehicles for grains. Pla S.A., a farm equipment maker in Las Rosas, about 275 miles north of Buenos Aires, has exchanged $9.5 million in farm machinery for corn, sorghum, soybeans and wheat. For cash, it sells cereals to grain exporters but keeps grains on reserve. "Instead of money in the bank we have grains," said Miguel ¡ngel Priotti, Pla's head of finances. Pla bought two Toyota pickups with grain and intends to buy five more for its company fleet. "At first we were skeptical, but bartering is a more practical and efficient method of selling your product and getting what your company needs," Mr. Priotti said. "Even if banks started lending again, we'll do business this way." Sales at the Argentine operations of John Deere have dropped almost 50 percent this year, and barter sales are all that sustain them. "Without grains trade, we wouldn't sell as much as we have," said Sebasti·n Malamud, an accountant in John Deere's Rosario office. He said 95 percent of deals this year were bartered. Mr. Malamud reworked spreadsheets to log tons of corn, soybeans and wheat in place of cash. "But that was easy," he said. "The toughest part was convincing our home office that swapping grains made sense." A futures and options firm in Rosario, bld Brokers and Consulting, began issuing trueque contracts in June and expects to complete 200 deals by year-end. "It's very revolutionary - money has lost its value," said Edgardo Mondino, the concern's trade director. The notion of money has become whimsical in Argentina, where at least 12 currencies are in use. Some provinces began making their own currencies last year to pay employees, although such money is generally accepted only in the home province. El Cronista, a financial newspaper, recently reported that $2.1 billion worth of nonpeso currency issued by provincial governments is now circulating. City dwellers have also discovered grain as an alternative currency. Ana MarÌa Berardozzi, an advertising executive in Buenos Aires, sold her country home for grains. "It was something of a shock - my mind is still in pesos or dollars, not sunflowers and wheat," she said. "To go from what looks like a first-world economy to one where people swap things is a rude change." Sancor Seguros, an Argentine insurance company, intends to swap grains for premiums, and an Argentine insurer owned by HSBC is considering a similar plan. Alejandro Carrara, a Buenos Aires watch dealer who sells Rolexes and Piagets, wants to swap grains for watches. "It seems like a joke, but a small group of farmers is very interested in trading grains for luxury watches," Mr. Carrara said. MS. BERARDOZZI and many others who accept trueques never actually see their grain. Farmers deliver it directly to exporters, who then pay merchants, in pesos, the dollar value of the crops. The sum is calculated based on the dollar-peso exchange rate (currently about 3.5 pesos to the dollar) and grain prices on the world market. Although the barter system is more inconvenient than payment through cash or credit cards, merchants prefer grain barter contracts because they help minimize the risk of losing money if the peso falls in value before a deal is completed. Argentina's government keeps no statistics on barter contracts. But authorities are inspecting corporate trueques and may revise tax laws if they detect a leak in tax revenue, said Jorge Speraggi, a spokesman for the Federal Internal Revenue Administration. The agricultural industry has prospered since the peso was formally devalued from its one-to-one parity with the dollar in January, and "it has to assist the country so it can emerge from the crisis," Mr. Speraggi said. Argentina's economy has shrunk by almost one-fifth in the last four years, and unemployment has reached 24 percent. Although there are signs that the economy has bottomed out - industrial production has increased for six consecutive months and bank deposits are growing because of attractive short-term interest rates - political hazards are obscuring recovery. President Eduardo Duhalde, Argentina's fifth president in less than a year, has said he will not seek election next year. An election date has not been set. Alberto Bernal, an economist specializing in Latin America at idea- Global, a consulting firm in New York, said, "There's some mild recuperation, but there's still too much uncertainty." But of the chaos, farmers have emerged as partial winners because their harvests are priced in dollars. They were further helped by drought in the United States last summer, which strengthened international grains prices and helped compensate for inflation and a 20 percent tax that Mr. Duhalde placed on agricultural exports. Agriculture accounts for almost 65 percent of exports. Losers were suppliers who had granted dollar financing, such as Monsanto's Argentine operation, which reported a $150 million loss from loans that had been converted from dollars into pesos, according to the company. Monsanto now hedges currency swings with grains. "Grains are more reliable than cash," said M·ximo V·zquez, a grains trader at Monsanto. The increasing popularity of corporate bartering reflects the mistrust of the banking system among farmers. The mistrust spread after the banks imposed severe limits on account withdrawals last year. Argentines lost billions after their dollar savings were converted into pesos by government decree. Banks have loosened restrictions, but many people are leery, preferring to stash dollars at home or in banks abroad. The peso has lost almost two-thirds of its value since January, although it has held stable since June. Argentina's agricultural industry has all but abandoned banks. "Before the crisis, money flowed between farmers, banks and suppliers, but money doesn't circulate like that anymore," said Mario Arbolave, editor of M·rgenes Agropecuarios, an agricultural finance magazine. "The banks are out of the loop." Some farmers are holding onto their harvests, reluctant to deplete what are essentially dollar-valued savings. "We have doubts about Argentina's currency," said Mirta Pavicich, a farmer in CÛrdoba province. "Grains in a silo are better than money in the bank." Rosario's Bolsa de Comercio, a grains exchange, calculates that one-fourth of this year's soybeans have gone unsold; at this time last year, just 10 percent remained. Many economists criticize barter, saying it hampers growth. "Only in a primitive economy does bartering work" without creating inefficiencies, said Jagdish Bhagwati, an economist at Columbia University. Others say the bartering trend in a modern country like Argentina is worrisome partly because it is more expensive in the long run. Andres Victorica, an economist and pricing analyst in the Buenos Aires office of Deloitte Touche Tohmatsu, said the use of money reduces the cost of doing business because of money's inherent convenience. "Bills are easier to carry around than beans and corn," he said. "If I go to the movies I can pay with cash - and not with grains." Still, in economically volatile Argentina, bartering has at times appeared to be the only viable way to do business, and few expect the swapping to ebb. "If a travel agency came to us and said they wanted to be paid with corn I wouldn't be at all surprised," said Adri·n Seltzer, a trader at the Buenos Aires office of Granar S.A., a grain brokerage firm. 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