Uruguay’s exports to Mercosur plunged during the first eight months of 2013

Despite the theoretical benefits of the customs union, Uruguay’s exports to Mercosur have declined dramatically this year

During the first eight months of 2013, Uruguay’s exports to Argentina fell 5.6%, exports to Venezuela fell 15.1% and exports to Paraguay fell 9.2% compared to the first eight months of 2012. Although Uruguay’s exports to Brazil continued to grow, they rose only .1%.

Put together, Uruguay’s exports to Mercosur from January to August 2013 fell 3.9% compared to 2012 and totaled $1.748 billion USD. Exports to non-Mercosur countries rose 4.8% and totaled $6.478 billion USD.

The executive secretary of Uruguay’s Exporter’s Union, Teresa Aishemberg, told the Uruguayan newspaper El País that the organization does not expect positive changes in Argentina, Brazil or Venezuela this year. However, they did see an increase in exports to Paraguay during August.

Aishemberg said that the situation with Argentina cannot improve as long as President Cristina Fernández Kirchner’s government maintains the trade barriers it has imposed. “Evidently we have to look to other markets, but not all products are competitive outside the region” Aishemberg said.

The economist Pablo Moya from the consulting firm Oikos agreed with Aishemberg about the situation in Argentina. “There is a real loss of the competitiveness that Uruguay always had in comparison with Argentina beyond the increased costs”, he said.

Moya does not expect any changes in Argentina’s trade policies under the current president. He was more optimistic about the situation with Brazil.  “With them there is a greater possibility that they will reverse and again be a market demanding Uruguayan products, a strong destination for our sales”, he said.

Nevertheless, Moya does not expect significant changes in regional trade soon. “Significant change with Argentina and with Brazil would be slow, the outlook is not reversible in the short-term”, Moya said. Given this situation Moya also expressed the need for Uruguayan exporters to look toward other markets but didn’t negate the difficulty of doing that. “Many [exporters] that want to trade outside the region aren’t able to. They lose competitiveness.” he said.

“For a long time exporters have been looking toward the rest of the world, principally because of the tariff barriers and the bureaucratic obstacles that they are applying, while in theory the free circulation of goods and service within Mercosur generates advantages”, added Moya.

With a prediction that conditions will not improve in the short-term, exporters are demanding the government apply a series of measures to confront Uruguay’s loss of competitiveness.

Declining competitiveness, customs procedures, and soybeans to the “rescue”

Teresa Aishemberg emphasized to El Pais that the Exporter’s Union called on the government to take several measures to improve Uruguay’s competitiveness. These measures include a reduction in employer contributions and or improvements in export pre-financing.

“What’s more there are hidden costs. There are delays in the procedures and logistics aspects generate financial costs to businesses when these procedures slow down”, said Aishemberg.

The export sector also called for cheaper energy and said that Uruguay’s energy costs are not very competitive compared to the region.

Uruguay’s five principal business chambers (the chambers of Industry, Trade, Commercial and the Rural Federation and Rural Association) released a report a few weeks ago on Uruguay’s declining competitiveness.

The report spared no criticism of the government and annoyed the executive branch. Although Uruguay’s Exporter’s Union has called for measures to address the country’s declining competitiveness, it has distanced itself from the report and emphasized that the Union was not involved with the report.

Up to now, what is “rescuing” Uruguay’s export numbers is soybeans. Soy bean exports grew 32.9% in the first 8 months of 2013 compared to 2012 and totaled $1.814 billon USD.  Out of every $100 USD Uruguay has exported in 2013, $28 USD has been soybeans.

This Uruguayan Business Reports news article is a translation of a news article that appeared in the Uruguayan newspaper El País. The original article is available in Spanish here. Uruguay Business Reports translation by Donovan Carberry.

Petrobras Uruguay appoints new President

The Brazilian oil and gas company Petrobras announced that starting in August 2013 Carlos Alberto de Costa will replace Iraní Verella as president of Petrobras Uruguay.

Carlos Alberto da Costa, the new president of Petrobras Uruguay. He replaced Iraní Varella.

In his first declarations da Costa said that “Petrobras’s challenge is continuing the way we started in Uruguay, where we are making important investments” and “working with a focus on modernizing the companies within the group”.

Da Costa is a geologist, who started working for Petrobras in 1978 and has held a wide range of positions with company in Brazil and other countries, among them: head of geophysics for Petrobras Brazil, business coordinator for Petrobras Venezuela, and head of exploration for Petrobras International.

Petrobras Uruguay controls 89 service stations as well as a network of lubricant and fertilizer distributers, an airplane fuel installation at Montevideo’s Aeropuerto Internacional de Carrasco, and 50% of Conecta y MontevideoGas [which Petrobras owns jointly with Uruguayan state oil company Ancap]. Additionally, Petrobas Uruguay, together with the Argentinean company YPF and the Portuguese company Galp, signed a contract  with the Uruguayan government that enables the exploration and production of oil and gas in the sedimentary basins of Pelotas and Punta del Este.

This Uruguayan Business Reports news article is a translation of a news article that appeared in the Uruguayan newspaper El Pais. The original article is available in Spanish here. Uruguay Business Reports translation by Donovan Carberry.

Lifan Uruguay will resume exporting the Lifan 320 to Brazil

Lifan’s Model 320 on display at car show in China. Model 320’s are produced in Uruguay for the South American market.

For two years, Brazil has prevented Chinese automaker Lifan, which produces cars in Uruguay for the South American market, from exporting cars into the country. Lifan now has 2,000 vehicles sitting in Uruguay which were produced for sale in Brazil. After receiving special approval from Brazil, Lifan will resume exports with a shipment of 70 model 320 cars in the next few days.

Brazilian authorities solicited a series of documents from Lifan to certify that 35% of the parts in Lifan’s model 320 are Brazilian, a requirement of the special decree signed by Brazilian President Dilma Rousseff that lifted the ban which had blocked Lifan’s imports for the past two years.

Lifan will ship 70 of these cars from Uruguay to Brazil in the next few days. Lifan has not been allowed to ship into Brazil for the past two years.

Pablo Revetria, the head of Lifan Uruguay told the Uruguayan newspaper El Observador that Lifan has until October 29 to move the 320 and 620 model vehicles currently in Uruguay into Brazil.

Asked what Lifan would do if they were unable to export the cars to Brazil, Revetria explained that some cars could be sold on the Uruguayan market and Lifan is “very far along” in Venezuela’s import approval process. “When that process is completed we will be in place to move an important amount of stock”, Revetria said.

This Uruguayan Business Reports news article is a summarized translation of a news article that appeared in the Uruguayan newspaper El Observador. The original article is available in Spanish here. Uruguay Business Reports translation by Donovan Carberry.

Uruguay’s government finds meat processing and tanning industries are not over consolidated

Initial analysis by Uruguay’s government has concluded that while a few businesses control a significant amount of the market in both the Uruguayan meat processing and tanning industries that doesn’t mean either sector is over consolidated.

In July, President of José Mujica mentioned the possibility that consolidation had reduced competition with these industries and requested the Agriculture, Industry, and Labor ministries analyze the situation.

In the August 6th cabinet meeting Roberto Kreimerman, Uruguay’s Industry minister presented an advance of the study Mujica had requested.

Eduardo Brenta, Uruguay’s Labor Minister briefed the Uruguayan newspaper El País on Kreimerman’s presentation. Brenta reported that within Uruguay’s meat processing industry three Brazilian firms (Marfrig, JBS, and Minerva) control 38% of the Uruguayan market. However, they’ve actually lost market share since 2005 when they controlled 40% of the market.

Eduardo Brenta, Uruguay’s Labor Minister, spoke on possible over consolidation in Uruguay’s Meat Packing and Tanning sectors

Brenta explained that JBS’s market share has increased, while Marfig’s has decreased. “From this point of view we don’t seem, in principal, to have a problem; it would be different if one company bought the other” Brenta said. “It seems clear that the participation of one or others is very linked to prices. They are negotiating with producers that are strong and the climate has helped enough, therefore those that pay more are slaughtering more [cattle]”.

Brenta also reported that in the tanning sector, Zenda (which Marfrig sold to JBS) and Paycueros (owned by Argentineans) control 50% of Uruguay’s market. The other 50% is divided between five firms that control approximate 10% of the tanning market each.

The cabinet found that neither the market distribution in the tanning sector nor in the meat processing sector was concerning, although both industries are still being analyzed.

“[The analysis] reassured [us that no company] has obtained a dominant position nor can a group of businesses effect the rules of the game in either of the two markets” Brenta said.

Meat processors have participated in Uruguay’s tanning market for several years. Brazilian ownership of Uruguay’s tanneries has led in many cases to processed hides being sold in Brazil.

This Uruguayan Business Reports news article is a summarized translation of a news article that appeared in the Uruguayan newspaper El País. The original article is available in Spanish here. Uruguay Business Reports translation by Donovan Carberry.

Techint wants an extra $30 million USD from UTE for project to connect Uruguay to Brazil’s power grid

Techint, an Argentinean firm in charge of building a new connection between Uruguay’s and Brazil’s power grids, presented a written request to UTE, Uruguay’s state-run electricity provider, for an additional $30 million to cover costs stemming from technical errors by UTE which raised the project’s estimated cost. UTE originally budgeted the connection at $130 million USD.

During the negotiations between UTE and Techint over the additional costs, the written request presented by Techint “surprised” negotiators at UTE and signaled a “hardening” in Techint’s position according to sources at UTE.

The Uruguayan weekly magazine Búsqueda reported that the project would cost an additional $17 million USD due to errors in UTE’s initial topographic studies for 350 kilometers of power lines between the HDVC frequency converter in Melo and the 50Hz substation in San Carlos.

Elevation and terrain determine the type of power line towers that need to be installed. Of the 900 towers that the project requires, Techint estimated that they would have to change 300, mostly because they did not match the terrain.

UTE opened the conversation with Techint assuming that the company was willing to negotiate the cost overrun. UTE’s technicians estimate that the additional costs Techint faces are between $10 million and $12 million USD. Techint’s request for a significantly higher amount was unexpected.

UTE’s legal team will respond to Techint’s request shortly as Techint must complete the project by the end of next year. For every month the project is overdue Technit must pay a $6 million USD penalty.

Connecting to Brazil’s power grid is one of UTE’s “strategic” projects. It is part of an effort by Uruguay to reduce its dependence on Argentina for power. Once the project is completed Uruguay will be able to import or export a flow of up to 500MW from Brazil (in addition to a smaller pre-existing connection) . That amounts to approximately 30% of Uruguay’s current average electricity consumption.

This Uruguayan Business Reports news article is a summarized translation of a news article that appeared in the Uruguayan newspaper El Observador. The original article is available in Spanish here. Uruguay Business Reports translation by Donovan Carberry.

Rumors that JBS will acquire Marfrig’s meat packing plants trigger official comments

Rumors in the Brazilian press that Brazilian food processing giant JBS will acquire four meat processing plants in Uruguay from competitor Marfrig prompted President José Mujica to warn his cabinet ministers about possible over consolidation within the meat-packing industry in Uruguay.

Uruguay’s Minster of Labor Eduardo Brenta, who relayed President Mujica’s comments on consolidation in Uruguay’s meat packing industry

The minister of Labor, Eduardo Brenta, told a Uruguayan morning radio program that President Mujica had proposed looking into how any new deal between JBS and Marfrig would affect competition within the Uruguayan meat-packing industry before letting it go forward. JBS has already acquired Marfrig’s Uruguayan tannery Zenda.

“If this (new deal) happened, this group (JBS) would be in a dominant position in the Uruguayan meat market” said Brenta. He explained that the possible transaction’s impact on negotiations between Uruguay’s meat producers and meat processors provoked President Mujica’s concern.

If JBS adds the four Marfig plants in Uruguay to its own meat-packing business in the country (Canelones) it will become the principal meat packer in Uruguay with 33% of the marketplace. In a distant second place would be the Brazilian company Minerva with 8.4% according to market data from INAC.

Brenta said the that the government first intends to talk and negotiate with the businesses involved in the deal (Mafrig and JBS) to achieve the optimal result. Should that fail the government will consider whether the Defense and Promotion of Competition law should be invoked.

This Uruguay Business Reports news article is a translation of a newspaper story that appeared in the Uruguayan newspaper El Observador. The original news article is available here. Uruguay Business Reports news translation by Donovan Carberry

Uruguayan rice sales to Brazil expected to jump after Brazilian government says no to new tax

Image courtesy of CIAT International Center for Tropical Agriculture

Uruguay could see a big increase in rice exports to Brazil after the Brazilian government decided not to approve a tax which would have added 9.5% to the price of rice and several other products.

“Recently a lot of Brazilian buyers were reluctant to do business or consider buying rice because of the risk that government would vote in the tax and they would have to pay the surcharge”, explained Adolfo Crosa, the president of Rice Mills Trade Guild.

The rice market in Brazil has a lot of demand and firm prices. Uruguayan exporters are selling rice to Brazil but Brazilian importers are asking only for shipments that can be delivered rapidly and Uruguay’s exporters have other trade commitments that they must meet at the same time.

According to Mr. Crosa, “the problem in [the industry] was that if the tax was finally voted in, someone was going to pay. Importers were taking this into account and if they couldn’t pass higher prices onto consumers they were going to force our prices lower”.

Prices in Brazil today are much more attractive for Uruguayan rice mills that those in other markets. Also, sales to Brazil can be transported by truck which lowers logistics costs.

Crosa emphasized that in addition to Brazil, Uruguay is selling rice to Iraq, Peru, and parboiled rice to the European Union. There also smaller volume sales to many other countries.

2013 Uruguayan rice cultivation uncertain

The planting area for next year’s harvest still has not been estimated and rice producers are betting that the latest rains will leave the irrigation reservoirs in better condition. Water levels still have not completely recovered from Uruguay’s recent drought. The amount of water stored in reservoirs limits how much rice can be successfully cultivated.

This Uruguay Business Reports news article is a translation of an article that appeared in the Uruguayan newspaper Unoticias. The original article in Spanish is available here. Uruguay Business Reports translation by Donovan Carberry

Uruguay News Brief: Mujica and Rousseff sign agreement to strengthen trade ties

 The pact will help free the circulation of goods and services between the two countries. The text of the pact had been proposed at the Rio+20 summit in June.

Uruguayan President José Mujica and his Brazilian counterpart Dilma Rouseff signed a bilateral agreement Tuesday, July 31 in Brasilia to strengthen the circulation of goods and services and strengthen political and commercial ties between the two countries. The text had been drafted in the middle of June during the Río de Janeiro environmental summit Rio+20 but the events in Paraguay delayed the signing.

The areas included in the principal of the agreement are: production integration, science, technology, innovation, communication, infrastructure integration, free trade, free movement of people and energy integration.

The presidents met in the Placio de Planalto in the midst of the ongoing Mercosur summit in Brazil.

 This Uruguay Business Reports news brief is a translation of a news story that appeared in the Uruguayan newspaper El Observador. The original news article is available here. Uruguay Business Reports translation by Donovan Carberry.

 

Uruguayan and Brazilian presidents agree on a new bilateral integration system

Mujica and Dilma met at noon Thursday in Río de Janeiro. They agreed to draw up a new exchange protocol.

Uruguay’s President José Mujica met with his Brazilian counterpart Dilma Rousseff this Thursday. They agreed to establish new rules for trade and exchange policies inorder to strengthen regional and bilateral integration. The presidents met at noon in the Riocentro complex in the tourist capital of Brazil where the Río+20 summit on sustainable development policies was taking place.

Based on the agreement, the foreign ministries of both countries will create technical and political working groups to draw up a free exchange treaty for goods, services and people between Uruguay and Brazil. They will also work on a bilateral energy treaty to cover commercialization, regulation and planning within the electricity grid. Additionally, the teams will work on the integration of the naval industry and on wind energy, gas and petroleum links.

The Uruguayan delegation in Río said Thursday that they understood the infrastructure integration agreement to confirme Brazil’s promise to build a new port on the Yaguarón River, as well as renovating the Maua bridge and spurring the development of new railroad and water way connections between the two countries.

The heads of Uruguay and Brazil established that the new integration scheme’s first evaluation will be on December 2012.

Uruguayan government is very pleased with the advances made during the meeting between Mujica and Dilma. Members of the government highlighted that the host president received her Uruguayan counterpart during the middle of the difficult Rio summit negotiations. Rousseff received around 40 bilateral requests from the 193 delegations participating in Río+20.

Mujica left for Montevideo Thursday night and arrived early this morning. Today will be another day of intense meetings on trade and policies, this time with Chinese Premier Wen Jiabo.

This Uruguay Business Reports news article is translation of an article that appeared in the Uruguayan newspaper El Observador. The original article is available in Spanish here. Uruguay Business Reports translation by Donovan Carberry.

Uruguay Auto News: Argentinean trade restrictions put Uruguay’s auto manufacturers in a cage; Domestic sales jumped in May

The Uruguayan Chamber for the Automobile Industry (CIAU) is concerned about the “stagnation” in automobile exports to Argentina. Uruguay has not been able to export trucks to Argentina and is asking “the government to change its strategy”.

According to the president of the CIAU, Ramón Cattaneo, “Argentinean cars enter Uruguay with total freedom but going from [Uruguay] into [Argentina] we are completely barred”

“Argentina is not complying with established agreements”  and it is having a sever impact on the Uruguayan auto industry: “businesses have been weathering the storm as well as they can for six months now” Cattaneo told El País.

The most worrying problem is in truck exports. According to the president of the CIAU “very few trucks are entering through the general process”. Even “more serious” is the preferential free trade process (Uruguay negotiated tariff free entry of Uruguayan trucks into Argentina in exchange for allowing Argentinean cars into Uruguay tariff free) “we still can’t export a single vehicle [through that arrangement]”, Cattaneo said.

Argentinean car exports do not pay a tariff to enter Uruguay. Uruguay is supposed to be able to export 20,000 cars and 800 trucks a year into Argentina tariff free, a number that is far from being used up, according to the CIAU.

Cattaneo said that the CIAU believes “the lesson here is that the government has to change its strategy” and he added that ” the current strategy is not getting results for Uruguay”

Another root cause of the low number of exports to Argentina is that automobile manufacturers feel the need to focus on the Brazilian market. “We are exploring exporting to Brazil, but the logistics question is complicated. Trucking [cars] is expensive and the market is big and competitive”, said the President.

While exports to Brazil have increased, the higher numbers to don’t equal the losses stemming from Argentina’s closed market. Additionally, Brazil has limits on which brands can be imported, some businesses “do not have permission for their vehicles to enter”, said Cattaneo.

The situation has stagnated Uruguayan sales to the rest of the region and as a result 400 employees from various companies have been laid off.

Currently the CIAU is looking to the government to tackle the problem which “has remained unchanged since the beginning of the year and shows no sign of improving”, Cottaneo concluded.

Domestic Sales Jump in May

According to the Uruguayan Automobile Trade Association sales this May increased 2% over May of 2011. Dealers sold 4,607 vehicles this May compared with 4,515 in May 2011.

In the period between January and May sales increased 4% over the same period last year. Between January and May of this year 21,105 vehicles were sold compared to 20,369 in 2011.

The biggest increase this month was in regular auto sales which rose 7%. However between January and May sales only increased 1% over 2011. “Utility” vehicles fell 7% this May but are still up 11% since January.

Truck sales fell 11% in May although they are up 18%  through the first 5 months of the year. May’s decrease can be explained by the Uruguayan government’s decision to freeze the entry of new trucks into the National Registry of Professional Cargo Transporters.

Bus sales fell by 26% in May and are down 69% since January. However, the Uruguayan Automobile Trade Association emphasized that it “is a very volatile market and heavily depends on investments by only a few businesses”.

This Uruguay Business Reports news article is a combination of a translation of a news article by Pablo Rossi which appeared the Uruguayan newspaper El Pais and original reporting on data released by the Uruguayan Automobile Trade Association. The section up to the heading Domestic Sales Jump in May is the translation of the El Pais article, below that is the our original coverage. The original El Pais article is available here. Uruguay Business Reports translation and reporting by Donovan Carberry.