Brazil & Southern Cone - January 2009 (ISSN 1741-4431)

Argentina, Paraguay and Uruguay are enduring what metereologists say is the worst drought in two generations. The drought will have several effects. The first is that it will restrict exports of agricultural commodities. The second is that it will put pressure on fresh water supplies for urban areas: already Rosario in Argentina is starting to run short of drinking water. The third effect will be to push up inflation rates as prices of fresh foods rise. This effect is likely to be serious, as fresh food prices usually start to fall at the end of the southern hemisphere's summer.

Stella Carballo, from the Instituto de Suelo y Clima at the Instituto Nacional de Tecnologí­a Agropecuaria in Argentina, argues that it is too early to say that Argentina's climate has changed, but she does admit that the current drought is the worst in70 years.

The drought in Argentina is serious but not yet disastrous. Farmers in the central agricultural belt were relieved by rains early in the New Year which sprinkled an average of 30mm of water across crops. The problem is that the rains have come too late for a lot of wheat growers and, secondly, that the beneficial effect of the rain was diminished by the resumption of dry, hot winds from the south.

The drought has already had an effect on the international prices of grains and oilseeds. Prices on the local futures' market have risen by almost 30% since December 2008. Soya processors in Argentina are now paying Arg$830 (US$233) a tonne (/t) for soya, up from Arg$640/t at the beginning of December. In the first full week of the New Year, trading on the Bolsa de Comercio de Rosario, which handles grain contracts, was heavy: on 5 January almost 30,000t of soya were traded, but traders say that this may be only a reflection of pent-up demand following the New Year break. On 29 December, 70,000t had been traded as the price broke through the Arg$800/t mark.

Uruguay's big dairy industry is reeling from the drought. Héctor Javiel, director of the Sociedad de Productores de Leche de Florida, said on 2 January that the situation was now really difficult and that the government needed to take urgent action. The big dairy lobby, La Mesa de Gremiales Lecheras, which brings together the country's five biggest dairying organisations, said that the industry was in crisis and needed support from government, suppliers and other industries to survive. Without such coordinated support, there could be a chain reaction across the whole of the economy, La Mesa warned.

The message is getting through. The minister for ranching, agriculture and fishing, Ernesto Agazzi, said that he understood that the dairy industry faced a difficult situation because of the drought. He said that the government was working on schemes to provide fodder for cattle now and get paid for it later and on easy terms.

The big problem for Paraguay is rising inflation. Already the price of some fresh vegetables - notably lettuces, tomatoes and carrots - has doubled because of shortages caused by the drought. The domestic onion crop has all but failed, forcing the country to import. The low level of the River Paraguay, up which a lot of Paraguay's bulk imports come from means that barges and ships cannot be as heavily laden as usual. This raises the costs of imports, especially fuel which cannot be shipped, as usual, to terminals near Asunción . The government is looking at whether it needs to spend more money on dredging deeper navigable channels in the River Paraguay. In 2008 the government's martime agency spent US$40m on dredging the river. 

• Parched Argentina
  The rains in Argentina in the key growing months of November and December fell mostly in the semi-arid areas, rather than the fertile Pampa Humida, which stretches across the province of Buenos Aires and into Santa Fe and Córdoba. The drought is worst in these provinces and in Entre Rí­os, Chaco and Santiago del Estero.