To Expropriate is Inappropriate: Argentina’s Expropriation of Agricultural Firm Vicentin Will Further Deteriorate its Institutional Credibility

Against the backdrop of an economy reeling from the pandemic, and with large swaths of the population still confined to their homes, the Argentine government moved this week to expropriate Vicentin, a large agricultural company. In a shock to most, Argentine president, Alberto Fernández, decreed on June 8th that the government would ‘intervene’ in the debt-laden private company and submit a plan to congress for expropriation.

Unsurprisingly, the announcement was met with outrage from the agricultural sector as well as the business community at large. But the Argentine people, the pueblo, also voiced dissent – with hundreds defying stay-at-home guidance to attend protests against the intervention in Santa Fe, the province where the company is headquartered.

For the moment, this outcry has been enough to slow the initiative’s advancement. The government has spent the last few days meeting with company executives and strategizing its next move. But despite the pause, the situation has raised serious doubts about institutional credibility in Argentina and begs the question of who is truly pulling the strings.

Vicentin and the Terrible, No Good, Very Bad Debt

Vicentin is a privately-owned agriculture conglomerate in Argentina. The company was founded in 1929, and has grown from humble beginnings as a grain warehouser into a diversified agricultural player with 2019 revenues of about $3 billion USD, as estimated by the Buenos Aires Times. Vicentin is best known for its grain, and especially oilseed, processing plants. Its business in these sectors has transformed the company into one of Argentina’s top exporters, giving the firm important access to global dollar-denominated markets. BNAmericas estimates that Vicentin accounted for 9% of Argentina’s grain product exports in 2019.

Vicentin also has a joint venture with Swiss company Glencore. Under the banner of Renova, the joint venture processes agricultural commodities into oils and biodiesel, operating what is believed to be the largest soy crushing plant in South America. Apart from its grains and oilseeds businesses, Vicentin also has interests in a range of other agricultural sectors including cotton, grape juice concentrates, wine, honey, and livestock.

Despite its iconic status, the company has been in financial straits for some time. Vicentin accrued an increasing amount of debt over the past several years, leveraging its balance sheet up to unsustainable levels. A significant portion of this debt was funded by public sources, including Argentina’s national bank, Banco de la Nación. In fact, credits from the national bank to Vicentin doubled to $300 million USD under the administration of prior president Mauricio Macri. Macri, in turn, benefitted from generous campaign donations from the agricultural company. In December 2019, the debt load became too much to bear. The company defaulted and entered bankruptcy restructuring proceedings.

Most media sources estimate Vicentin’s debt at around $1.3 billion USD. A significant portion of this debt is owed to public creditors, but Vicentin also owes an estimated $500 million to agricultural suppliers – read farmers - who have not been paid for crops that have already been delivered and processed. There is much to criticize about how Vicentin has been managed. But none of these issues will be solved through a state expropriation.

Send in the Clowns

It is likely that Vicentin has been in the crosshairs of the current administration for some time, particularly following its default late last year. President Alberto Fernández came into office in December 2019, representing the leftist alliance Frente de Todos. Even though long aligned with Peronist style politicians, he himself is a relative moderate. His vice president, however, is Cristina Fernandez de Kirchner who was the Argentine president from 2007 to 2015. Her administration presided over a period of severe economic deterioration for the country, including the nationalization of oil company YPF.

Fernández has framed the intervention into Vicentin as a ‘rescue’. He claims the state’s objectives are to support the rehabilitation of the company and oversee the negotiations with the firm’s many creditors. Various government officials have also cited the desire to provide labor stability, soothe social unrest, and provide food security.

While perhaps noble goals in and of themselves, I have little faith that they are genuine. In a country battered by protectionist tendencies, Argentina’s agricultural production remains one of the few economic bright spots. Enabled by exceptionally productive land and a longstanding agricultural tradition, Argentina’s campo continues to thrive as other portions of the economy have been systemically debilitated. Expropriation of Vicentin would amount to little more than a thinly veiled attempt to line government coffers by exploiting Argentina’s natural resources.

Not only is seizing the private company simply wrong, it sets a dangerous precedent for institutional credibility. If Argentina is ever to improve its economic trajectory, it will be critical for market participants, both foreign and domestic, to believe that the country has robust and independent institutions. If the government expropriates Vicentin, it will undermine this faith and create reputational consequences that will take years to overcome.

Furthermore, there is little evidence that the government would be able to effectively manage the company. State owned companies in Argentina are notorious for inefficiency at best, and at worst, for sweeping corruption and moral decay. It is also baffling that a government with dwindling reserves and in the midst of its own $65 billion USD debt renegotiation could expect to provide the fiduciary oversight necessary to right the Vicentin ship.

What Now

The story isn’t over yet. As Vicentin remains under bankruptcy protection, those opposed to the expropriation are appealing to the judiciary to intervene. Moreover, in order to become law, the initiative must pass both chambers of Argentina’s legislature, which may present some challenges.

But the most powerful opposition to this initiative will come from the Argentine pueblo. It is clear that Fernández misjudged the public’s reaction to his decree, already causing him to backtrack somewhat. Nevertheless, if Argentina hopes to protect the future of its agricultural economy and thus the economy at large, the voice of the Argentine people must be heard from the streets of Buenos Aires to the soybean fields in the Pampa Húmeda.