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Some issues need to be resolved between a justified wish and a successful start-up

Some challenges that the Argentine 'added value' plan will have to face

Click on the flag for more information about Argentina ARGENTINA
Friday, August 14, 2020, 20:00 (GMT + 9)

The Argentine government has announced a plan based on a concept in which everyone will agree in theory: A higher added value, more work, more technology, know-how, higher prices and access to more sophisticated markets.
 
For Argentina this will represent higher foreign exchange earnings that are needed to balance its trade balance and increase reserves. But there are some practical aspects, which are part of the Argentine reality, and it is there where the initial concept begins to fragment.
 
We are going to analyze some so that politicians and officials can improve their global analysis on this topic:
 
Costs and unions
 
Argentina is a country that has an excess of "unions" structure
 
What some call "earned rights" in some cases is an overlap of union structures that hinder, on the one hand, the fluidity that every production process requires and, on the other, makes any undertaking more expensive, since in practice many more personnel are required than is required. used in countries where union pressure is very low or almost nil.
 
Going from a whole squid to a dry one leaves 82.5% of raw material on the way, which represents a very high added value ►
 
Just to give an example, in the 80's the Jabob Group (Guillermo Jacob at the head) organized a production line of squid with high added value (surume or dried squid) to export directly to packing plants in Japan. The project had the collaboration of a Japanese technician, Kasuya Metoki, and was commercially successful, in theory, as several major Japanese companies showed rapid interest.
 
At this time, the owner of the Natori group (Koichi Natori) traveled to Argentina with his wife to see the recently inaugurated plant in Necochea and the two fresh jigger vessels that had been incorporated with the support of the KSJ group from Japan. Mitsubishi, Toyomenka and other major companies also joined in, even thinking of developing Softo-Daruma or Hakodate Kogane (seasoned and dried squid fillets).
 
► If the raw material is cooked and seasoned, the added value process is even higher
 
Why did the project fail?
 
In theory, the costs in Argentina were much lower than those in Japan and a worker's salary in the plant was around half that of that country
 
The production line was divided into sectors: reception of raw material, primary processing of raw material, secondary processing, drying line, packaging line, chambermaids, logistics personnel (forklifts and trucks), administration, cleaning and maintenance, etc. In summary, around 140 people who worked under different unions that imposed a clear limit to each stage or responsibility of the process (the one that transports fish cannot process and the one that processes cannot dry and the one that dries cannot bring it to the chamber).
 
In the north of Japan, in the Hakkodate area, the plants that carry out a similar process are located and for the same level of production only about 50 people are used who, it is worth noting, start working as soon as the ships arrive with raw material, they don't have unions and they do all the work that is necessary with a beautiful smile and thanks for having raw material to process and work.
 
Today Japanese companies process illex argentinean squid in chinese or Vietnamese processing plants where costs are low and the quality is very good.
 
Already here we can see that labor in Argentina is expensive and inefficient compared to other countries that consume high value-added products.
 
Hygiene and sanitary responsibility
 
Another problem that a food company faces when it wants to increase added value and export to more sophisticated countries is consumer health responsibility.
 
For example, NATORI does not import finished products but, in some cases, it imports raw material with incorporated processes such as "dry squid" and then in its plants in Japan it carries out the final processes such as roasting, flavoring, cutting, packaging and control. quality.
 
Final consumer product of Natori. In this case dried and seasoned squid tentacles packaged to the public (usually sold in train stations or stores to be consumed as a snack) ►
 
Why this?
 
The one that puts the brand and reputation in the consumer market in this case is Natori and it cannot assume absolutely any risk that there is 1 hair (or hair) or a residue of paper, metal, plastic particles or bacteria in its products.
 
This point eliminates any intention of exporting final products ready to be consumed in countries with high added value, except that there are no other cheaper or safer options.
 
Investments and infrastructure
 
The companies that process and market seafood products in Europe or Asia receive aid (money given away) or subsidies (money to help them lower costs) so that if one makes a visit, for example, to Vigo and the surroundings (Galicia), one can find with the most modern and best equipped factories in the world.
 
The question is: If the companies, with the support of the government, have all this set up and working, what would be the reason to stop production and import from Argentina?
 
Customs inspections and controls
 
There is a natural "protection" for the local producer that occurs when a product passes customs and sanitary controls. The higher the added value, the more controls are carried out. Just to give an example, if a producer exports a frozen IQF product, the first thing they are going to measure is the% of water in the glaze. The regulations establish a limit and it is normal for there to be between 12 and 14%. So far so good because if an Argentine exporter happens to send frozen squid rings to Italy (rabas) in theory they have a product whose raw material is abundant, cheap and with a lot of demand in that market.
 
But the reality is different since if the same Italian buyer, a supermarket chain, decides to import the rings from the Netherlands, nobody carries out any control. So, what happens in practice? A squid ring processing plant in the Netherlands imports raw material from Argentina but instead of incorporating a 12-14% glaze it does so between 30-40% which makes the product cheaper by more than 1/3. (Cases have been seen up to 50% water)
 
The question here would be: What is best for the Italian supermarket? buy an Argentine product that is worth the same or even a little more expensive than the Dutch or buy from the Dutch and negotiate the% of water? (it can be the% of water or breading the case variant)
 
Bettered product that Grupo Solimeno produces for the domestic market ►
 
There was a very notorious case in the 90's when the Zanella Group decided to install a plant in Mar del Plata with the most modern equipment of the moment, thinking about exporting added value. FIS had anticipated, even before the company started up the plant, that the project had a death sentence for various reasons that had been explained at that time. Everyone knows that ZanellaMare did not last long and that the group suffered a severe blow to their finances to finally close. The plant remained in the hands of the Solimeno Group but unfortunately it has not been able to find a way to make it profitable with exports.
 
The Zanella Group finally closed its motorcycle and appliance plants and left Argentina.
 
Luckily we can find an example of the "positive" side that is that of the Arcor Group. The world's largest exporter of sweets that also exports high value-added food products. The key to its success is, on the one hand, that it controls the entire production cycle starting with low raw material costs and, on the other, that it was developing non-traditional markets. Arcor exports to countries where the fishing industry is not used to looking normally.
 
There are more options to be competitive outside the European Community, Japan, the USA and other first world countries. Perhaps the key to success is here. However, the government and business chambers should resolve the first point that we have described since it is a very strong obstacle to productive development and the intention of winning markets.
 
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