STRATEGIC GUIDELINES PROPOSAL FOR THE FOOD AND BEVERAGE INDUSTRY

STRATEGIC GUIDELINES PROPOSAL FOR THE FOOD AND BEVERAGE INDUSTRY

STRATEGIC GUIDELINES PROPOSAL FOR THE FOOD AND BEVERAGE INDUSTRY The production of agri-foods in Argentina has had, has and will continue to have a key relevance in the economic as well as in the social, territorial, commercial, cultural and political spheres. It has acquired greater significance due to the irruption of international markets with new demands for foods, with an emphasis on products with a degree of conversion and differentiation. These new markets account for about a third of the world s population and are consequence of an increase in their incomes. We estimate that for the year 2020, our country s production could supply over 650 million people around the world. This scenario is backed by the availability of non-renewable resources, such as land and fresh water, which make the production of agri-foods stand out as a strategic sector for countries with said resources. The food and beverage industry represents a strategic sector for the Argentine economy. In spite of the difficulties it is currently undergoing, it is highly competitive and one of the most federal sectors in the country. It is made up of SMEs and large companies distributed all over the country. This industry possesses a great potential and has had a relevant market development internationally. More than 40% of our production is exported to more than 185 countries. This represents around 33% of our country s exports -27 billion USD a year-. Imports, on the other hand, are much lower - over 1.2 billion USD-. The industry has 15,000 companies (more than 97% are SMEs), and directly employs more than 500,000 people in the whole country. COPAL, the Food Industry Coordinating Organization, is a federal business union organization that brings together chambers and companies in the food and beverage industry. It represents all the producers in this sector and the existing variety of company-sizes, location of plants (urban or suburban) and regional economies. There are almost 40 partner chambers throughout the country. The associate companies constantly seek innovation, technological development, investments, the introduction of green practices and the development of products that target the demands of a healthier life-style. COPAL aims at promoting the strategic role and importance of the food and beverage industry as a pivoting sector for the regional and socio-economic development of Argentina so that the country can increase its participation in the international markets. Moreover, our organization seeks to promote agro-industrial integration, both at the economic activity (value chain), and the organizations level. It is of utmost importance to strengthen the principles inspired by market economies and private initiative, which underscore the role of the business world as a key factor in welfare by means of job creation and value addition, 2 factors that can contribute to social inclusion and sustainable territorial development.

COPAL represents the private sector, that is, the private initiative in the context of a market economy. We highlight the role of private companies which carry out their businesses under the institutional organization of the State, with due respect to the rule of law which provides the necessary legal certainty for development and productive investment. With this purpose, the Administration shall guarantee reasonable regulations, a beneficial environment for setting up businesses and job creation, as well as for investment development and a macroeconomic situation which is stable and predictable. COPAL considers that the projection that agroindustry has, both at the national and international levels, stresses the productive and export profile of Argentina, which is based on quality, efficiency, range of supply, productivity, technology, the possibility of value addition, territorial development, inclusion, highly-qualified human resources and competitive advantages in the different regional economies. Moreover, it is important that the State can bring together the national, regional and provincial interests and those that can guarantee a transparent and fair competition for the development of a competitive model, with clear and stable rules. All this, reconciling the State s basic competences with the promotion of social interest and the recognition of private property and private initiative that will, in turn, create a context of certainty that can allow for medium and long-term planning. Based on what has been outlined, we propose the following guidelines for the development of national agroindustry in the coming years. First and foremost, we will define agroindustry: It is the industry which converts products from plant and/or animal origin into elaborate products, together with the processes of quality selection, classification, packaging and warehousing of the agricultural production, and the subsequent transformation of the products and by-products obtained in the first conversion of the agricultural and livestock raw materials. GUIDING PRINCIPLES AND VALUES Respect for the Rule of Law, the Constitution and private property. Legal certainty and strengthening of the institutions. Implementation of a market economy based on clear rules. Fair treatment for the different actors in the all the regions in the country regarding social, fiscal and economic aspects Recognition of the private productive sector as the driving force for investment in the national economy Fair competition rules in a market economy Joint work of the public and private sectors. Respect for each other s roles. An integrated nation open to the world with fair and homogeneous rules. Productive development of the economic agents in a context of regulation and procedure simplification.

Beef Poultry Sausages Fish Seafood Sugar Spices Mayonnaise and other sauces Rennet ferments colourants starch glucose diet food Tea Yerba mate Coffee Flour Bread Pasta Cookies Salt Ice-cream Olive oil Readymade food Dairy products Fruits Legumes Leafy vegetables Preserves Nonalcoholic beverages Beer Wine Spirits Candy Chocolates Margarine Hydrogenated products LARGE - 414 MEDIUM SIZE - 993 SMALL 4,294 MICRO 8,827 97% ARE SMEs 14,528 AB COMPANIES STRATEGIC AIMS TO IMPROVE COMPETITIVENESS FOR SMALL, MEDIUM-SIZED AND LARGE AGRI- BUSINESSES by fostering the articulation of the different actors and the State, which should at all times, fulfill its non-delegable duties. All this shall take place in a context of a market economy and should create stable and predictable conditions, thus fostering the incorporation of technology, a decrease in the trading costs and an improvement of the investment processes. To promote the DEVELOPMENT OF THE DOMESTIC AND FOREIGN MARKETS through tools that foster growth and productivity in order to supply local consumers (giving way to supply and demand s interplay) and to boost international reach. This will increase the SMEs capacity to access foreign markets and generate opportunities for Argentine

products by strengthening international negotiations related to commercial and technical (sanitary and quality & harmlessness) issues and non-tariff barriers. TO PROMOTE A DIVERSIFIED AND SUSTAINABLE REGIONAL DEVELOPMENT by creating the necessary conditions for economic, social and organizational sustainable improvement and by fostering value addition and the development of SMEs. All of these are aspects that contribute to genuine job creation. The Argentine agro-industry must consolidate its integration along the productive chain. To promote conditions that create SYSTEMIC COMPETITIVENESS by encouraging innovation, technological development, environmental care and human resources training in order to increase productivity, diversification and the production of quality products. These foods and beverages should have the demanded standards to project themselves both in the domestic and in the foreign markets. To contribute to a MODERN LEGISLATION which can move along with development, and technological and corporate innovation. Such legislation should also serve SMEs through fiscal, labour, and financial systems which shall enable sustainability, thus avoiding overlapping in the different regulatory levels (national, provincial and municipal). This will, in turn, lead to simpler procedures and greater number of online operations, mainly aimed at facilitating federalism and equitable treatment. To encourage DEVELOPMENT OF ADEQUATE INFRASTRUCTURE, both physical and social (communications, energy, transport, logistics, human resources, ports, roads, etc.) to favour competitive agroindustrial development with quality jobs.

PROPOSALS FOR THE FOOD AND BEVERAGE INDUSTRY DEVELOPMENT Promote a modern and simple regulatory framework Bring together public and private actors Promote the development of infrastructure STRATEGIC AIMS IMPROVE COMPETITIVENESS Foster the development of domestic and foreign markets Foster systemic competitiveness Foster sustainable regional development Strategic Areas - Action plan proposal Domestic Trade Foreign Trade Fiscal and Tax Policy Logistics Financing Food Regulation Environmental and Sustainability Policy Labor affairs

Domestic Trade Price and production&sales level controls Diagnosis: Acts no. 26,991; 26,992 and 26,993 are incompatible with the agreements reached by the G20. Statistics are not uniform Proposal: To revoke Act 26,991. To remove price control schemes. To develop indicators and publish statistics

Foreign Trade Export Refunds Diagnosis: Need to revise current scheme. Delays in the payments which affect working capital and competitiveness. Proposal: To analyze a refund scheme, with a focus on regional economies. AFIP (Federal Administration of Public Revenue) should implement payment agreements. To return to previous system: blocking the commited operation. Export Duties Diagnosis: Affect global competitiveness and the State s tax collection capacity in the long term. Proposal: To set up an Export Promotion scheme which progressively reduces Export Duties and which removes them completely for regional economies.

Export Duties paid by regional economies only have a minor weight in the total structure Export Duties in 2014 (millions of ARS and percentage structure) TOTAL not including region Regional Economie s (*); ARS 2,621 (*) Includes olive oil, olives, beans, canned fruits peach, preserved and canned tomato, wine, tea and its by-products, fishing industry, juices, apples, pears, sugar, poultry meat, oranges, lemon, peas, and tangerine. (**) Includes duties to MIO (manufactures of industrial origin) and MAI (manufactures of agricultural origin) and primary products Deadline for the entrance of foreign currency. Export duties and income tax advance payments. Port tariffs. Documents for the export of agricultural foods Diagnosis: The established period creates a mismatch between payments and foreign Exchange transactions. Greater impact for SMEs and regional economies Proposal: To return to the previous scheme, setting terms for types of goods or a general period of 180 to 360 days. To revise AFIP s regulation no. 3577/14 and Waterways resolution no. 1108/13. To remove the use of current documents for the export of agricultural foods.

Advance Affidavit of Imports Diagnosis: The treatment to companies has not been clear or uniform. The procedure is approved or rejected on arbitrary grounds. Proposal: To remove the Advance Affidavit of Imports in order to align the country with the WTO. International Negotiations Diagnosis: Argentina and Mercosur are being left out of international negotiations. Proposal: To define a strategy to enter foreign markets. In the context of the WTO, demand the most-favoured-nation treatment.

Commercial Promotion Strategy Diagnosis: Lack of commercial intelligence. Duplication of public and private efforts. Proposal: To define a Promotion and Commercial Intelligence strategy for the promotion of exports, coordinated by a single institution. Commercial Promotion Strategy Diagnosis: Lack of commercial intelligence. Duplication of public and private efforts. Proposal: To define a Promotion and Commercial Intelligence strategy for the promotion of exports, coordinated by a single institution.

Fiscal and Tax Policy Shared tax revenues of the provinces Diagnosis: Complex system. This results in an increase in the rates and duties paid by Provinces and Municipalities. Higher costs for the whole value chain. Proposal: To pass a new Shared Tax Revenue Act for Provinces and Municipalities. Gross Income Tax on Industrial Activity Diagnosis: Continuous increase in the rates due to the lack of provincial resources. Extra-provincial industrial activity is discriminated. Proposal: To agree with the provinces on a reduction in the rates and to fix differential rates for SMEs.

Different tax collection systems in the provinces. Diagnosis: Each province sets up its own tax collection system, which creates administrative hindrances. Proposal: To harmonize the provincial and municipal tax collection systems. Inflation Adjustments Diagnosis: La lack of frequent update makes taxpayers pay with their assets and not with their earnings Proposal: To reestablish an inflation adjustment or a similar system

Minimum Presumptive Income Tax Diagnosis: Given that it is a tax on assets, it is paid even when the taxpayer makes a loss. It affects the investments needed to grow. Proposal: To remove the Minimum Presumptive Income Tax Income Tax and Advance Income Payment Diagnosis: The 2013 ammendment on the availability of dividends discourages foreign investment. Proposal: To differentiate the tax pressure on Income tax according to regions. To modify tax brackets. To revoke Resolution 3577/14

Logistics Logistics Efficiency Diagnosis: General increase in costs that create distortions. Centrality of road transport. Decline in the overall logistics performance. Proposal: To create an environment where the public sector and the logistics operators and carriers can plan strategies and improve the overall logistics performance.

Financing Credit Management Diagnosis: Highly complex formal requirements to access credits which result in higher financial costs and low level of access for SMEs. Proposal : To ease formal requirements, thus avoiding the duplication of information. Financing periods Diagnosis: Scarcity of credits and of long-term periods. Proposal: To increase the credit portfolio according to the financing needs and to the investment projects submitted

Guarantees Diagnosis: Scarcity of guarantees admitted by financial entities for SMEs. Proposal: To create mechanisms so that financial entities accept the guarantees offered by Mutual Guarantee Societies.

Food Regulation National Food Control System Diagnosis: Insufficient and inappropriate Public-Private articulation. Overlapping of entities and procedures. Proposal: To elaborate a new regulation which orders the National Food Control System. To simplify procedures. To complete the informatization of procedures throughout the country. Healthy Life Diagnosis: - Multiple projects that overlap and which contradict each other - Lack of an integral strategy between the State and the private sector Proposal: To design national programs that aim at reaching the WHO and other organization targets in a progressive manner and with an integral vision.

National and Regional Regulation Diagnosis: Inexistence of a formal procedure for the public-private sectors to work together and participate in the impact analysis of regulatory projects. Proposal: To define work groups that combine the public and private sectors. To foster a mandatory public consultation with feedback to the sector in the regulation creation areas.

Environmental and Sustainability Policy Effluent Management and Treatment Diagnosis: SMEs are not complying with current regulations. Lack of intervention policies and instruments to favor the application of requirements. Proposal: To develop schemes and instruments to facilitate environmental management in the highest-risk sectors. National Waste Management Diagnosis: There is no national legislation and both the provinces and municipalities create their own regulations. Lack of homogeneization in the criteria and implementation policies. Proposal: To draw up a bill of minimun budgets in articulation with the productive sector.

Environmental Insurance Diagnosis: There are no alternatives or risk transfers. There are no differences among industries depending on the risk. Current supply does not comply with Article 22 of the Environment Act. Propuesta: To Foster a legislation that allows for competition in the insurance market, that allows for self-insurance and that is not a surety insurance.

Labour Affairs Employment conditions Diagnosis: High numbers of unregistered workers. Out-of-date administrative requirements and excess of bureaucracy. Proposal: To simplify the administrative and fiscal procedures. To ease the tax burden on labour for regional economies. To create a specific system for SMEs Taxes on Labour Diagnosis: High tax burden on labour with a negative incidence on low-qualified intensive workforce formalization. (regional economies) Proposal: To simplify procedures. To find a fiscal solution through Trade Union Co-responsibility Agreement. To design training programmes that link businesses and labour.