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Business as (un)usual in Argentina

As a Canadian ag reporter finds, Argentina is a land of opportunity — if it can only get out of its own way

You must be from North America,” Federico Boglione answered. I was a bit taken aback. I thought I had asked a straightforward question, like I’d ask in any Canadian interview.

“Where do you see your business in five to 10 years?” I asked.

But for Boglione, president and co-owner of the Los Lazos group, Argentina’s family-owned agribusiness giant, this was no simple question, and there was no simple answer.

“Today I tell my employees let’s go right. Tomorrow I’ll read something in the newspaper and say let’s go left,” Boglione told me. “Argentina moves that fast.”

Apparently, I have not only flown from the north to the south hemisphere, I have also leapt from the dull, predictable politics of Canada to a farm environment that is, well, very different.

“We can’t make annual budgets,” Boglione patiently explains. “I don’t know what we’ll do tomorrow.”

Boglione is used to seeing American and even Canadian farmers lured to Argentina by the stories of big profits.

Be careful, he tells them. “It is possible to invest and make money here,” Boglione says, “but you need to find the right business partner or you will lose a lot of money.”

Four principal problems affect agriculture in Argentina:

  • Market prices are often lower than the cost of production.
  • The federal government views exports controls as a key vote-getter.
  • Climate problems persist, particularly due to uncertain rains.
  • Taxes are everywhere, claiming up to 50 per cent.
Man in white lab coat.

In Argentina, we can make 10 times the profitability,” Frederico Boglione says, “but it’s so much more risk.”

Boglione’s own story also reflects how success in Argentina depends on timing, luck, and an amazing ability to change direction based on the latest government whim.

A gentle giant with a quick smile and wit, Boglione (46) was frank about sharing the realities of doing business in Argentina with our touring group of international agricultural journalists. We met him in Nogoyá, a small city of about 23,000 in the province of Entre Ríos, about three hours by car from Buenos Aires.

More specifically, we met at S.A. La Sibila, the family’s main powder-processing plant and Argentina’s only facility dedicated solely to producing dehydrated milk products. The plant is one of four main branches in the Los Lazos family business holdings.

Making the Los Lazos group

It was Boglione’s great-grandfather who emigrated from Italy, establishing a supermarket and flour mill in Rosario, a city of 1.2 million located nearly 300 kilometres from the Atlantic, but which, because of its position on the Parana River has a busy port, along with railway links, making it Argentina’s second-most-important city and a gateway for the region’s agricultural products.

During the Second World War when oil could not be imported from Europe, the Los Lazos family began processing vegetable oil from sunflowers, and later soybeans.

Aceite Patito (a.k.a. Little Duckling Oil) became the second-largest edible oil brand in South America until the 1980s. But in 1989, with Boglione’s father at the business helm, the family sold the oil factory so it could strategically invest in farming instead.

The family began acquiring four farm sites. Two farms north of the Los Lazos group headquarters in Rosario focused on dairy and grain production, while two farms south in Buenos Aires province turned to beef and grain production.

Together, the four farms add up to 100,000 acres, with 5,500 dairy and 19,000 beef cattle.

“This way we put our eggs in different baskets,” Boglione says. “And we can be sure somewhere it will rain.” Precipitation is a major challenge for Argentine farmers.

Today, there’s also a fifth farm site, this time in the southern United States where the family also raises beef cattle. “The ranch in the U.S. is predictable income,” Boglione says. “In Argentina we can make 10 times the profitability, but it’s so much more risk.”

Throughout the 1990s as their farms grew, production also expanded but unstable market prices kept a damper on profitability — especially for the dairy herds, which together produced 180,000 litres daily, ranking the operation as the second-largest milk producer in the country.

Nestle loses big

Meanwhile in Nogoyá, Nestle had just finished refurbishing a milk factory to its world-class standards, only to see the plant shut down because of disputes with unionized workers.

Seizing the value-add opportunity, Boglione’s family bought the factory and began processing 500,000 litres of milk per day (then capacity) for their new Purísima brand of milk powders at S.A. La Sibila.

As part of the deal, Nestle identified the names of challenging union employees, which effectively enabled the Los Lazos group to selectively rehire for S.A. La Sibila, says Boglione.

dairy cattle

Argentina is completely predictable, says Boglione. “Every 10 years we make the same mess. We explode in the same exact way.”

“Nestle made a big mistake (by selling),” Boglione says.

Because the factory was in excellent, turnkey condition, Nestle sold “the know-how: their quality” to a farming family that Nestle underestimated, thinking they wouldn’t be able to master the processing challenge.

Ultimately, however, the Boglione’s milk powder products would compete with Nestle for space on mostly unrefrigerated Argentine grocery store shelves.

“Without investing a penny in marketing,” Boglione says they grabbed 40 per cent of the country’s thirst for dairy products — matching rival Nestle in national market share.

Today, the S.A. La Sibila factory receives milk from 220 farms raising 60,000 grass-fed dairy cows in total, all located within a 300-kilometre radius. Interestingly, not a single farm is on contract — farmers negotiate on price monthly, and that’s the way Boglione prefers it.

He also prefers dealing with 10 smaller farms instead of one larger farm because it reduces the risks of farmers jumping around. Even so, only a handful of farmers switch between processors, and in the past year, S.A. La Sibila paid farmers on average 2.1 pesos per litre (C$0.40).

Boglione says while the domestic market was profitable for their powdered milk (subsidized by Argentina’s government so all citizens can access milk) export prospects were dismal thanks to government intervention with high tax rates. “Our export powder was fetching US$5,000 per tonne, but we were left with the peso equivalent of $2,100 after going through the Argentinean government.”

An export roller-coaster

Boglione began looking abroad for other opportunities, when a contact introduced Boglione to China’s “4-2-1” phenomenon. With its one-child law, there were millions of families with four grandparents, two parents and one child. “All the money is spent on that baby,” the Chinese contact said. “They don’t care about the cost of infant formula.”

The Boglione family invested $60 million to boost production capacity at S.A. La Sibila, establishing lines for raw infant formula ingredients. The ingredients are then exported for other companies to use in their formulations.

“We contribute ingredients for 95 per cent of the final product. Other companies add the final five per cent of vitamins and minerals — and use their brand’s label,” says Boglione, noting this helps protect the S.A. La Sibila brand in an ultra-demanding marketing. As he explains, “You cannot make a mistake in infant formula because you can kill a baby.”

Today, the state-of-the-art S.A. La Sibila plant is the most modern of dairy factories in South America, and it is situated in the heart of Argentine dairy country. The facility blankets a 15-hectare site and it spray dries its way through 1.2 million litres of milk daily, generating 145,000 kilograms of powdered product.

Meanwhile, S.A. La Sibila, which by the way is the city of Nogoyá’s main employer, also exports under four owned and another dozen private labels to more than 50 countries worldwide. However, the ratio of domestic versus export volumes depends on the latest government rules, Boglione says. “Some years we’re 70:30 export versus domestic, the next year could be reversed,” he says, adding if you’re involved in processing you need to move quickly with new government rules.

The S.A. La Sibila factory in Nogoyá is supported by a second former-Nestle facility some 375 kilometres away in Córdoba with capacity for turning 1.45 million litres daily into powdered milk, anhydrous milk fat, and butter oil. More recently, the family has added a new production line making Argentina’s first sugar-free energy drink.

“It puts us into a completely different channel from milk,” says Boglione. “We’re still in supermarkets, but we’re now also tapping 7/11 convenience stores with it.”

When the Los Lazos group saw the need for better-quality feed, the family built a processing plant that’s now the leading feed company in Argentina, producing 12,000 tons per month — strictly for cattle. The group has also expanded into the cattle genetics business.

In total, Los Lazos supports 750 employees starting at a base salary of 6,000 pesos per month (~C$1,200).

Boglione holds an accounting degree from the University of Rosario. “The public school system is free, but you get what you pay for,” he says. Boglione credits his father for teaching him about the family business, a process that was hurried along during their first year together by his father’s cancer diagnosis. “My uncle, a doctor, said he had a five per cent chance,” Boglione says. “I don’t like cancer, but I’m glad my father had it because it forced us to make the most of our time together.” His father did in fact survive 17 more years, and saw their infant formula exports take off.

Today, Boglione is in partnership with his mother and two brothers. One brother lives in the U.S. and is in contact with Boglione monthly. “He tells me ‘don’t make a mistake,’” Boglione says, describing the level of business involvement. The youngest brother is handicapped and unable to participate in the business operations.

A family man, Boglione hopes his children might one day be involved in the family business. For now, they enjoy joining him on short flights to visit the farms. “They’re like their dad,” he says. “They like the cows the best.”

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