In January 2015, Argentinean news outlets had much to say about the shortage of tampons in the South American country. The feminine hygiene product is not produced locally and the two principle manufacturers, Johnson & Johnson and Kimberly-Clark, which dominate the Argentinean market with nearly 90% of all sales, import their brands from Brazil, as well as from far-away Czech Republic. The government-imposed import barriers are the reason for the tampon shortage.
Reasons behind restrictions and daunting task of getting dollars into Argentina
Argentina’s external debt is denominated in US dollars, which stands at US$140 billion. The country’s reserves currently stand at less than US$30 billion, which is less than the cost of six months of imports. In October 2015, a bond payment of approximately US$4 billion will be due.
The situation, however, is exceptionally complicated. An interest payment made on 31 March 2015 will most likely not reach most bondholders, as US District Court Judge Thomas Griesa has barred the country from paying any interest on bonds restructured after the 2002 default, until it settles with US hedge funds that rejected a bond swap. This disagreement is at the root of the country’s latest default in July 2014. Therefore, it is essential that more dollars enter the country than exit, which explains the import restrictions.
How else might Argentina obtain more US dollars?
- Foreign investment in Argentina. Considering the fact Argentina does not have a warm reputation among foreign investors, this is unlikely.
- Debt. It is difficult for Argentina to issue a new bond in dollars due to the hedge fund holdouts and the ruling by Griesa.
- Positive trade balance. This is the most likely way for Argentina to acquire dollars in 2015. The country has devalued its currency to boost exports, but annual inflation rates of around 25% have made the country less competitive. The commodity boom, which benefited many South American countries, is over as well.
Is the lack of tampons important?
This is obviously a serious issue for any Argentinean women who want to buy the product. However, the numbers show that Argentinians prefer, and by far, other sanitary protection options.
In 2014, tampon sales reached 192 million units, or some 14 units per year per 12-54 year old woman. Spaniards, meanwhile, purchase approximately 44 units per woman per year, while Germany reaches 92. Sanitary towels, the preferred sanitary product among Argentinean women, has a per capita usage of 132, which is above the 119 units in Germany and the 114 in Spain. These comparisons, however, are somewhat unfair. The low demand for tampons in Argentina also stems from it being an underdeveloped market, where multinationals are not interested in establishing production facilities.
Import limitations have had a negative impact on other more popular tissue and hygiene categories as well. Within nappies/diapers, several brands have gone missing, including Kimbies by Kimberly-Clark. The loss of tissue and toilet paper brands Kleenex and Scott also led to a shakeup in the market.
Might this be an opportunity for local brands and companies?
This is not the first time that Argentina´s government has decided to limit imports. However, local companies have generally not taken advantage of the situation. By increasing their production capacity they might more aggressively compete for market share, while establishing themselves as an alternative to the multinationals. The strategy of a domestic Argentinean manufacturer, however, usually consists of a price increase. Faced with a limit in how much they might produce in the short term, and faced with an increased demand, equilibrium is achieved with higher prices. The losers here are Argentineans, who must pay more for a lower quality product.
Will women and babies be without sanitary protection and diapers in 2015 then? Unlikely. Multinationals dominate the market but a few key Argentinean manufacturers, such as Celulosa Campana and Papelera San Andrés de Giles, as well as small nappy/diaper manufacturers or pañaleras, which produce unmarked diapers at a very affordable price, are evidence of continuing industrial development in the country. However, complicating the picture, in spite of the modern and efficient industrial investments made in Argentina, is the fact that many domestic products rely on a large share of imported components. This is often due to economies of scale, in which Brazil acts as a supplier for smaller countries in the region.
What is next?
A common comparison in recent years is that of Venezuela and Argentina. Both countries are seen as having mishandled their economies, and in doing so, have created a less than perfect environment for tissue and hygiene manufacturers and their consumers. However, the chaos in Venezuela is often traced back to the price controls of basic goods and the subsequent development of a black market. The “equilibrium’’ market prices in Argentina should be a barrier to the long and aggressive supermarket lines common in Venezuela, with el bachaqueo inflating sales in supermarkets while building a profitable tissue and hygiene black market.
In Argentina, we can expect the barriers to imported goods to remain through 2015, which will inevitably lead to a lower variety of products at higher prices. However, elections are to be held in October and November, and the candidates to replace President Kirchner promise to bring at least some measure of much needed reform.