McCain Foods Subsidiary in Argentina, Affected by Retention Taxes, Looks to Brazil

The McCain Foods French Fry factory in Balcarce, Argentina.

August 07, 2019

Canadian company, McCain Foods, has begun to reconsider its project in Argentina, as it chooses to prioritise its investments in Brazil.

Sources at the company say that the return of retention taxes undermined the profitability of their Argentinian subsidiary, which is one of the main suppliers of products for the rest of the region.

Retention Tax

A withholding tax, or a retention tax, is an income tax to be paid to the government by the payer of the income rather than by the recipient of the income. The tax is thus withheld or deducted from the income due to the recipient.

Soon McCain will begin the construction of its first factory in Brazilian territory. It will be located in Araxá, in the state of Minas Gerais, and will require an investment of USD 100 million as it aims to be operational for the first half of 2021.

While it is McCain's main market in Latin America, with 35% of the regional turnover, Brazil depended, until now, on imports coming from McCain Argentina. "You could put this line in Argentina, but because of the conditions you can not," say sources close to the company.

Exports represent a large part of the company's business in the country. About 70% of everything McCain produces in the plant located in Balcarce, is sent abroad. "The business is growing twice as fast compared to the global standard, but we must improve production capacity because competitiveness is lost not only in Argentina but also to Brazil," they explain.

Sources at the Argentinian subsidiary of McCain explain that, since the announcement of the return of the retention taxes last September, they lost about USD 17 million.

Argentina represents 15% of McCain's turnover in Latin America, 50% is divided between other South American countries, Mexico, Central America and the Caribbean.

The factory in Argentina has a production capacity of 250,000 tons per year, although the current volume is 210,000 tons. 90% of its exported products go to Brazil, the rest are distributed between Chile, Bolivia, Paraguay, Peru and Uruguay. This year, the firm expects Latin American business to grow 7%, almost double the global standard, which is between 3 and 4%.

"There is room to grow because many restaurants still buy potatoes and fry them, which is a more expensive process, also, processed potatoes fry faster and are therefore more efficient," they point out. Currently, McCain buys 15% of the potato produced in the province of Buenos Aires.

According to data from the Ministry of Agribusiness of the Province of Buenos Aires, the area planted with potatoes in the country for the current campaign is 35,000 hectares, 10% more than the 2017/2018 season.