Adecoagro SA (AGRO) Risk Analysis

In the past, some of the countries in which we operate, particularly Argentina and Brazil, have experienced, or are currently experiencing, high rates of inflation, adversely affecting their economies and financial markets, and limiting the ability of their governments to create conditions that stimulate or maintain economic growth. Although inflation rates in some of these countries (other than Argentina, as further explained in "-Risks Related to Argentina-Our results of operations may be adversely affected by high and possibly increasing inflation in Argentina") have been relatively low in the recent past, we cannot assure you that this trend will continue. The measures taken by the governments of these countries to control inflation have often included maintaining a tight monetary policy with high interest rates, thereby restricting the availability of credit and retarding economic growth. Measures to combat inflation and public speculation about possible additional actions have also contributed significantly to economic uncertainty in many of these countries and to heightened volatility in their securities markets. Periods of higher inflation may also slow the growth rate of local economies. Inflation is also likely to increase some of our costs and expenses, which we may not be able to fully pass on to our clients, which could adversely affect our operating margins and operating income. A portion of our operating costs in Argentina are denominated in Argentine Pesos and most of our operating costs in Brazil are denominated in Brazilian Reais. Inflation in Argentina or Brazil, without a corresponding Peso or Real devaluation, could result in an increase in our operating costs without a commensurate increase in our revenues, which could adversely affect our financial condition and our ability to pay our foreign currency denominated obligations. On January 7, 2016, the Argentine Statistics and Census Agency (Instituto Nacional de Estadísticas y Censos - "INDEC") ceased publishing certain statistical data and, after implementing methodological reforms, resumed publications of the Consumer Price Index ("CPI") on June 16, 2016, which reached annual rates of 40.9% at the end of the fiscal year 2016, 24,8% at the end of the fiscal year 2017, 47.6% at the end of fiscal year 2018, 53.8% at the end of fiscal year 2019 and 36.1% at the end of fiscal year 2020 (see "- Risks Related to Argentina-The credibility of several Argentine economic indices have been called into question, which may lead to a lack of confidence in the Argentine economy and may in turn limit our ability to access the credit and capital markets" and "-Risks Related to Argentina- Our results of operations may be adversely affected by high and possibly increasing inflation in Argentina"). Brazil has historically experienced high rates of inflation. Inflation, as well as government efforts to curb inflation, has had significant negative effects on the Brazilian economy, particularly prior to 1995. The inflation rate was 7.2% in 2016, as measured by the General Market Price Index (Indice Geral de Preços - Mercado), compiled by the Getulio Vargas Foundation (Fundação Getúlio Vargas). However, in 2017 Brazil registered a deflation of 0.53% due to a decrease in the price of food products. In 2018 Brazil registered an inflation of 7.5%, 7.3% in 2019 due to the depreciation of the Brazilian Real against the U.S. dollar and the increase of the prices of primary products and 23.14% in 2020 due to COVID-19, the depreciation of the Brazilian Real against the U.S. dollar and the increase of the prices of primary products. A significant proportion of our cash costs and our operating expenses are denominated in Brazilian Reais and tend to increase with Brazilian inflation. The Brazilian government's measures to control inflation have in the past included maintaining a tight monetary policy with high interest rates, thereby restricting the availability of credit and reducing economic growth. This policy has changed in the last two years, when the Brazilian government decreased the interest rate by 775 basis points. Subsequently, the high inflation, arising from the lower interest rate, and the intention to maintain this rate at low levels, led the Brazilian government to adopt other measures to control inflation, such as tax relief for several sectors of the economy and tax cuts for the products included in the basic food basket. These measures were not sufficient to control the inflation, which led the Brazilian government to reinstate a tighter monetary policy. As a result, interest rates have fluctuated significantly. The Special System for Settlement and Custody (Sistema Especial de Liquidação e Custódia, or "SELIC") interest rate in Brazil at year-end was 13.75% in 2016, 7% in 2017, 6.5% in 2018, 4.5% in 2019 and 2.00% in 2020 as determined by the Comitê de Política Monetária, or COPOM. Argentina and/or Brazil may experience high levels of inflation in the future, which may impact domestic demand for our products. Inflationary pressures may also weaken investor confidence in Argentina and/or Brazil, curtail our ability to access foreign financial markets and lead to further government intervention in the economy, including interest rate increases, restrictions on tariff adjustments to offset inflation, intervention in foreign exchange markets and actions to adjust or fix currency values, which may trigger or exacerbate increases in inflation, and consequently have an adverse impact on us. In an inflationary environment, the value of uncollected accounts receivable, as well as of unpaid accounts payable, declines rapidly. If the countries in which we operate experience high levels of inflation in the future and price controls are imposed, we may not be able to adjust the rates we charge our customers to fully offset the impact of inflation on our cost structures, which could adversely affect our results of operations or financial condition. Depreciation of the Peso or the Real relative to the U.S. Dollar or the Euro may also create additional inflationary pressures in Argentina or Brazil that may negatively affect us. Depreciation generally curtails access to foreign financial markets and may prompt government intervention, including recessionary governmental policies. Depreciation also reduces the U.S. Dollar or Euro value of dividends and other distributions on our common shares and the U.S. Dollar or Euro equivalent of the market price of our common shares. Any of the foregoing might adversely affect our business, operating results, and cash flow, as well as the market price of our common shares. Conversely, in the short term, a significant increase in the value of the Peso or the Real against the U.S. Dollar would adversely affect the respective Argentine and/or Brazilian government's income from exports. This could have a negative effect on gross domestic product ("GDP") growth and employment and could also reduce the public sector's revenues in those countries by reducing tax collection in real terms, as a portion of public sector revenues are derived from the collection of export taxes.

Since taking office in December 10, 2019, the Alberto Fernández administration (the "Fernández Administration") announced and implemented the following measures: -     Law of Social Solidarity and Productive Reactivation: On December 23, 2019, Law No. 27,541 Social Solidarity and Productive Reactivation was published in the Official Gazette (the "Solidarity Law"). The Solidarity Law declared a public emergency in economic, financial, fiscal, administrative, social security, tariff, energy, health and social matters and granted the Executive Branch with broad powers in many aspects related to the public emergency. The Solidarity Law and related regulations adopted on on December 27, 2019 by Decree No. 99/2019, introduced important foreign exchange restrictions and tax modifications, among other provisions related to sovereign debt, energy and social security. Decree No. 99/2019 provided measures regarding employer contributions, applicable rates for foreign goods and provided that, digital services will be taxed at a 8%, and the acquisition services abroad and passenger transport services destined outside the country at 30%. The Solidarity Law delegated in the Executive powers from Congress to determine the export duty rates of exports of all goods and determines different caps for different products. Most agricultural goods have a cap of 15% export duties rate or less (currently, most of them are set between 5%-12%) except for soybean products which are mostly set at a 33% export duty rate. -     Price Control Program: On January 7, 2020, the government relaunched the so-called Programa Precios Cuidados, a voluntary price control program, whose goal is to foster consumption and establish reference prices for households products with the highest consumption. Initially, 310 products were included within Programa Precios Cuidados and public officials stated that the prices of the products included within the program were to be reduced by 8% on the average. Two of the milk products commercialized by the Company are covered by the Programa Precios Cuidados. -     Maximum prices and supply obligations: See "- The measures taken or to be implemented by the Argentine government in response to the COVID-19 pandemic may have an adverse effect on our business and operations - Maximum Prices and Supply Obligations". -     Law of Sustainability of Public Debt issued under Foreign Law: See " - The economy of Argentina may be affected by its government's limited access to financing from international markets and the result of failure to pay its debt obligations and the current debt restructuring process". -     Tax Reform Law: See "- Changes in the Argentine tax laws may adversely affect the results of our operations, financial condition and cash flows". -     Supermarket Shelves Law: See "- The measures taken or to be implemented by the Argentine government in response to the COVID-19 pandemic may have an adverse effect on our business and operations - Supermarket Shelves Law". -     Coronavirus measures: See "- The measures taken or to be implemented by the Argentine government in response to the COVID-19 pandemic may have an adverse effect on our business and operations". -     Teleworking Law. See "- The measures taken or to be implemented by the Argentine government in response to the COVID-19 pandemic may have an adverse effect on our business and operations - Remote Work". We have no control over the implementation of the reforms to the regulatory framework that governs our operations and cannot guarantee that these reforms will be implemented or, if implemented, that such implementation will benefit our business. The failure of these measures to achieve their intended goals could adversely affect the Argentine economy, which, in turn, may have an adverse effect on our business, results of operations and financial condition. On October 24, 2021 the congressional elections will be held, by means of which part of the members of the House of Representatives and the Senate will be elected. Primary elections that will define candidates of each political party are scheduled for August 8, 2021. The results of the elections and their impact on the Fernández Administration as mid-term elections are still uncertain. This political uncertainty in respect of economic measures could lead to volatility in the market prices of securities of Argentine companies and our common shares, and could have a negative impact in our domestic consumer markets, which, in turn, could have a negative effect on our business, results of operations and financial condition.

A significant portion of our operations, property and customers are located in Argentina. Consequently, the value of our assets and properties and the results of our operations depend on the macroeconomics, regulatory, social and political conditions of Argentina and on the exchange rates between the Argentine peso and foreign currency. These conditions include growth rates, inflation rates, exchange rates, taxes, foreign exchange controls, changes in the interest rates, changes of the state policies, social instability and other domestic and international political and economic events affecting Argentina. The Argentine economy has experienced extreme volatility in the recent decades, with uneven periods of economic growth, periods of high inflation and devaluation of the Argentine Peso against the U.S. dollar. Our business and operations may be affected by the economic and political events that may affect the Argentine economy, such as: price controls, foreign exchange controls, currency devaluations, high interest rates, increase in public expenses, tax increase or other regulatory initiatives. The credibility of several Argentine economic indices during the Fernández de Kirchner administration (years 2004 through 2015) has been called into question. By previously understating inflation, the INDEC had overstated economic growth in real terms. The adjustments made by the Macri administration to INDEC lead to a determination of real GDP growth of 48.6% for the period of 2004 to 2015, as opposed to 65% growth in real terms for the same period resulting from the information used prior to June 2016. Because of these reforms, on November 9, 2016, the Executive Board of the International Monetary Fund (the "IMF") lifted its censure on Argentina, noting that Argentina had resumed the publication of data in a manner consistent with its obligations under the Articles of Agreement of the IMF. On June 29, 2017, INDEC also published revised GDP data for the years 2004 through 2015. According to the INDEC, Argentina's GDP grew by 2.9% in 2017, compared to the same period in 2016. Additionally, according to the INDEC, Argentina's GDP decreased by 2.5% in 2018, and 2.2% in 2019. In addition, in 2020 the general macroeconomic conditions worsened as a result of the COVID-19 pandemic. According to INDEC, during the second quarter of 2020, GDP declined by 19.1% year over year (which represented the most significant decline of the GDP in Argentine history) with a peak of 16.2% in the second quarter compared to the first quarter of 2020, and during the third quarter of 2020, economic activity declined by 10.2% year over year. Since the beginning of 2015, international commodity prices for Argentina's primary commodity exports have declined, which has had an adverse effect on Argentina's economic growth. A continued decline in the international prices for Argentina's main commodity exports could have a direct negative effect on our business, results of operation and financial condition, as well as on Argentina's economy. On August 11, 2019, presidential and legis+lative primary elections were held in Argentina, in which Alberto Fernandez and former president Cristina Fernández de Kirchner from the "Frente de Todos" (a coalition formed to participate in the general elections) received 47.65% of the votes while president Mauricio Macri's party obtained 32.08%. On October 27, 2019, Alberto Fernández and Cristina Kirchner, as vice-president, won the presidential elections and took office on December 10, 2019. After the primary elections, the markets reacted negatively, and the economic conditions continued to deteriorate. Due to, among other things, the rise of inflation, the continued demand for salary increases, the growth of the fiscal deficit, the required payments to be made on public debt, the reduction of industrial growth, the recession and the increase of the capital outflows from Argentina, the Government of former President Macri re-introduced rigid restrictions and foreign exchange controls in September 1, 2019, which among other things, significantly curtailed access to the official foreign exchange market (the "FX Market"or Mercado Libre de Cambios) by individuals and entities (see "Additional Information-Exchange Controls"). During the end of 2019 and early 2020, social and political tension and high levels of poverty and unemployment persisted industrial activity and consumption diminished considerably. The deterioration of the economy significantly increased the social and political turmoil, including civil unrest, riots, looting, nationwide protests, strikes and street demonstrations. Due to the high levels of inflation and devaluation, employers both in the public and private sectors are experiencing significant pressure from organized labor unions and their employees to further increase salaries (see "- The Argentine government may order salary increases to be paid to employees in the private sector, which would increase our operating costs"). On December 23, 2019, the Social Solidarity and Productive Reactivation Law No. 27,541 was published in the Official Gazette, which declared the public emergency in economic, financial, fiscal, administrative, social security, tariff, energy, health and social matters. As a result of this measure, the Argentine president and the National Congress have gained considerable powers to alter governmental policies and measures related to the Argentine economy (See "- The impact of the Argentine congressional and presidential elections on the future economic and political environment of Argentina remains uncertain"). Since December 2019, upon the outbreak of the COVID-19, the global economy has been negatively impacted, causing the disruption of the financial markets and international trade, resulting in increasing unemployment levels and significantly impacting global supply chains, all of which has had and continues to have an adverse impact in Argentina's economy and may negatively materially impact our industry and our business (See " – The measures taken or to be implemented by the Argentine government in response to the COVID-19 pandemic may have an adverse effect on our business and operations). The decline in the GDP in Argentina, the deepening recession and the increase of the unemployment also led to an increase in poverty, which, according to INDEC, as of June 30, 2020 affected more than 40.9% of the population. Regarding the foreign exchange market and restrictions, in an effort to contain the escalation of the currency exchange rate, the Argentine Central Bank has been selling its reserves of U.S. dollars, which has resulted in a decrease in the Argentine Central Bank's international reserves from US$65.7 billion as of December 31, 2018 to US$39.4 billion as of December 31, 2020. However, the actual net liquid international reserves of the Argentine Central Bank would be substantially lower, as informed by private sources. Moreover, the Argentine government has been financing all economic assistance related to the COVID-19 pandemic with a significant issuance of currency, which has also contributed to increase inflation, the demand for U.S. dollars and the devaluation of the peso. The Argentine government also adopted measures regarding sovereign debt, including a "re-profiling" or restructuring of certain public debt bonds subject to Argentine law and also conducted a debt restructuring process of sovereign bonds subject to foreign law which was closed during August 2020 (See " -The economy of Argentina may be affected by its government's limited access to financing from international markets and the result of failure to pay its debt obligations and the current debt restructuring process"). The failure of the Argentine Government to restructure its current debt with the IMF and to address the Argentine macroeconomic problems is worsening the economic conditions. In this regard, the country risk index published by J.P. Morgan as of March 4, 2021 reached a peak of 1547 basis points since the successful restructuring of the Argentine international sovereign bonds in August 2020. If the Argentine government does not restructure its outstanding debt with the IMF and other international financial institutions and continues failing to urgently address the necessary measures to improve the macroeconomic condition of the country, the current economic conditions, including inflation, unemployment, decline in GDP, Peso depreciation, and/or other economic factors over which we do not have control may continue to worsen, eventually provoking a general economic collapse, which could have an adverse effect on our financial condition, results and costs of operations. We cannot now fully estimate the impact that the measures currently adopted by the government, or those that it may implement in the future, will have on the Argentine economy as a whole and on the business, equity and results of our operations. Continuing inflation, increase of unemployment, decline in GDP, peso depreciation, and/or other future economic, social and political developments in Argentina, over which we have no control, may adversely affect our financial condition or results of operations.

In the past, members of the Brazilian government and of the Brazilian legislative branch have faced allegations of political corruption. As a result, a number of politicians, including senior federal officials and congressmen, resigned and/or have been arrested. Several members of the Brazilian executive and legislative branches of government were investigated as a result of allegations of unethical and illegal conduct identified by the Car Wash Operation (Operação Lava-Jato) being conducted by the Office of the Brazilian Federal Prosecutor. Any political crisis could worsen the economic conditions in Brazil, which may adversely affect our results of operations and financial condition Moreover, the economic and political crisis have resulted in a further downgrading of the country's long-term credit rating from two of the three major rating companies, placing Brazil 3 notches below the limit of the speculative investment grade level ("junk"). Standard & Poor's downgraded Brazil to BB with a stable outlook in January 2018, Fitch Ratings downgraded to BB- with a stable outlook in February 2018, while Moody's maintained its Ba2 rating, with a negative outlook since May 2017. Brazil's sovereign rating is currently rated by the three major risk rating agencies as follows: BB- by S&P and Fitch Ratings and Ba2 by Moody's. Various major Brazilian companies were also downgraded. Such downgrades have further worsened the conditions of the Brazilian economy and the condition of Brazilian companies, especially those relying on foreign investments. More recently, in March, 2021, the Organization for Economic Cooperation and Development (OECD) set up a permanent monitoring group to check if the combat against corruption has been regressing in Brazil.

We may be adversely affected by the following factors, as well as the Brazilian government's response to these factors: - economic and social instability;- increase in interest rates;- exchange controls and restrictions on remittances abroad;- restrictions and taxes on agricultural exports;- exchange rate fluctuations;- inflation;- volatility and liquidity in domestic capital and credit markets;- expansion or contraction of the Brazilian economy, as measured by GDP growth rates;- allegations of corruption against political parties, elected officials or other public officials, including allegations made in relation to the "Car Wash Operation" (Operação Lava-Jato) investigation;- government measures aimed at controlling the COVID-19 outbreak;- government policies related to our sector;- fiscal or monetary policy and amendments to tax legislation; and - other political, diplomatic, social or economic developments in or affecting Brazil. Historically, the Brazilian government has frequently intervened in the Brazilian economy and has occasionally made significant changes in economic policies and regulations, including, among others, the imposition of a tax on foreign capital entering Brazil (IOF tax), changes in monetary, fiscal and tax policies, currency devaluations, capital controls and limits on imports. The administration is currently facing domestic pressure to retreat from the current macroeconomic policies in an attempt to achieve higher rates of economic growth. In addition, the Brazilian government has discussed the creation of a tax on financial transactions, including wire transfers, (the so-called "CPMF") in order to improve the fiscal situation of the country or to increase the IOF taxation. We cannot predict which policies will be adopted by the Brazilian government and whether these policies will negatively affect the economy or our business or financial performance. The Brazilian economy has been experiencing a slowdown over the past years and the Brazil's GDP growth has fluctuated over the past few years, with a growth of 3.0% in 2013, an increase of 0.5% in 2014, and a contraction of 3.5% in 2015 and 3.3% in 2016. In 2017, 2018 and 2019 Brazilian economy increased 1.3%, 1.3% and 1.1%, respectively. In 2020, there was a decrease of 4.1%. Inflation and unemployment have increased more recently and the Brazilian Real has weakened significantly in comparison to the U.S. dollar. Although the scenario still uncertain, particularly due to the COVID-19 outbreak, the market expectations for 2021 are that the Brazilian economy will experience a growth in GDP. Our results of operations and financial condition may be adversely affected by the economic conditions in Brazil.

The Argentine government has in the past exercised substantial control over the Argentine economy by setting certain industry market conditions and prices. In March 2002, the Argentine government fixed the price for milk after a conflict among producers and the government. In 2005, the Argentine government adopted measures in order to increase the domestic availability of beef and reduce domestic prices. The export tax rate was increased and a minimum weight requirement for animals to be slaughtered was established. In March 2006, sales of beef products to foreign markets were temporarily suspended until prices decreased. Furthermore, in 2007 the Argentine government significantly increased export tax rates on exports of crops. Several restrictions were also imposed on the grain and oilseed markets that essentially limited the access of traders to exports, resulting in a disparity between domestic and world prices. In March 2012, the Undersecretary of Transport created an "indicative price" for the transportation of grains by road fixed on a quarterly basis. The actual price paid for the road transportation of grains was set to be no lower than 5% or higher than 15% of the "indicative price" fixed for the applicable period. In some cases, the imposition of this "indicative price" produced increases in our transportation costs. In addition, on April 9, 2013, the Secretary of Commerce issued a resolution that established a fixed price for selling liquid hydrocarbons for a six months period. The fixed price would be the highest selling price on the date of issuance of the resolution, in certain regions of the country. Notwithstanding the April 9 resolution, YPF (the Argentine government-controlled oil and gas company) implemented gas price increases that were matched by other oil companies. Due to the increase in the price of the wheat, on July 4, 2013, the Secretary of Commerce issued a resolution mandating wheat producers and distributors to sell their stocks to satisfy the domestic demand, seeking to reduce the wheat price. On January 2014, the Secretary of Commerce launched a new program of price controls called Precios Cuidados. Producers and suppliers committed to fixed prices for more than 300 basic products subject to review on a quarterly basis. As of the date hereof, two of our rice products sold under the trademark "Molinos Ala" and "Apostoles" are subject to this program. Violation of the program may result in sanctions, including fines, which amount will be considered on a case by case basis at the time of issuing the relevant sanction by the enforcement authority. The two administrations of President Fernández de Kirchner, who governed from 2007 through December 9, 2015, increased state intervention in the Argentine economy, through expropriation and nationalization measures, price controls and foreign exchange controls. Below follows an outline of the main measures taken by such administration on these aspects. In 2008 the Fernández de Kirchner administration absorbed and replaced the former private pension funds for a fully public pension system. In April 2012, the Fernandez de Kirchner administration decreed the removal of directors and senior officers of YPF S.A., the country's largest oil and gas company which was controlled by the Spanish group Repsol, and with the approval of the Argentine Congress expropriated shares held by Repsol representing 51% of the shares of YPF, and in 2015, the Argentine Congress passed a law approving the government takeover of the passenger and cargo railways, which became owned by a State-owned company called Ferrocarriles Argentinos Sociedad del Estado. In 2014 the Argentine Tax Authority ("Administración Federal de Ingresos Públicos - AFIP") established a "Systematic Registration of Movements and Grains Stocks Regime" (Régimen de Registración Sistemática de Movimientos y Existencias de Granos) pursuant to which all persons involved in the commercialization and manufacturing of grains and dairy products registered with the Registry of Operators of the Agro-industrial Chain (Registro Único de Operadores de la Cadena Agroindustrial or "RUCA" after its acronym in Spanish) must report the stock and stock variations (including locations, transport between the producer´s facilities, etc.) of all grains and other agricultural products (other than those to be applied to sowing) held in inventory or through third parties. In 2014 the Argentine Congress enacted the "Supply Law", that covers the economic process related to goods, facilities and services that directly or indirectly satisfy the basic or essential needs of the population, granting broad delegations of powers on its enforcement authority and provides that in a situation of shortage or scarcity of goods or services which satisfy basic or essential needs destined to the general welfare of the population, the governmental authorities may order their sale, production, distribution and delivery throughout the Argentine territory. Since taking office in December 2019, the Fernández Administration implemented several measures that increased the government intervention, for example: i) the Solidarity Law published on December 23, 2019; ii) the Price Control Program announced on January 7, 2020; iii) the Law of Sustainability of Public Debt under Foreign Law, published on February 13, 2020; iv) the Supermarkets' Shelves Law published on March 17, 2020; and v) Decree No. 690/2020, published on August 22, 2020, which regulated information and telecommunications services and their tariffs. As of the date of this report it is not possible to predict whether the current administration will promote actions related to price controls of products elaborated by us. In case it does, we cannot predict how these measures will affect our results of operations (see "- The impact of the Argentine congressional and presidential elections on the future economic and political environment of Argentina remains uncertain"). Among other provisions, the Solidarity Law froze the electricity and natural gas tariff rates until December 31, 2020 and instructed the relevant regulatory agencies to pursue a mandatory renegotiation of those rates. Currently, a tariff renegotiation is in process. Any increase in tariff will result in an increase of costs. As of the date of this report it is not possible to predict whether the current administration will promote additional actions related to price controls of products elaborated by us. In case it does, we cannot predict how these measures will affect our results of operations. Please bear in mind that due to the COVID-19 pandemic the Argentine Government intervention on economic, trade and regulatory matters has increased substantially. Expropriations and other interventions by the Argentine government such as the one relating to YPF can have an adverse impact on the level of foreign investment in Argentina, the access of Argentine companies to the international capital markets and Argentina's commercial and diplomatic relations with other countries. In the future, the level of governmental intervention in the economy may continue, which may have adverse effects on Argentina's economy and, in turn, our business, results of operations and financial condition. Although many of the above measures were adopted or announced by the former Argentine government's administrations of Fernández de Kirchner, we cannot assure you that the Fernández Administration will not interfere or increase its intervention by setting prices or regulating other market conditions. Accordingly, we cannot assure you that we will be able to freely negotiate the prices of all our Argentine products in the future or that the prices or other market conditions that the Fernández Administration might impose will allow us to freely negotiate the prices of our products, which could have a material and adverse effect on our business, results of operations and financial condition.

Between 2007 and 2014, the inflation index determined by INDEC has been the subject of widespread criticism and extensive discussions in connection with analysis of the Argentine economy, including data on inflation, GDP and unemployment. The intervention of the former Argentine government in the INDEC in 2007 and the change in the way the inflation index was measured have resulted in disagreements between the former Argentine government and private consultants as to the actual annual inflation rate. The former Argentine government of the Fernández de Kirchner administration imposed fines on private consultants reporting inflation rates higher than the INDEC data. As a result, private consultants typically shared their data with Argentine lawmakers who opposed the previous government, and who released such data from time to time. The widespread disagreements had the negative effect of eroding public confidence in Argentina's economy. Since June 2016, after implementing certain methodological reforms, the CPI was corrected and on November 9, 2016, the Executive Board of the IMF lifted its censure on Argentina, noting that Argentina had resumed the publication of data in a manner consistent with its obligations under the Articles of Agreement of the IMF, recovering credibility. As of the date of this annual report, the impact of any future measures taken by the Fernández administration with respect to the INDEC will have on the Argentine economy and investors' perception of the country cannot be predicted. Concern regarding lack of accuracy in the INDEC´s indices could adversely affect investor confidence in the Argentine economy and our ability to access international credit markets to finance our operations and growth.

A lack of a solid and transparent institutional framework for contracts with the Argentine government and its agencies and corruption allegations have affected and continue to affect Argentina. Argentina ranked 66 of 180 in the Transparency International's 2019 Corruption Perceptions Index and 126 of 190 in the World Bank's Doing Business 2020 report. As of the date of this annual report, there are various ongoing investigations into allegations of money laundering and corruption being conducted by the Office of the Argentine Federal Prosecutor, including the largest such investigation, known as the "Notebooks Investigation" ("Los Cuadernos de las Coimas") which have negatively impacted the Argentine economy and political environment. This investigation relates to notebooks kept by a driver who worked for public officials during the Kirchner Administration. The notebooks allegedly document a widespread corruption scheme involving illegal cash payments by businessmen to government officials in order to win government contracts. As a result of these investigations, several businessmen (including construction company executives) and former public officials have been detained and prosecuted, including the former president and current vice-president of Argentina, Mrs. Cristina Fernández de Kirchner, who was prosecuted for illicit association. Depending on how long it takes to close these investigations and their results, companies involved in the investigations may be subject to, among other things, a decrease in their credit ratings, claims filed by their investors, and may further experience restrictions in their access to financing through the capital markets, together with a decrease in their income. Additionally, as the criminal cases against the companies involved in the investigations move forward, said companies may be restricted from rendering services or may face new restrictions, due to their customers' internal standards. These adverse effects could restrict these companies' ability to conduct their operating activities and to meet their financial obligations. Consequently, the number of suppliers available for our operations may be reduced and, as such, we may experience an adverse effect on our commercial activities and results of operations. The Argentine government's ability to implement initiatives aimed at strengthening Argentina's institutions and reducing corruption is uncertain as it would be subject to independent review by the judicial branch, as well as legislative support from opposition parties. We cannot give any assurance that the implementation of these measures by the Argentine government will be successful in stopping institutional deterioration and corruption. Furthermore, we cannot predict what impact these investigations might have or what other measures may be adopted by the courts, the current administration or any future administration, each of which could adversely affect our business, financial condition and the results of our operations.

A significant portion of our operations, properties and customers are located in Brazil. Accordingly, our financial condition and results of operations are substantially dependent on economic conditions in Brazil. The Brazilian economy has experienced significant volatility in recent decades, characterized by periods of low or negative growth, high and variable levels of inflation and currency devaluation. Brazil's GDP decreased 3.3% in 2016, increased 1.3% in 2017, increased 1.3% in 2018, increased 1.1% in 2019 and decreased 4.1% in 2020. We cannot assure you that GDP will increase or remain stable in the future. Future developments in the Brazilian economy may affect Brazil's growth rates and, consequently, the consumption of sugar, ethanol, and our other products. As a result, these developments could impair our business strategies, results of operations and financial condition. Furthermore, due to the ongoing COVID-19 outbreak, it is expected that Brazil's GDP for 2021 fiscal year will again be negatively impacted, but may show positive figures at year-end. See "- We may be exposed to risks related to health epidemics, and the COVID-19 in particular, that could adversely impact our ability to operate our business and operating results". Historically, Brazil's political situation has influenced the performance of the Brazilian economy, and political crisis have affected the confidence of investors and the general public, which has resulted in economic deceleration and heightened volatility in the securities issued abroad by Brazilian companies. Future developments in policies of the Brazilian government and/or the uncertainty of whether and when such policies and regulations may be implemented.

The Argentine economy has experienced significant volatility in past decades, including numerous periods of low or negative growth and high and variable levels of inflation and currency devaluation. Inflation remains a challenge for Argentina given its persistent nature in recent years and also considering its high levels during 2019. No assurances can be given that the rate of growth experienced over past years will be achieved in future years or that the national economy will not suffer recession. If economic conditions in Argentina were to continue slowing down, or contract, if inflation were to accelerate further, or if the Argentine government's measures to attract or retain foreign investment and international financing in the future to incentivize domestic economy activity are unsuccessful, such developments could adversely affect Argentina's economic growth and in turn affect our financial health and results of operations. Inflation can also lead to an increase in Argentina's debt and have an adverse effect on Argentina's ability to service its debt, mainly in the medium and long term when most inflation-indexed debt matures. In addition, weaker fiscal results could have a material adverse effect on the Government's ability to access long term financing, which, in turn, could adversely affect Argentina's economy and financial condition and access to international or domestic capital markets. If the measures adopted by the Argentine government are not able to resolve the structural inflationary disruptions of Argentina, the current inflationary levels could rise and have a negative impact on the economic and financial conditions of Argentina, and as such adversely affect our operations and financial condition (see "- Our results of operations may be adversely affected by high and possibly increasing inflation in Argentina"). High inflation rates affect Argentina's foreign competitiveness, increase social and economic inequality, negatively impacts employment, consumption and the level of economic activity, and undermines confidence in Argentina's banking system, which could further limit the availability of and access by local companies to domestic and international credit.

Historically, inflation has materially undermined the Argentine economy and the government's ability to create conditions that would permit long term and stable growth. In recent years, Argentina has experienced high inflation rates. High inflation may also undermine Argentina's foreign competitiveness in international markets and adversely affect economic activity and employment, as well as our business and results of operation. In particular, the profit margin on our services is impacted by the increase in our costs in providing those services, which is influenced by wage inflation in Argentina, as well as other factors. Since 2008, the Argentine economy has been subject to strong inflationary pressures that, according to private sector analysts, reached an average annual rate of 28.2% between 2010 and 2015. In 2007 INDEC was subject to a process of institutional and methodological reforms that led to controversies regarding the credibility of the information published by it, including CPI. Reports published by the IMF between 2007 and 2015, using alternative measures to estimate price developments, showed considerably higher variations than those published by INDEC (see " - The credibility of several Argentine economic indices have been called into question, which may lead to a lack of confidence in the Argentine economy and may in turn limit our ability to access the credit and capital markets" and "- Risks Related to Our Business and Industries-Inflation in some of the countries in which we operate, along with governmental measures to curb inflation, may have a significant negative effect on the economies of those countries and, as a result, on our financial condition and results of operations"). In December 2015, the Macri Administration suspended the publication of indexes and statistics and, after implementing certain methodological reforms and adjusting certain macroeconomic statistics, resumed its publication of the CPI in June 2016. Based on the new and revised information provided by INDEC, inflation reached an annual rate of 40.9% in 2016, 24.8% in 2017, 47.6% in 2018, 53.8% in 2019, and 36.1% in 2020. Due to several internal and external factors, during the first half of 2018 the peso suffered a new sharp depreciation, which, as of December 31, 2018 accumulated 103.83% and that fostered the inflation levels again to 47.6% in 2018. In April 2019 the Argentine government adopted a series of economic measures attempting to control the foreign exchange rate and inflation, including retail prices monitoring and freezing programs (see "- The measures taken or to be implemented by the Argentine government in response to the COVID-19 pandemic may have an adverse effect on our business and operations - Maximum Prices and Supply Obligations"), the limitation of tariffs increases and the fixing of intervention zones by the Argentine Central Bank in the U.S. Dollar exchange market. However, these measures caused a deepening of the recession, while foreign exchange instability and high inflation continued. In the past, the Argentine government implemented programs to control inflation and monitor prices for essential goods and services, including attempts to freeze the price of certain supermarket products by means of price support arrangements between the government and the private sector. These programs, however, did not address the structural causes for Argentina's inflation and, consequently, failed to reduce inflation. Nevertheless, in January 2020, the Fernández Administration adopted these type of programs (see " - Government intervention in Argentina may have a direct impact on our prices and sales" and "-Risks Related to Argentina- The impact of the Argentine congressional and presidential elections on the future economic and political environment of Argentina remains uncertain"). Controlling inflation remains to be a challenge for Argentina. If the Argentine government continues failing to address Argentina's structural inflationary imbalance, the current levels of inflation may continue to rise, which may have an adverse effect on Argentina's economy. Inflation in Argentina has contributed to a material increase in our costs of operation, in particular labor costs; it also enables a reduction in the purchasing power of the population, thus increasing the risk of a lower level of consumption from our customers in Argentina, which could negatively impact our financial condition and results of operations. Inflation rates could continue to grow in the future, and there is uncertainty regarding the effects that any measures adopted by the government could have to control inflation.

Between 2007 and 2015, Fernández de Kirchner's administration significantly increased public spending. In the eleven-month period ended on November 30, 2015, the fiscal deficit increased by 363% annualized. During that period, the Fernández de Kirchner administration turned to the Argentine Central Bank and the National Social Security Administration (Administración Nacional de la Seguridad Social or "ANSES" after its Spanish acronym), to finance part of the public spending. Inflation continues to be a challenge for Argentina given its persistent nature in recent years. The Macri administration had announced its intention to reduce the primary fiscal deficit as a percentage of GDP over time and reduce the government's dependence on Argentine Central Bank financing. Given the difficulties of the Argentine public finances, the administration of former President Macri adopted several measures to finance public spending, for example, the revision of subsidy policies (in particular those related to tariffs on energy, electricity and gas, water and public transport) and the implementation of an expansive monetary policy. These measures resulted in a further increase in prices and, therefore, adversely affected, consumer purchasing power and the overall economic activity. In addition, measures taken by the administration of President Alberto Fernández, the implementation of the Solidarity Law (See "- The impact of the Argentine congressional and presidential elections on the future economic and political environment of Argentina remains uncertain") as well as the measures related to the outbreak of COVID-19 will have an impact on the Argentine economy (See "- The measures taken or to be implemented by the Argentine government in response to the COVID-19 pandemic may cause adverse effect on our business and operations"). Accordingly, Argentina has had severe macroeconomic imbalances, including frequent and extreme fiscal deficits. Since 1961, the Argentine government has had yearly fiscal deficits in approximately 90% of the time (47 years out of 53), resulting in highly vulnerable macroeconomic conditions. The Argentine government has financed its fiscal deficit mainly in two ways: (i) by relying on external debt issuances, which has historically led to rapid increases in public debt levels; and (ii) by having the Argentine Central Bank issue new currency notes, which has led to high inflation periods and, in certain cases, hyperinflation. The fiscal deficit reached 5.2% of GDP in 2015, 5.8% of GDP in 2016, 6.0% of GDP in 2017, 5.2% of GDP in 2018, 4.9% of GDP in 2019 and 8.5% of GDP in 2020. (See "-Argentina's current account and balance of payment imbalances could lead to a depreciation of the Argentine peso, and as a result, affect our results of operations, our capital expenditure program and our ability to service our foreign currency liabilities"). The failure to reduce fiscal deficits could lead to growing levels of uncertainty regarding Argentina's macroeconomic conditions. In particular, it could lead to growing inflation rates and unanticipated foreign exchange depreciation and balance of payments crisis, higher local vulnerability to international credit crisis or geopolitical shocks, higher interest rates and erratic monetary policies, a reduction in real salaries and as a consequence, in private consumption, and a reduction in growth rates. This level of uncertainty, over which we have no control, may adversely affect our financial condition or results of operations.

The Argentine economy has been experiencing significant instability in the past decades, including devaluations, high inflation, and prolonged periods of reduced economic growth, which have led to payment defaults on Argentina's foreign debt and multiple downgrades in Argentina's foreign debt rating with attendant restrictions on Argentina's ability to obtain financing in the international markets. Argentina's 2001 sovereign default and its failure to fully restructure its sovereign debt and negotiate with the holdout creditors has limited and may continue to limit Argentina's ability to access international financing. In 2005, Argentina completed the restructuring of a substantial portion of its indebtedness and settled all of its debt with the IMF. Additionally, in June 2010, Argentina completed the restructuring of a significant portion of the defaulted bonds that were not exchanged in the 2005 restructuring. Holdout bondholders that declined to participate in the restructuring, filed lawsuits against Argentina in several countries, including the United States. Since late 2012, rulings from courts in the United States favorable to holdout bondholders aggravated investors' concerns regarding investment in the country. In February 2016, the Macri administration entered into settlement agreements with certain holdout bondholders to settle these claims, which were subject to the approval of the Argentine Congress. The Argentine government reached settlement agreements with holders of a significant portion of the defaulted bonds and has repaid the majority of the holdout creditors with the proceeds of a US$16.5 billion international offering of 3-year, 5-year, 10-year and 30-year bonds on April 22, 2016 -which bonds, among other sovereign bonds, were then restructured by the Fernández administration in August, 2020 -as explained below. Although the size of the outstanding claims has decreased significantly, litigation initiated by bondholders that have not accepted Argentina's settlement offer of 2016 continues in several jurisdictions. Additionally, foreign shareholders of several Argentine companies have filed claims with the International Center for Settlement of Investment Disputes (ICSID) alleging that the emergency measures adopted by the Argentine government since the crisis in 2001 and 2002 differ from the just and equal treatment standards set forth in several bilateral investment treaties to which Argentina is a party. The ICSID has ruled against Argentina with respect to many of these claims. Litigation involving holdout creditors, claims with ICSID and other claims against the Argentine national government, resulted and may result in material judgments against the government, lead to attachments of or injunctions relating to Argentina's assets, or could cause Argentina to default under its other obligations, and such events may prevent Argentina from obtaining favorable terms or interest rates when accessing international capital markets or from accessing international financing at all. Our ability to obtain U.S. dollar-denominated financing has been adversely impacted by these factors. In May 2018, the Macri administration requested the IMF the granting of a Stand-By Arrangement for up to US$57.1 billion with the purpose of supporting the Argentine government's economic plan. As of the date of this report, the IMF disbursed an aggregate of US$44.70 billion. The Fernández administration is currently negotiating the restructuring of the terms of the Stand-By Arrangement, which payments become due as from 2021. The Argentine government announced that it will also engage in negotiations with the Paris Club for the restructuring of the debt incurred with such institution given that there are also payments becoming due on the following months. As of the date of this annual report, we cannot guarantee that the Argentine government and the IMF will reach an agreement on the restructuring of the Stand-By Arrangement, nor are we able to predict the future consequences for the Argentine economy in general or our business in particular if such agreement fails. Pursuant to a report issued by the Secretary of Finance of the Argentine government, as of December 2019, Argentina's foreign debt amounted to US$311.25 billion, which represented 91.6% of Argentina's GDP. During 2020 the Argentine government carried out the restructuring of its public debt instrumented in bonds denominated in foreign currency governed by foreign law as well as bonds denominated in foreign currency governed by Argentine law, by means of debt restructuring procedures implemented internationally and locally, respectively, within each groups of creditors according to the type of sovereign debt. On February 12, 2020, the Argentine Congress enacted Law No. 27,544 for the Restoration of the Sustainability of the Public Debt issued under Foreign Law, which provided for the restructuring of the Argentine external public debt. Through Decree No. 250/2020, published in the Official Gazette on March 10, 2020, the Argentine Executive Branch authorized negotiations for the restructuring of US$68.85 billion of sovereign bonds issued in foreign currency and governed by foreign law. On April 17, 2020, Argentina announced an invitation to exchange its sovereign bonds governed by foreign law that were eligible for the restructuring for new bonds. The universe of eligible bonds that were subject to the exchange offer was comprised by bonds governed by the laws of New York (United States) and by the laws of the United Kingdom, denominated in several currencies (US Dollars, Euros and Swiss Francs). Within the universe of the bonds they were the instruments issued within the framework of the prior restructuring, carried out by the exchanges of years 2005 and 2010. After several extensions and improvements made within the initial offer, on August 31, 2020, Argentina announced the results of the invitation to exchange. Argentina obtained the majorities required under the collective action clauses to exchange 99.01% of the eligible bonds, as a result of obtaining a level of acceptance of 93.55% of the bondholders to its exchange proposal launched in April and improved in July and in August, after the agreement with three groups of bondholders. Within the context of the agreement with the groups of bondholders for the restructuring of sovereign debt governed by foreign law, Argentina also conducted a local exchange. Argentina launched an offer to exchange sovereign bonds denominated in US dollars and ‘dollar-linked' issued under local law. The instruments subject to the local debt restructuring were affected by the deferral of payments of principal and interest until December 31, 2020, provided by Presidential Decree No. 346/20 published in the Official Gazette on April 6, 2020. In August 2020, Argentina launched an offer to exchange this universe of sovereign bonds denominated in US dollars and ‘dollar-linked' issued under Argentine law. As a result of this transaction, and as informed in Ministry of Economy press release on September 15, 2020, 99.41% of the bondholders of eligible instruments under this local exchange had accepted the offer. The local debt exchange was then reopened and is ongoing as of the date of this report. On November 4, 2020, Resolution No. 540/2020 of the Ministry of Economy was published in the Official Gazette, which provided for the reopening of the local exchange and, for this purpose, set forth a procedure to allow eligible instruments which did not enter into the debt restructuring under Argentine law carried out on August and September 2020 to be tendered. The resolution provided that holders who were unable to enter the exchange within the prior invitation term may do so in successive acceptance terms which will be extended until July 28, 2021 in the conditions set forth therein. In addition, in January 26, 2020 the Province of Buenos Aires, the largest estate in Argentina, also had a maturity of provincial sovereign debt for US$277 million in principal amount and interests that, after the failure of the negotiations for an extension, cancelled within the curing period in February 5, 2020. The Province of Buenos Aires had additional payments under its sovereign debt for US$110 million maturing in May 2020 and US$750 million maturing in June 2020. In May 2020 the Province of Buenos Aires, did not fulfill the payment of its international sub-sovereign bonds and since then is seeking to restructure them through an exchange offer. After several extensions without success, the Province of Buenos Aires has recently extended again the offer expiration date until March 26, 2021. There are other Argentine provinces which are also carrying out the restructuring of their bonds governed by foreign law and denominated in foreign currency. As of the date of this annual report, the Argentine government and the IMF did not reach an agreement on the restructuring of the Stand-By Arrangement and there are no assurances that such agreement would be reached during 2021, nor are we able to predict the future consequences for the Argentine economy in general or our business in particular if such agreement is not reached. Argentina is also aiming at obtaining a deferral of the payments which are due in the upcoming months of 2021 with the Paris Club and other international financial institutions, for which purposes the Government would have engaged in conversations but there is still uncertainty on the deferral of such payments. If the negotiations with the IMF and the other international financial institutions fail or the Province of Buenos Aires or other provinces of Argentina fail to restructure their debt, the Argentine government defaults again in the payment of its sovereign debt or the measures adopted and to be adopted by the Argentine government to reduce the fiscal deficit, control inflation and stabilize the foreign exchange market are not effective, Argentina's ability to obtain international or multilateral private financing or direct foreign investment may be limited, which may in turn impair its ability to implement reforms and public policies to foster economic growth, impair the ability of private sector entities to access the international capital markets or make the terms of such financing much less favorable that those accessible by companies in other countries in the region and may accelerate the depreciation of the Argentine peso, foster inflation and deepen the economic crisis and recession. Lack of access to international or domestic financial markets could affect the projected capital expenditures for our operations in Argentina, which, in turn, may have an adverse effect on our financial condition or the results of our operations.

Financial and securities markets in Argentina, and also the Argentine economy, are influenced by economic and market conditions in other markets worldwide, including those relating to the recent trade dispute between China and the United States. Although economic conditions vary from country to country, investor's reactions to events occurring in one country sometimes demonstrate a "contagion" effect in which an entire region or class of investment is disfavored by international investors. Furthermore, weak, flat or negative economic growth in any of Argentina's major trading partners, such as Brazil, could adversely affect Argentina's balance of payments and, consequently, its economic growth. The Argentine economy may also be affected by conditions in developed economies, such as the United States, that are significant trading partners of Argentina or have influence over global economic cycles and over short-term evolution of commodity prices. If interest rates increase significantly in developed economies, including the United States, Argentina and its developing economy trading partners, such as Brazil, could find it more difficult and expensive to borrow capital and refinance existing debt, which could adversely affect economic growth in those countries. Decreased growth from Argentina's trading partners could have a material adverse effect on the markets for Argentina's exports and, in turn, adversely affect economic growth. Any of these potential risks to the Argentine economy could have a material adverse effect on our business, financial condition and result of operations. The COVID-19 pandemic outbreak has also destabilized global financial markets, which has had a negative impact on global trade and the global economy, including the Argentine economy, which in turn could have a negative impact on our business, results of operations and financial condition (See " - Risks Related to Our Business and Industries -The COVID-19 pandemic may have an adverse effect on our business and operating results"). In addition, Argentina is highly dependent on the export of certain commodities, such as soy, what has made the Argentine economy more vulnerable to fluctuations in the commodity prices. If international commodity prices decline, the Argentine economy could be adversely affected. In addition, adverse weather conditions can affect the production of commodities by the agricultural sector, which account for a significant portion of Argentina's export revenues. All these circumstances could have a negative impact on the levels of government revenues, available foreign exchange and the government's ability to service its sovereign debt, and could either generate recessionary or inflationary pressures, depending on the government's reaction. Either of these results would adversely impact Argentina's economic growth and, therefore, our financial condition and results of operations. Consequently, there can be no assurance that the Argentine financial system and securities markets will not continue to be adversely affected by events in developed countries' economies or events in other emerging markets, which could in turn, adversely affect the Argentine economy and, indirectly, our business, financial condition and results of operations, and the market value of our securities.

Governments in many of the markets in which we currently operate, or that we may operate in the future, frequently intervene in their respective economies and occasionally make significant changes in monetary, credit, industry and other policies and regulations. Governmental actions to control inflation and other policies and regulations have often involved, among other measures, price controls, currency devaluations, capital controls and limitations on imports. We have no control over, and cannot predict what measures or policies governments may take in the future. Our results of operations and financial condition may be adversely affected by changes in governmental policy or regulations in the jurisdictions in which we operate that impact different factors such as: - labor laws and wage increases;- economic growth;- abrupt currency fluctuations;- high levels of inflation;- exchange and capital control policies;- high interest rates;- liquidity of domestic capital and lending markets;- inconsistent fiscal and monetary policy;- liquidity and solvency of the financial system;- limitations on ownership of rural land by foreigners;- developments in trade negotiations through the World Trade Organization or other international organizations;- environmental regulations;- tax laws, including royalties and the effect of tax laws on distributions from our subsidiaries;- changes in governmental economic or tax policies;- restrictions on repatriation of investments and on the transfer of funds abroad;- expropriations or nationalizations;- import/export restrictions or other laws and policies affecting foreign trade and investment;- increase in public expenses affecting the economy and fiscal deficits;- price controls or price fixing regulations;- restrictions on land acquisition or use or agricultural commodity production; and - other political, social and economic developments, including political, social or economic instability, in or affecting the country where each business is based. Uncertainty over whether governments will implement changes in policy or regulation affecting these or other factors in the future may contribute to economic uncertainty and heightened volatility in the securities markets, which may have a material and adverse effect on our business, results of operations and financial condition.

Financial and securities markets in the countries in which we operate are influenced, to different degrees, by the economic and market conditions in other countries, including other South American and emerging market countries and other global markets. Investors' reactions to developments in these other countries, such as the recent developments in the global financial markets, may substantially affect the capital flows into, and the market value of securities of issuers with operations in, the countries in which we operate. A significant deterioration in the economic growth of any of the main trading partners of Brazil or Argentina could have a material impact on the trade balance of those countries and could adversely affect their economic growth and that of other countries in the region. Furthermore, adverse economic conditions in any of these countries could have a material adverse effect on our business, financial condition and results of operations. A crisis in global financial markets including other emerging country markets could dampen investor enthusiasm for securities of issuers with South American operations, including our common shares. The COVID-19 pandemic has negatively impacted global financial markets ushering significant risk and volatility. These effects could adversely affect the market price for our common shares, as well as make it difficult for us to access capital markets and obtain financing for our operations in the future, on acceptable terms or under any conditions.