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Argentina, Part One: Land of Lost Opportunity

This Business of Farming

Soybean exports thrive despite crippling taxes

Published on: September 9, 2013

 Eight years ago I first set foot in Argentina, a South American country laden with shocking potential, yet crippled by misguided political and economic policies. Last week I came back to attend the 2013 International Federation of Agricultural Journalists annual Congress, the first ever in South America.

I came back to see what, if anything has changed in eight years. Much has changed and much has stayed the same, and not in a good way.

Back then, a local economist summed up the situation this way; "Argentina," he quipped, "never misses a chance to miss a chance."

And so it is today.

Export facilities at Rosario, Argentina. Photo courtesy Agwired
Export facilities at Rosario, Argentina. Photo courtesy Agwired

First, the good news. Agriculture has made big gains the past eight years. Today it dominates Argentina's economy: 20% of its employment, 54% of its exports and 12% of its GDP all come from agriculture; in develop countries, no more than 5% GDP generates from agriculture. Farmers here are good businessmen who understand farm management.

Incredibly this nation of 40 million produces enough food for 400 million worldwide, and that number is expected to grow to 650 million people in the next 10 years. Rabobank economist Paula Savanti says Argentina expects a 20 to 30% increase in production of soy, corn, wheat and other grains by 2030. Ag exports have risen 22% the past 10 years to nearly USD $40 million in 2012.

Soybeans have been at the center of that incredible surge, making Argentina a major player on the soybean export market. Argentina has as many crushing plants as the U.S., all located conveniently in Rosario, the main export site. Four-fifths of all production takes place within 190 miles of a port, so they don't have the logistics problem of neighboring Brazil.

China, everyone's favorite export partner, is moving to normalize relationships with Argentina and is a major soy buyer; more recently Argentina sent China its first shipment of corn, so that market, too, has big upside potential.

All this should be cause to celebrate, but as I quickly discovered, Argentina can always find the cloud behind the silver lining. The government here, led by President Cristina Kirchner, promotes soybean production on one hand and simultaneously hammers the crop with a whopping 35% export fee, with corn and wheat exports taxed at 20%. Both corn and wheat exports have a cap on them so when those 'quotas' run out, prices drop; that's why soy is still the preferred crop to grow. The export tax is 'only' 32% on oil and meal.

It's one reason why farmers here went on strike two years ago.

From beans to Buicks

Those fees extract $40 billion from the farm sector. At the same time, this government funnels generous subsidies over to the Argentine auto industry.

Why? That's where the votes are. Of Argentina's 40 million population 17 million have jobs, with 3 million (22%) employed in the car and auto parts sector. (Of course, when I heard this story I wondered about our own left-leaning president and the bailout of our own auto industry a few years back. But let's leave that for another day).

President Kirchner took over the government when her husband, Nestor Kirchner passed away; she then became Argentina's first elected female president.  In a week of farm tours we could not find one person happy with Kircher's policies. The relationship between Ag and the government is frosty. At least twice I heard farmers use the 'B' word to describe her. Even in Spanish, we quickly got the message: Kircher hates farmers, and the feeling is reciprocal.

It's not just the export taxes. This government does not seem to realize that businesses can only thrive with stable policies. Laws and regulations change abruptly, sometimes on a daily basis, often with no apparent logic. The government tinkers with currency rates, often triggering rampant inflation. When I asked Gustavo Idigoras, director of the National University of Lomas de Zamora Center of Studies on Food, why the government does not fix the inflation problem, he replied, "Inflation is good for consumers and farmers because if you have debt it will make your debt less over time."

As a journalist somewhat unfamiliar with Latin American politics, it seems unbelievable that a federal government cannot see the economic consequences of inconsistent policymaking. But it's a pattern that has gripped the nation since the days of Juan Peron, and there doesn't seem to be any evidence of change coming any time soon.

Next: Why Argentina cannot escape its past