Earlier this week the Argentine government announced that the policy of former President Nestor Kichner to restrict meat and grain exports will be made permanent. Farm Futures market analyst Arlan Suderman says the policy will present problems for Argentine producers.
"It's very similar to some of the failed policies we tried to do in the United States in the 1970s of trying to take a protectionist stand, trying to control costs because inflation is a big problem in Argentina and trying to make sure that they have enough affordable food in Argentina," Suderman says. "Argentina is a very productive area of the world, some very fertile soils. They have the opportunity to be a major player in the global market in the production of agricultural commodities, but its protectionist government is so concerned about making sure they have enough affordable food for its population that they fail to understand the law of unintended consequences."
Suderman says that by limiting how much of each crop as well as livestock can be exported, which limits the price because it has to be sold domestically. Without a free market system at work, production is limited.
"As a result farmers are cutting back on acres that they produce and cutting back on inputs because the price that a free market would offer simply isn't there to provide the incentive to maximize production," Suderman says. "That's good for U.S. agriculture but it continues to hurt Argentine farmers."
The government also announced plans for the Agriculture Commerce Control agency to open 20 offices across the country to crack down on farmers who sell their produce on the black market.
"Argentina is trying to take advantage of its agriculture productivity by heavily taxing agricultural production," Suderman says. "So anything that is sold has a heavy tax, which provides an incentive to farmers if they have the opportunity to sell something on the black market to where they don't have to pay the tax and from their standpoint hopefully get a higher price for it. Argentina of course sees that as lost revenue to fund its social programs and is trying to stop black market sales."
Farmers have protested all year against the government’s export controls. Congress voted against a government measure in July to increase export taxes on soybeans, after four months of strikes by farmers, however taxes remain extremely high. On Thursday, Argentine President Cristina Fernandez announced that she will cut export taxes for corn and wheat by 5%, while leaving the tax at 35% for soybeans. According to Suderman the move is intended to encourage broader planting of corn and wheat and to curtail the shift toward soybeans this year.
Argentine farmers are planning to send a message to the government with a one-day strike next Wednesday to protest the export taxes, especially for soybeans. Suderman says it bears watching because some previous limited timeframe strikes have turned into very prolonged strikes.
Suderman says Argentina still has mass quantities of soybeans in on-farm storage that need to be moved ahead of the harvest of the crop that is being planted now. During the earlier strikes this year when farmers withheld soybeans from the market, prices plummeted and farmers have held out for higher prices that have not come. Argentine farmers are still struggling with low prices, weather that has hurt their wheat crop and the government policies limiting exports.
"They really need to move their soybeans on the market, but when they have a prolonged strike, self-imposed as it is, it keeps that grain from reaching the world market even if it is allowed to be exported by the Argentine government," Suderman says. "That prevents the government from getting its tax income but it also provides the U.S. with a freer market to compete without Argentine soybeans undercutting the prices on the global market and is good for U.S. exports."