beyondbrics

World wheat prices have soared – but Argentine farmers aren’t celebrating.

In fact, there may never have been a worse time to grow grain in Argentina. Government controls prevent a quick ramping up of exports, while tariffs have increased over the past decade and are now set for further revision.

“I think producers are fed up,” says Ramiro Costa, chief economist at the Buenos Aires Grain Exchange.

Argentine farmers need permits to export, and these can be hard to come by. Moreover, the tax situation is up in the air, a further disincentive against farmers thinking bigger.

Since 2002, when Argentina was emerging from its debt crisis, its governments have had the power to set export tariffs. But that faculty expires on August 24th – and the big question is what will follow. Opposition politicians are scrambling to find common ground between the staggering 29 different tariff reform projects submitted to congress.

Export tariffs on wheat have changed thus:

• March 2002 – zero to 10 per cent
• April 2002 to November 2007 – raised to 20 per cent
• November 2007 – raised to 28 per cent
• March 2008 – the government signs controversial resolution introducing a sliding scale of tariffs
• July 2008 – the sliding scale scrapped after an unprecedented 129-day conflict pitting the country’s main money-spinning farm sector against the government
• December 2008 to present- lowered to 23 per cent

As the Buenos Aires Grains Exchange notes:

By the time of sowing in the 2001/02 season, the export tax for wheat was zero . . . By the sowing time of the 2008/09 season, the export tax amounted to 34 per cent.

La Nación newspaper has highlighted that the farm export tariffs scheme provides a bounty for the government – an estimated $8.3bn this year. It adds:

In the case of wheat, whose “official” export tariff is 23 per cent, continued intervention in exports means producers end up in practice suffering an effective 40 percent reduction.

Between 2001/2 and 2008/9, the area planted with wheat fell 25 per cent to Argentina’s lowest level in 111 years. The Grains Exchange says that, given that prices, costs and climate were similar, the fall can be blamed on the regulatory framework.

True, this year the area sown is set to rise to 4.2m hectares. And now the government isn’t the only obstacle to increasing exports now: some key growing regions have been hit by wet weather. Yet the decline goes beyond short-term factors.

According to Gustavo López, an analyst, Argentine wheat exports were 10.7m tonnes in 2000, and 10m tonnes in 2005. Since then, however, they have fall steadily. López estimates exports will be only 4m tonnes this season. That’s a sad state of affairs for a country that has been a key world wheat supplier since the 19th century.

López adds that Argentina is losing out on the Brazilian market, which accounted for 7m tonnes of Argentine grain exports in 2000, but only 3m last year:

We’re failing to supply a captive market. [Brazil is] close, so that has advantages in terms of transport costs, and there is a competitive advantage because of Mercosur common external tariffs, where any wheat from outside the Mercosur bloc has to pay a 10 per cent additional duty which we don’t pay . . .

Argentina isn’t fulfilling its potential.

But, ahead of next year’s presidential election, farmers can’t see the government taking on board their concerns and easing the intervention system. President Cristina Fernández and Néstor Kirchner, her predecessor and would-be successor, play for high stakes, and rarely back down.

Related reading:
Argentina’s farmers unable to fill wheat gap, FT
Egypt in a fix over Russian wheat ban, beyondbrics
Drought to hit Russian wallets, beyondbrics
Argentina: where’s the beef, beyondbrics