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April 28, 2015

Farmers in Argentina hopeful new President will lower Export Taxes

The farmers in Argentina are hoping that the new president elected in October will be more sympatric to their complaints about high export taxes and an interventionist's policy that limits agricultural exports such as wheat and corn. For the farmers in Argentina, the current government policies have been a disaster.

For example, if international wheat prices rise, the government places limits on wheat exports in order to hold down domestic wheat prices. If there are ample supplies of wheat both domestically and internationally the export restrictions are eased, but then prices decline due to excess supplies and Argentine farmers are paid even less because of the 23% export tax.

President Kirchner is not eligible for reelection in October and after years of confrontations with the current government, farmers are placing their hopes on the two principal opposition candidates. The two leading contenders are the mayor of Buenos Aires, Mauricio Macri, and Senator Sergio Massa. Both of these candidates have promised to immediately eliminate the export taxes and export restrictions on wheat and corn if elected. The major crop in Argentina is soybeans which are taxed at 35% when exported. Both of these candidates have pledged to eliminate the export tax on soybeans as well, but in a series of steps over several years.

Farmers in Argentina will start planting their winter wheat crop in May and they will harvest the crop after the new president is elected so they are optimistic that the new administration will help their bottom line by eliminating the export tax. While they are optimistic about the future, there won't be any policy changes until after the election. Therefore, it is expected that Argentine farmers will hold their 2015 wheat acreage steady at 4.4 million hectares or reduce the acreage slightly by a couple hundred thousand hectares.

What happens in the wheat fields of Argentina is important for Brazilian consumers because Brazil imports approximately half of its domestic wheat needs. Traditionally, Brazil imported the majority of its wheat from Argentina, but due to declining production in Argentina, Brazil has been forced to import wheat from non-Mercosur countries for the last several years at higher prices.

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