February 27, 2013

Argentine Farmers Alarmed about Government Intimidation

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

Farmers in Argentina are becoming more alarmed at President Kirchner's increasingly radicalized administration. With inflation running at 30% +/-, costs spiraling out of control, and the general population very unhappy about her leadership, she is trying to "keep a lid on the boiling pot of public discontent" at least until the mid-term elections in October. She is doing this by instituting price freezes on food, furniture, appliances, etc., nationalizing companies and pension systems, keeping in place unrealistic currency exchange rates, basically doing anything they can to maintain government revenues, thus avoiding painful cuts until at least until after the elections.

There is also a pure political aspect to her actions as well. Her role model has always been Hugo Chavez of Venezuela and with Chavez fading out of the picture due to poor health; she is trying to position herself as the new leader of the South American left.

As far as the agricultural sector is concerned, the government has decided to try and coerce the farmers into not only selling any old crop soybeans they may still be holding, but also to set the stage to dissuade farmers from attempting to hold onto their crops when the new harvest begins. The government wants the farmers to sell their grain because it needs the revenue from the commodity export tax which accounts for 10-11% of government revenues.

One of the ways they are trying to intimidate the farmers is by sending IRS agents to grain elevators and demanding to see lists of their clients. These agents are looking for any discrepancies as to how much a farmer may have sold compared to what he may have reported to the government. They have also been known to go to individual farms and inspect storage facilities also looking for discrepancies. It's all an attempt to intimidate the farmers into selling any grain they may have from the last crop and also to set the stage for selling of the new crop as well.

There has been much speculation in recent weeks as to what the government might do in the event that farmers do not sell their grain in a timely fashion. One rumor currently circulating in Argentina is the potential return of a National Grain Board in which the government would be the single buyer of Argentine grain production. If instituted, it would destroy the current grain marketing system by forcing everyone to sell to the government at prices set by the government. If the government institutes a National Grain Board, there would be immediate and massive protests by farmers because they realize that a National Grain Board would make an already bad situation even worse.

Unfortunately, the farmers in Argentina are in a difficult position. They are just coming off a very bad drought year that left many farmers in a poor financial situation. They generally do not have a financial cushion and they are not in a position to hold their grain off the market for an extended period of time. They could stop selling for a week or two, but many farmers need the income, so they could not keep their grain off the market for more than several weeks.

I think it is safe to say that the already bad relationship between the government and the farmers in Argentina is going to get worse before it gets better.