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November 2, 2011

Argentina Proposes New System to Regulate Future Corn Exports

Farm organizations in Argentina are floating a new idea on how to regulate corn exports from the country and the federal government seems to be receptive to the idea. Under the new proposal, 40% of the corn production would be reserved for domestic consumption and the remaining 60% would be opened up for bids from exporters. If this system is adopted, it would be a big improvement over the confusing piecemeal export system currently in place.

Under the proposed system, Argentine farmers should receive higher prices for their corn due to increased competition among exporters. Farmers would also be able to forward contract their corn and have a greater certainty about what they would receive for the crop, something they currently do not have.

If enacted, this program would be an incentive for Argentine farmers to increase their corn production in future years. It may not necessarily reduce soybean production in future years, but I think it would lower the rate of increase of soybean expansion. This may not be the free market that Argentine farmers have been hoping for (they want a repeal of the export taxes as well), but it is half way to a free market and certainly better than the current system.

Increased crop rotations - Farmers in Argentina realize that they need to increase their crop rotations, but they have shied away from increasing their corn acreage due to government interference in the corn market. This proposal would give farmers more certainty about corn prices and a greater willingness to increase their corn acreage and thus more crop rotations. Over the last several years, farmers in Argentina have planted seven or eight times more soybean acres than corn acres even though they knew that it was an unsustainable agronomic practice. They were forced into that practice due to governmental interference in the corn market. If the government interferes less in the corn market, as seems to be the case with this proposal, then they may respond with increased corn production.

Softening of attitudes - This change in policy may be indicating a softening in attitudes between the Kirchner administration and farm organizations. President Kirchner just won a landslide reelection and a majority in Congress, so she is going to be there for four more years and maybe the farm organizations decided that cooperation was better than confrontation.

President Kirchner has also recently softened her attitude toward the farmers and the all-important agricultural sector. That attitude shift was on display recently when she attended a three hour luncheon meeting with various farm organizations. The Argentine government announced several weeks ago a long range plan to increase the country's grain production by 60% by the year 2020 and to do that, they will need the help of the Argentine farmers and a tremendous increase in corn production.

Exporting corn to China - Although not stated publically, I think this increased level of cooperation between the administration and the farmers may also be the result of potential increased corn exports to China. The two countries are in the process finalizing phyto-sanitary standards for corn exports to China and maybe the Chinese government told the Argentine government that Argentina must be a reliable supplier of corn if they want to trade with China. Under the current system of piecemeal export quotas and frequent labor unrest at the ports, many times vessels have to wait for long periods of times at Argentine ports before they can load soybeans and soybean products. Certainly the Chinese importers do not want to see the same thing happen to corn if they start importing large quantities of the grain.