October 14, 2014

Rhetoric between Government and Farmers Heating Up in Argentina

The Argentine government is ramping up its criticism of the country's farmers for not selling their grain crops and denying the government of much needed tax revenue. Soybean exports are a significant source of foreign revenue for the country and the government is determined to get as many soybeans out the door as possible. It's almost as if the government is blaming the economic problems in Argentina (inflation, devaluations, and a slowing economy) on the farmers because they are not selling their soybeans fast enough!

The tensions between the government and the farming community reached a new level last week when vandals cut opened some silo bags full of soybeans and corn. The culprits have not been caught and it seems odd that the grain was not stolen, it was just spilled onto the ground.

The latest rumor in Argentina is that the government wants to set up a state owned grain company to compete with the multinational grain companies. The idea is to encourage farmers to sell to the government so that the government can better manipulate the grain export pace out of Argentina. The thought is that they would encourage farmers to sell to the government by offering a lower export tax rate which would mean higher prices for the farmers. Currently, the export tax on soybeans is 35% and ideas are floating around that the government might offer a reduction of 5%, 10% or 15% on the tax, which would result in a price increase for farmers.

It's hard to see how this would work. If they wanted to set up a new grain company, the startup costs with all the needed infrastructure such as grain terminals, port facilities, and transportation networks would be extremely high. A quicker way of doing this would be to take over (nationalize) an existing company. I don't think they would go after one of the big multinational grain companies, but they might consider nationalizing a cooperative.

As always in Argentina, things can be very unpredictable and you don't know if all this talk is just a way to pressure the farmers to sell their grain or if the government is serious about forcing farmers to sell. It's certainly a fluid situation!