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October 17, 2011

Argentina's Goal is to Increase Grain Production 60% by 2020

The Argentine Minister of Agriculture presented a long-range plan to President Kirchner at the end of September in which the goal was to increase the country's grain production by 60% by the year 2020. The "Strategic Plan for Agra-industrial Development" calls for the country to produce 160 million tons of grain by the year 2020. In order to achieve this goal, the plan calls for the close cooperation of the federal government along with the country's universities, technical schools, farmers, farm organizations, and the agribusiness community.

The government's stated goal is to expand the agricultural sector, but in addition to helping the agricultural sector, increased grain exports are a direct benefit to the federal treasury. Export taxes on agricultural commodities account for approximately 12% of the federal revenue, so anything that can be done to increase exports, means more revenue for the federal government.

The farmers in Argentina want to increase their production and productivity as well, but they feel the best way to do so is by the elimination of the export taxes that were imposed by the Kirchner administrations. These taxes, which are as high as 35% for soybean exports, prevent Argentine farmers from reaping the true benefit of stronger international commodity prices. Farmers have little hope that the taxes will be repealed since President Kirchner's reelection seems assured later this month and once she is reelected; there will be little pressure to change tax policy.

One of the grains that the Minister wants to increase is the production of rice. Argentina is the seventh largest rice exporting nation exporting about one million tons of rice per year, which represents approximately 60% of the national production. The Minister's plan calls for increasing the rice acreage in Argentina from the current 220,000 hectares to 357,000 hectares in 2020, or an increase of 62%. The total rice production over the same period is expected to increase from 1.2 million tons to 2.8 million tons, or an increase of 129%.

Not everyone is pleased with this new plan, especially the farmers in neighboring southern Brazil. Rice farmers in Brazil have cut back on their rice production in 2011/12 because of low prices and burdensome supplies. They fear that if neighboring countries such as Argentina increase their rice production, it will flood the Brazilian market with even more cheap imports.

A similar situation has already occurred with wheat production in Rio Grande do Sul. Brazilian flower millers found it cheaper to import wheat from neighboring countries, especially Argentina, instead of purchasing wheat from the local producers. The lower interest rates and easier credit terms in Argentina, coupled with the strong Brazilian currency, made it cheaper to import the wheat. Many wheat farmers in Rio Grande do Sul were forced to sell their wheat production to the federal government due to the low prices being offered in the domestic market. Rice producers in Rio Grande do Sul fear that the same thing could happen to their product.