In addition to weather, Argentine farmers’ volatile ag and domestic economic policy is an added risk factor in Argentine agriculture.
Primaries for October’s presidential election are about to kick off. The outcome of this election will have a huge bearing on the profitability and potential for expansion of Argentina’s corn and soybean sector over the next four years.
Current President Cristina Fernandez de Kirchner, whose term expires in December, has been at loggerheads with the farming sector since the government’s failed attempt to increase the
export tax burden on soybeans and corn in 2008. Her presidency has also been marked by arbitrary intervention in the corn market.
Although President Fernandez de Kirchner has not yet declared her intention to run again, many observers expect her to and she’s a favorite for a second term.“She is leading the popularity stakes based on high economic growth, lower unemployment and higher wages,” says Gustavo Idígoras, director of Issues Management, a trade consultancy in Buenos Aires.
Perhaps with an eye on re-election, President Fernandez de Kirchner has adopted a less confrontational approach to the farming sector. Corn farmers were surprised when the government abolished the controversial national bureau of agricultural trade control, ONNCA, which determined the amount corn farmers could export. Responsibility’s been reassigned to the Economy Ministry.
But many are skeptical that the measure entails a shift in policy away from arbitrary intervention in the corn markets. “I do not think that it will change too much the policy of the President”, say Mario Llambías, president of the largest farmers association, CRA.
“If President Kirchner does stand and is re-elected, high government spending will continue and to finance this, export taxes will either remain at 35% for soybeans and 20% for corn or could increase. Certainly there is no hope of a decrease,” says Fernando Nazar, a farmer in Buenos Aires province.
As President Fernandez de Kirchner would be likely to continue with economic policies resulting in higher inflation if re-elected, profit margins for farmers would even shrink further and put many out of business.
Many in the farming community are hoping that a strong candidate will emerge from the opposition as many of the names being touted have indicated either the phasing out of export taxes or a reduction in their level and less market intervention.
A former president, Eduardo Duhalde is one of the main contenders. “Duhalde is very keen to promote greater agricultural production and will implement policies to support this and export taxes will be changed gradually in favor of a fairer tax system, explains Carlos Brown, campaign director for the Duhalde presidential bid.
For U.S. corn and soybean growers and investors in Argentine agriculture, the election will have an important bearing on their bottom line. Should the Fernandez de Kirchner administration stay in office, the decline in corn production is likely to continue, ensuring higher international prices. Soybean and biodiesel exports will be less competitive due to high inflation and taxes, enabling the U.S. to win back greater market share. We can expect the reverse if the opposition wins.
This is part of a series on agriculture in Argentina by John Kennedy, a writer and economic consultant. You can contact him at [email protected].