July 9, 2008
Export Taxes Drive Argentine Farmers to Protest
By Jack Chang
INES INDART, Argentina - For more than a century, the farmers who work the vast plains of central Argentina have prided themselves on growing enough food to feed much of the rest of the world.
Argentine beef, wheat and other crops made this 40 million- person country a legendary agricultural powerhouse, and the last five years have been no exception. With world grain and other commodity prices soaring to record highs, farmers have raked in record profits.
That export model, however, is coming under pressure, as the same forces that pushed profits into the stratosphere now are inflating costs. The prices of everything from land to fertilizer are soaring with rising demand, and farmers are becoming ever more dependent on export revenue to break even.
Farmers say that's why they're up in arms over a new sliding scale of export taxes that President Cristina Fernandez de Kirchner imposed in March, which puts a ceiling on farmers' income no matter how high international prices rise.
For months now, farmers protesting the new tax system have halted production and blocked roads, costing the country billions of dollars in export revenue and knocking Argentina's booming economy off balance.
On June 17, Fernandez de Kirchner gave in to the protests and sent the new taxes to the country's Congress for debate. The farmers say they're ready to go on strike again if the government doesn't allow a thorough debate of the measure.
"Small- and medium-sized farmers practically have to stop working because they're working at a loss," said Alfredo de Angeli, a regional leader of the Argentine Agrarian Federation, which represents about 150,000 farmers. "We can produce much more because the world needs it, but to do that we need the right conditions."
With Argentina ranking among the world's top producers of soybeans, wheat, beef and other products, the farm strike already has helped disrupt global food supplies.
The country's total grains production rose to 101 million tons in 2006-7 - about 5 percent of world production - from 77 tons five years earlier. But in the past five months, soybean farmers' income went down by 25 percent, because of higher costs and taxes, said abeceb.com, an Argentine economics consulting firm.
At home, the conflict has sparked debate about how the country's potent farm economy should be run and who should benefit.
Government officials have said that the farmers' export-based model is flawed, claiming that it isn't producing enough food that's consumed domestically and is driving up prices at home. Costs for beef and other foods in Argentina have risen by double-digit percentages.
Fernandez de Kirchner has pointed out repeatedly that half of Argentine farmland is dedicated to soybean cultivation, and almost all the crop is exported. The new taxes target exports of soybeans and sunflowers while slightly reducing taxes on wheat and corn.
National legislator Edgardo de Petri, a close ally of the president, said something was wrong when Argentines exported about 50 million tons of soybeans every year to China and other countries yet were paying more for produce in their own markets.
On the wall behind his desk in the Congress are photographs of the longtime union leader posing with Cuba's Fidel Castro and Venezuelan leader Hugo Chavez, icons of the left throughout Latin America.
"We have to strengthen the domestic market before we talk about the external situation," de Petri said. "Things can go well for the exporters and farmers but can do a lot of harm to people."
Protesting farmers in the town of Ines Indart, about three hours' drive from the capital, Buenos Aires, dismissed such assertions and said the government had raised taxes to pay for a spending rush ahead of next year's elections.
"The government doesn't understand how farming works," farm manager Maximo Gutierrez said. "If they did, they'd see we're already barely surviving."
For the farmers, the new export taxes were the final insult after years of tensions between growers and former President Nestor Kirchner, the current president's husband.
Saying that he was fighting inflation, Kirchner had launched controversial measures such as export restrictions on beef and wheat and price controls on milk and produce. Last October, he raised soybean export taxes from 27 percent to 35 percent. His wife raised those taxes further to about 45 percent, with a maximum possible rate of 52.7 percent.
Despite the measures, overall prices are soaring by more than 20 percent a year, economists said.
"All the small producers of beef, wheat and everything else went to soybeans because of the controls," said Dante Sica, the director of abeceb.com. "With the new soybean taxes, they have nowhere else left to go."
Adding to the controversy, the government doesn't compile nationwide figures for farm-sector profitability, which means that both sides are arguing without solid data, Argentine economist Jorge Todesca said.
While the government says that farmers can pay the new taxes, public opinion polls show that Argentines are siding with the producers. Fernandez de Kirchner's approval ratings, for example, have plummeted from about 60 percent four months ago to the low 20s.
"The government didn't see why the taxes would create such an uproar," said Daniel Kerner, a U.S.-based Latin America analyst for the consultancy the Eurasia Group. "They didn't consider that putting a cap on profits, you kill the futures market."
De Petri rejected such criticism, saying that under the Kirchners, Argentina's economy has bounced back from a historic meltdown, growing by about 8 percent a year since 2003. He added that the government has helped fuel the farm boom by keeping the currency weak and by building irrigation systems and other infrastructure that farmers use.
"The government should intervene in the market, because it's the only possibility of redistributing the income of people who have done very well," de Petri said.
Farmers say that inflation has wiped out the "extraordinary" farm profits that Fernandez de Kirchner says they're enjoying.
As a result, farming has become a money-losing proposition for some producers, and the new export taxes have made matters worse, said agricultural engineer Alfredo Pereyra, who's based in the farming town of Arrecifes.
"What these taxes mean is we have to stop using technology and other materials to make a profit," Pereyra said.
The answer, farmers suggest, is creating the kind of government farm subsidies that their counterparts in the United States and Europe have. They also recommend cutting or eliminating export taxes, which neighboring countries such as Brazil don't charge.
Yet local hopes for such measures are low.
Originally published by McClatchy Newspapers.
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