Argentina Agribusiness Report

The drawn out conflict between the Argentinian government and the country's farmers flared up again in mid-2009 as the government vetoed a law that would have exempted drought-hit farmers in Buenos Aires province from export taxes on their produce. At the time of writing, farmers were again preparing to go on strike.

At the beginning of Q3, relations between the agricultural sector and the government seemed to be improving. In August the government eased restrictions on exports of beef. The proportion of stock capacity meatpackers are required to sell to the domestic market has been reduced from 65% to 35% and has been eliminated entirely on prime cuts. An emergency law passed in the quarter has also provided tax breaks and subsidies for farmers hit by the drought. In late August, however, President Cristina Fern??ndez de Kirchner vetoed part of the law calling for export taxes to be waived claiming it had been included by mistake and was unworkable.

Relations between farmers and the government have been strained since 2002 when the government imposed export levies on agricultural commodities in the wake of the country's financial meltdown. In March 2008, the situation boiled over when the government tried to introduce a sliding scale for export levies on soybeans. The ensuing strikes by farmers severely disrupted the country's agricultural sector. In 2008, when the price for agricultural commodities was surging and Argentina was producing bumper crops of grain and soybean the taxes were painful enough. Now with crops being devastated by the long drought that has gripped Argentina this year, many farmers will see their profits disappear.

For farmers to recover from the crisis it is essential that an accord with the government can be reached that will allow profits for farmers to rise while still providing affordable food supplies for domestic consumers hit by recession. Compromises will be needed on both sides. With relations falling so low that the government has accused farmers of being complicit in the the bloody rule of the military junta that ran Argentina through the 1970s, this will not be easy. Many farmers are hoping that the government's June defeat in mid-term elections for the lower house will see a Congress that is more open to listen to their complaints when the new lawmakers take their seats in December.

News on the production front became bleaker and bleaker through mid-2009. The continued drought has now seriously disrupted planting for the 2010 crop and we have revised down our forecasts for production of corn and wheat. After an expected two consecutive years of disastrous harvests, Argentina's wheat exports are likely to all but disappear next year. Perhaps more worrying for the average Argentinian consumer is the impact the drought could have on the livestock sector. With the national herd falling as the pampas dries out and farmers draw down their stocks, Argentinians could soon be forced to eat imported meat.