When smiling economy minister Martin Lousteau announced a new regime of export taxes for agricultural products, he would have anticipated some grumblings in the countryside.
What he probably didn’t envisage was Argentina’s longest ever farming strike, the severing of the country’s main transport arteries, and the noisy return of cacerolas (saucepans) in protests on the streets of Buenos Aires for the first time since the economic collapse in 2001.
The message to the government was stark and simple: enough is enough.
The new scheme included a sharp hike in the retention rate for soy and sunseed products, to 44.1% and 39% respectively. The move would enable the equitable redistribution of the huge profits being made amid a global commodity boom and protect local consumers from soaring food prices, chimed the economy minister.
Meanwhile, taxes on staples like wheat and corn were cut to spur production. In addition, the new tax rate would move in line with fluctuations in the international price for soy. This, explained Mr Lousteau, would lend valuable price stability to a volatile industry.
The agricultural sector, however, views the scheme as an unjust confiscation of hard-earned revenues. “Who is going to make the effort to invest in their farm and cultivate crops when the government takes the money at harvest time?” asks Felix Lacroze, a landowner and director at Control Union, an agricultural organisation, who participated in street protests.
With the new export taxes now snagging almost half of gross income, and costs accounting for nearly another 50%, farmers complain that they face all the risks without seeing any of rewards. “It runs contrary to any entrepreneurial vision for development,” adds Mr Lacroze.
The response from the countryside has been swift. The four major national entities representing the agricultural sector announced a two-day strike. Road blocks then sprang up on major transport routes, choking off staple supplies to urban centres. Two days turned into a week, then a fortnight, and then an indefinite lockout, to be lifted only when the tax hikes were annulled.
But the government stood firm. Mr Lousteau defended his policy and insisted that there would be no backing down. The agricultural sector has been the main beneficiary of the current economic model, he contended, with fuel subsidies keeping production costs low and an undervalued exchange rate improving the competitive position of Argentine producers.
“Profitability in the soy industry is 15% lower in Brazil than in Argentina”, Mr Lousteau pointed out, “and without the retentions, inflation would be much higher.”
President Cristina Fernández de Kirchner stepped up the confrontational stance with a speech that accused the “picketers of abundance” of being “unwilling to change or understand”.
If turning public opinion against producers was the aim, the result was a disaster. As an indignant rural community hardened its own position, city dwellers – until then passive observers – made themselves heard via the clunking of their kitchen utensils. Suddenly, the urban middle-class was united behind the farming community, two distinct groups bound by growing discontent with the style of governance.
In a follow up speech, Mrs Kirchner opted for a more conciliatory tone that paved the way for dialogue between the duelling factions. However, with neither side willing to soften its position, this first meeting was ultimately fruitless, and as this edition went to print, the strike continued.
Tip of the iceberg
Finding common ground in this conflict will be difficult, as it has now moved far beyond the original debate over the new export tax scheme. “The new export tax scheme was just the straw that broke the camel’s back,” says Mr Lacroze. “The main problem is this government’s approach to policy, which is to dictate conditions that everyone else must simply obey.”
This sentiment is echoed by farmers, who, as a whole are frustrated by a lack of consultation in policy formation. While farmers accept that they have benefited from some policy measures, they do not believe this warrants exploitation. “It is not about how much money we win and lose, which is another error of the government,” stresses Mr Lacroze. “What we want is to be able to produce without anyone telling us how it should be done.”
This policy tinkering must be viewed in the wider context of the government’s pro-growth economic model, which relies heavily on subsidies and price caps to contain inflation, which already runs at over 30% according to independent economists.
The system requires significant sums of money. An estimated US$11bn in revenues from agrarian export taxes in 2008 can contribute a large part, without threatening the coveted fiscal surplus. Independent economists argue that this can only work in the short run, and cheapening investment in the sector would cause more harm going forward.
Chalking up the costs
The most immediate losses of the revolt will be in the production and sale of farm produce, while the numerous roadblocks will also have an impact on profits in the transport and industrial sectors. Export companies too stand to lose significant sums in payments for boats sitting idle in the country’s main ports, whilst in the city, retailers face dwindling stocks of meat, forcing many small businesses to close.
On a broader level, the image of Argentina’s business climate overseas will suffer, straining an already poor investment rate. According to a report from the United Nations Conference on Trade and Development, foreign direct investment for Latin America surged by around 50% in 2007. Argentina, however, witnessed a 40% decline.
The question of whether these costs are attributable to the farmers or the government remains a matter of opinion. However, if the concerns of the agrarian sector are accurate, these short-term complications will pale in significance with the long-term consequences of current policy.
“Without a change in attitude, production won’t increase under this government,” says Mr Lacroze, citing the crisis in the energy sector as an example of how bad things could get.
The country is left to ask an ominous question: If such a conflict can occur during times of abundance, what happens when conditions deteriorate? As the global economy stares into the abyss, the answer may not be far off.