February 6, 2009

Argentina's big farm groups will decide next week whether to hold a strike - and halt crop and cattle sales - in an effort to press the government for more aid in contending with the worst drought in decades, a farm leader said Thursday (February 5).

 

"We have not made a decision yet, but a decision will be made next week," Hugo Biolcati, president of the Argentine Rural Society, said on Radio 10.

 

"Evidently (a strike) is very probable," he told the Buenos Aires radio broadcaster.

 

Biolcati said the sentiment of farmers is worsening, adding that agriculture groups will hold talks separately before a final decision is made, as soon as on Feb. 11.

 

Carbap, a faction of the Argentine Rural Confederations, or CRA, is pushing for strikes on Feb. 14-15 and March 5-6, although there is now talk of a Feb. 16-20 protest.

 

The agriculture sector, which held four months of protests last year that led to the overturn of President Cristina Fernandez de Kirchner's hikes in soy export taxes, wants more help from the government as a severe drought cuts planted area, crop yields and estimated production.

 

The dry spell, thought the worst in 47 years, has led to frequent reductions in crop estimates.

 

On Wednesday, the US Department of Agriculture's Argentine attache lowered its forecast for 2008-09 soy production in the country to 42.5 million tonnes because of severe drought conditions.

 

That compares with the USDA's current official estimate of a record 49.5 million tonnes and the Buenos Aires Cereals Exchange's 34.5 million to 38.2 million tonnes.

 

The drought led the government to declare an agricultural emergency and is allowing affected farmers and ranchers to defer personal income and other tax payments for up to a year, along with other measures.

 

This has fuelled speculation that the government may reduce export taxes, which run as high as 35 percent on soy.

 

Vice President Julio Cobos, who last year cast the deciding vote against Fernandez de Kirchner's increase in export taxes, is calling for a tax cut. So, too, are the governors of Cordoba and Santa Fe, whose provinces produce about half of the country's soy. They also have suggested suspensions in the export tax of three to six months.

 

On Wednesday, opposition lawmakers called for a suspension in the export taxes for this season, as well as the lifting of restrictions on exports of beef and other products.

 

It is uncertain what the government will do.

 

"I don't see (a tax cut) as feasible at all," Carlos Germano, a political analyst in Buenos Aires.

 

While midterm elections will be held later this year, a tax cut won't change the voting intentions of farmers, he said.

 

"I don't think it's possible to change the anti-government sentiment of the interior of the country," which depends heavily on agriculture, he said. Since last year's protests, Fernandez de Kirchner's popularity has failed to recover.

 

On the economic side, speculation of a cut varies.

 

Argentina last year fetched about US$10 billion in revenue on agriculture export taxes, money thought key for maintaining the federal budget in surplus.

 

Some economists suggest a six-month elimination of the export taxes would cost the state 10 billion pesos (US$8.6 billion) in revenue, or a third of the 30 billion peso budget surplus, according to a report Thursday in El Cronista, a newspaper.

 

Now with global demand in decline and commodities prices low, the country is facing slower growth in tax revenue - and it may get worse if crop production drops because of the drought.

 

Economists at the Argentine Rural Society have said the drought may cut total crop output by 20 million tonnes, leaving total state revenue from crop export taxes at 20 billion pesos compared with 30 billion in 2008.

 

This week, the government said total tax collections grew by 11 percent in January from a year earlier, down from expansion rates of 35 percent in 2008. The slowdown was led by a 27 percent drop in income from export taxes as crop exports plunged by 41 percent.

 

Argentina has no access to global financial markets for meeting debt payments, given that it has failed to renegotiate payments on more than US$20 billion in debt left over from a 2001 default on about US$100 billion. So it is heavily reliant on taxes for funds to run the country and pay debt.

 

"Economically, there is little margin to cut taxes," Germano said. For Jorge Colina, an economist at the Institute of Argentine Social Development, or Idesa in Buenos Aires, a cut or suspension in the export taxes would buoy farm activity, helping keep jobs and demand for inputs and machinery as well as the consumer demand from farmers at a time when the economy is slowing.

 

If the soy export tax were eliminated, farmers would go from receiving US$220 per tonne after taxes to around US$350 per tonne, Colina said. Given that soy prices were at US$220 per tonne in the 1990s, "that is a very good price," he said.