March 30, 2009

Argentina's farmers plan to lift a week-long strike Friday (March 27) night as planned, but renewed protests are likely if the government refuses to lower the export taxes on grains, said a spokesman from the Argentine Rural Confederation, or CRA.

 

The sixth meeting this year between government officials and farm group leaders is scheduled for Tuesday, but if no progress is made, farmers are will go on strike again "for sure," the CRA spokesman said in an interview Friday.

 

Argentina's farmers continued to block roads across much of the country, sporadically letting traffic flow after ensuring that no trucks loaded with grains or live cattle were moving.

 

The conflict appears to be moving toward a similar deadlock as last year, when farmers launched a series of crippling strikes and roadblocks over a four-month period to protest a sliding-scale grain export scheme. The scheme meant extremely high duties during the commodities price peak in early 2008.

 

The farmers secured a Senate vote to defeat the sliding-scale tax scheme, but with international commodity prices plunging since then and a brutal drought cutting production this season, farmers say that the fixed export taxes are still too high. Exports of soy, the country's top crop, are taxed at 35 percent.

 

"This conflict is totally different. Last year we were fighting for a part of the profits that the government wanted to expropriate ... now we're fighting just to see a profit, Argentine Agrarian Federation Vice President Pablo Orsolini told Radio Mundo.

 

However, with economic growth dropping sharply due to the international financial crisis and Argentina unable to tap foreign bond markets to finance stimulus measures and a heavy calendar of debt payments, the government has said a tax reduction isn't in the cards.

 

The government is heavily dependent on income from the farm sector, which makes up more than 40 percent of exports. The export tax on soy alone made up about 10 percent of the government's tax take last year.

 

Last week, the farmers pressed congress for tax relief but were unable to get the quorum needed for debate at the House of Representatives.

 

Farmers are also angry with the federal government's decision to divide up some of the revenue from soy to the provinces.

 

By forcing governors to sign on to the plan in exchange for the funds, the government is hoping to undercut provincial support for the farmers and build support ahead of midterm congressional elections.

 

Even the opposition socialist party governor of the farm-belt province of Santa Fe, Hermes Binner, has decided to accept the funds.

 

Despite the risk of alienating rural voters, tight provincial budgets have made the funds too enticing to refuse for the cash-strapped governors.

 

The new tax-sharing program will steer about ARS4.4 billion (US$1.2 billion) more to the provinces in 2009, according to local consultancy Abeceb.com.

 

With both farmers and the government digging in, it isn't clear how another drawn-out, bruising conflict can be avoided.

 

"We don't know how this conflict is going to end ... we don't see a solution in the short term," the leader of one of the farm groups told Dow Jones Newswires last Friday.