August 3, 2009

Argentina's farmers left key talks with government officials Friday (Jul 31) with a packet of concessions far short of what they had expected and miles away from what they were asking for.

 

The measures announced by Economy Minister Amado Boudou following the meeting are unlikely to defuse tension between the government and farmers, who are lobbying hard in the Congress for lower export taxes on grains and limits to government intervention in agricultural markets.

 

Farmers left the meeting with an offer to loosen restrictions on beef, corn and wheat exports, and increased subsidies for beef feedlots and dairy production.

 

But their key demand for lower taxes was rejected outright by the government, which is struggling to fund heavy stimulus spending amid a sharp slowdown in the economy.

 

Tax cuts would be considered "if the farmers can find the money" to do it, Boudou said in a press conference following the meeting.

 

Farmers are pushing for the total elimination of export taxes on wheat, corn and sunflower seeds and a 10-percent reduction in the soy export tax, currently set at 35 percent. Soy dominates Argentine farm output and is the country's leading export.

 

However, the lower taxes proposed by the farmers would cost the government an estimated US$3 billion in tax revenue, a heavy price tag for the cash-strapped government of President Cristina Fernandez.

 

Farm groups were fiercely critical of the administration in the run-up to talks. They upped their demands following the election setback suffered by the administration in June 28 midterm elections. The vote saw Fernandez's Front for Victory party lose control of Congress amid strong gains for candidates supportive of the agricultural sector.

 

"They haven't learned the message sent at the ballots a month ago," said the leader of the Argentine Rural Confederation, Hugo Biolcati.

 

Farmers chafe at the high tax burden imposed on this key sector in the economy and resent policies that keep domestic food prices low at their expense. With international commodity prices at historically high levels, the government has zeroed in on the windfall.

 

Those tensions culminated in a series of crippling strikes in 2008 to protest yet another tax hike. Farmers eventually prevailed that time after the Senate narrowly voted down the plan, thanks to the support of Vice President Julio Cobos.

 

Newly invigorated by the midterm vote, farm groups are now pushing hard in the legislature for reform.

 

Farmers claim to have secured the support of some 110 Lower House legislators - shy of the 129 votes required to achieve the quorum needed to vote on legislation, but enough to turn them into a potent force. They may be able to lure in other opposition groups or discontented government supporters.

 

In addition to lower taxes, farmers want a reining in of the agricultural trade office, known as ONCCA, which is reviled by the sector for its tight control and frequent closing of exports of wheat, corn and beef when local prices spike.

 

The farmers also are targeting the fundamental constitutional issue of the president's power to set export taxes.

 

They are pressing for a quick vote to revoke special presidential powers used to impose those duties.

 

Even though the new congressmen and women won't take their seats until December, shifting alliances in the current House and Senate have provided an opportunity for opposition legislators to press for reform.

 

The first test likely will come next month over the issue of the special executive powers, which were used unilaterally by President Fernandez and her husband, former president Nestor Kirchner, before her to impose a variety of tax and customs duties.

 

They expire Aug. 24, and if they aren't renewed, Congress will take back its role of setting customs policy and taxes. That could lead to quick changes to the export tax schemes.