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Feb 22, 2013 | 11:00 GMT

Growing Unrest in Argentina's Agricultural Sector

Growing Unrest in Argentina's Agricultural Sector
JUAN MABROMATA/AFP/Getty Images
Summary

Unrest will likely worsen as Argentina's agricultural sector becomes increasingly frustrated with governmental control of the economy. Farmer protests are routine in Argentina, but a number of factors suggest that 2013's agricultural protests will be significant and potentially rival the disruptive 2008 protests. Various grievances focusing primarily on increased governmental intervention in the economy could compel the country's agricultural sector to take substantial action, such as taking to the streets or withholding soybean exports. Unwilling to meet the protesters' demands, the government will likely try to fracture the movement and increase government oversight over the agricultural sector.

In March 2008, a government proposal to increase export taxes on agricultural goods triggered major protests led by Argentina's agricultural associations. Protests lasted for three weeks, decreased the popularity of Argentine President Cristina Fernandez de Kirchner from 51 percent to 21 percent and caused widespread food shortages throughout Buenos Aires. By the end of the protests, more than 250,000 people had taken to the streets. Public and legislative support for the agricultural associations succeeded in preventing the export tax hike but failed to address structural issues facing the agriculture sector such as price controls, export restrictions and other forms of government intervention in the economy. Displeasure over these tools of government control has persisted and is threatening to create problems in the coming months.

Map of Argentine Provinces

Map of Argentine Provinces

The Argentine Rural Society — one of the four major agricultural associations in Argentina — is threatening to withhold soybean exports beginning in April. This is an extreme measure and will be difficult to successfully organize and execute, but it would have serious repercussions for Argentina and could affect global soybean markets. About 25 percent of Argentina's exports are soybean-related. Farmers want to use this as leverage against the government to get concessions without drawing the ire of the general population. Withholding soybean sales is an important negotiating tool for farmers because it hurts the government — which relies on soybean exports for foreign currency reserves — without leading to food shortages for the majority of the population.

Argentina's farmers have three major grievances, all of which revolve around governmental intervention in the economy. First, the Argentine government's artificially overvalued exchange rate makes exports less competitive and cuts into the agricultural exporters' profitability. The official exchange rate of the Argentine peso is around 5 pesos to the dollar, whereas the unofficial, black-market rate is nearly 8 pesos to the dollar. Farmers are demanding a fairer exchange rate closer to the unofficial, market-determined rate.

Second, consumer price controls are creating distortionary effects on the economy, acutely affecting agricultural producers. Farmers' production costs are increasing along with inflation (about 30 percent annually), but the domestic sale price is being held constant by the government. Though the government's most recent price freeze will expire April 1, there is some concern that it will be extended through legislative elections in October. Farmers operate on relatively slim profit margins, and cost inflation alongside price freezes make agricultural activity far less profitable. This is particularly true for crops like wheat and corn, which are largely kept in Argentina for the domestic market and thus subject to lower domestic prices instead of being sold abroad.

Lastly, farmers want a reduction of export taxes, which are currently 35 percent for soybeans, and a reduction of export restrictions. Over the past decade, price controls on the domestic market and export quotas on domestically consumed goods have led farmers to turn to commodity crops that fetch higher prices on international markets. Over the last decade, the acreage dedicated to soybeans has nearly doubled. To prevent a deterioration of Argentina's food self-sufficiency, the government steadily increased export taxes on soybeans, up from 13 percent to 37.5 percent in 2007, which generated revenues to subsidize small-scale farmers producing domestically consumed crops and helped to augment state coffers. It also required agricultural producers to commit a certain percentage of production to the domestic market. The government is currently in a conundrum; it needs food exports for foreign currency and fiscal revenues, but it also needs to maintain production of domestically consumed foodstuffs during the price freeze.

A number of factors suggest that this year's agricultural protests will be more substantial than in years past. Deteriorating economic conditions for the agricultural sector have led farmers to ally with a growing anti-government workers movement to pressure the government to meet its demands and change its more harmful economic policies.

Agricultural producers have re-created the Mesa de Enlace, a confederation of the country's four main agricultural associations — the Argentine Rural Society, the Argentine Rural Confederation, the Inter-Cooperative Agricultural Federation and the Argentine Agriculture Federation. The Mesa de Enlace was first created in March 2008 to organize a protest movement against the export tax hike but fractured after the bill was voted down. The Argentine government has refused to collectively negotiate with this confederation — preferring a divide-and-conquer negotiation strategy — and the organization has so far proven successful at maintaining unity among groups that historically have different interests. 

In addition to unity within the agricultural associations, there are signs that the farmers groups will cooperate with general labor unions such as the anti-government faction of the General Confederation of Labor and the Argentine Workers' Central Union. The Argentine Agriculture Federation and the Argentine Rural Society are tentatively planning to join a general labor union-sponsored protest on March 14. This cooperation is almost unprecedented. Historically, farmers and general labor protested separately, yet in November 2012, the Argentine Agriculture Federation joined a general labor protest against the government, signaling greater coordination. This is worrisome for the government, since these two together can mount crippling anti-government protests.

Having so far failed to fracture the confederation of agricultural groups, the government is preparing for unrest. The Argentine government is considering reinstituting the National Grain Board, which was dismantled in 1991 during the liberalization of the economy. This government organization promoted the transfer of grains to the industrial sector. Starting in 1974, the National Grain Board was the sole legal market for all agricultural sales, and only the Board could sell for export. While the current proposal would not return to this highly centralized system, it would nonetheless increase government oversight over the agricultural sector.

Exports of wheat, corn and soybean comprise nearly 33 percent of total exports, and a prolonged dispute with the government has the potential to negatively affect the country's foreign exchange and fiscal revenues. It could undermine Fernandez's administration in the months before the legislative election, leading to diminished popularity and potentially undermining her efforts to gain a large enough congressional majority to pass controversial reforms. Cooperation between agriculture associations and general labor could cause serious disruptions in both domestic food supplies and export commodity flows, because Argentina is responsible for roughly 10 percent of global soybean trade. Middle-class protests over the past year have been a nuisance for the government, but if general labor organizations and agricultural associations join as well, it could seriously escalate the magnitude of the protests and increase their disruptive effect.

The government will be hard-pressed to reduce the export taxes and restrictions, because of the effect it would have on fiscal revenues and production of domestically consumed agricultural goods. In the lead-up to the October 2013 legislative election, the government will need all the revenues it can get to support its spending and subsidy programs. It cannot afford to reduce the agricultural taxes that earn the government approximately 10 percent of its total fiscal revenues. Allowing the price controls to expire, or devaluing the currency, would lead to increased inflation, which would also be unpopular. Therefore, the Argentine government will likely try to maintain the status quo and will try to do so by fracturing the agricultural associations while increasing government oversight of the agricultural sector.

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