Wednesday, March 26, 2008

Have you heard about the new Argentine diet plan?

Recently elected Argentine President Christina Fernandez is facing the first big crisis of her administration over the government's inceased tax rates on some agricultural export crops, chiefly soybeans. Argentina has been growing rapidly since 2003 though with higher and higher inflation, now estimated to be between 20 and 30 percent, and higher and higher government spending. The government raised export tariff rates on March 11 and farmers went "on strike" with roadblocks, protests, and a cessation of delivering agricultural products either for export or for domestic consumption. Farmers vow to continue striking indefinitely and Fernandez vows not to give in to extortion.

From the FT story:

Agriculture is the backbone of the Argentine economy and high international prices for commodities, especially soya, have translated into booming exports.

The government’s new tariff regime replaces a 35 per cent levy on soya sales, with charges of up to 95 per cent if prices rise to $600 (€380, £300) a tonne.

Other crops are similarly affected, but soya is Argentina’s agricultural star commodity. Cattle farmers and other producers have been switching to the grain en masse, attracted by high profitability.

Under the new tariff scheme, farmers pay 44 per cent on exports at prices of about $465 a tonne. Added to income tax and provincial levies, this results in a total tax burden on farmers of 73 per cent, according to the Argentine Agrarian Federation, one of the four main producers’ associations.

The government argues that higher tariffs are needed to share out more fairly the windfall from exceptional commodities prices, and that the sliding scale benefits farmers more than a straight increase.

But the agriculture sector feels it is being squeezed to provide funds for a spendthrift government to fuel what critics say are unsustainable subsidies. Farmers say that the new tariff regime, coming just four months after the last increase in export tariffs on grains and cereals, was the last straw.

The government could close down meat exports in an effort to stave off shortages. It has requisitioned cattle owned by the armed forces for slaughter. But farmers say that is a drop in the ocean. Meanwhile, no trucks have entered the port of Rosario, Argentina’s grains export centre, for four days; eight ships have been diverted for lack of cargoes in Argentina and 15 are stuck in Rosario awaiting loading, according to the Agrarian Federation.

While I get a kick out of seeing farmers taxed instead of subsidized, them are some pretty steep tariffs. Note that when prices go up, tariff revenues rise with a constant tariff rate; what is going on here is that the tariff rate is also rising. I'm guessing the Argentine farm lobby screwed up and didn't put enough pesos into the Kircher-Fernandez political organization.


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