Mark Isaacson. Originally published in Spring 2009.
Soybeans grown by the ton in Argentina’s expansive farmland represent a substantial part of that nation’s export market. Herds of cattle bred and fed in the vast pampas make the country famous for its high-quality beef. But for President Cristina Fernández de Kirchner and her husband, former President Néstor Kirchner, such agriculture is the source of large sums of government revenue.
While many countries like the United States subsidize their respective agricultural industries, Argentina imposes steep export taxes. The Kirchner government taxes soybeans at a rate of 35 percent, often leaving farmers to make a net profit of only a few cents on the dollar. Such policies force Argentine agricultural groups and their supporters into frequent confrontations with the Kirchners and
their allies. As farmers suffer from the current economic conditions and the historic droughts of early 2009, the two sides are once again facing off in a political battle. The unprecedented situation may result in the concessions for which the farmers have long waited, but it also may hold Kirchner’s political fate and the government’s fiscal stability in the balance.
The two sides fought a similar battle in the summer of 2008, and set the tone for the relationship between the then six-month President Kirchner and the farmers. Kirchner, with the support of her husband, had planned to raise tax rates as high as 50 percent to finance ambitious public works projects. But the proposal divided the country and members of the Argentine Congress. rural residents and upper-middle class urbanites alike took to the street to protest the Kirchners, banging pots, pans, and kitchenware in signature Argentine expression of civil discontent. when it finally came to a vote in the Congress, it was Kirchner’s Vice-President, Julio Cabos, who cast the deciding vote against her.
Today the world economic downturn is exacerbating the farmers’ already difficult situation. Commodity prices are down significantly worldwide, with the price of soybeans down over 40 percent from July 2008 prices in early 2009. In the span of a few months, nearly six years of price increases were undone to the detriment of Argentine farmers and of the government, which depends on tax revenue from those commodity sales. And as it looks increasingly likely that Argentina will fail to pay off its growing debts, the agricultural troubles are planting the seeds of disaster.
It is not just the government coffers that have dried up. Exacerbating the problem are the record droughts—the country’s worst in more than 70 years—that plagued Argentina in early 2009. With severe lack of water, farmers helplessly watched their crops yellow, wither, and die in the typically fertile pampas farmland. As a result, soybean production this year will be down by more than 10 percent. Corn
and wheat have also been adversely affected, with production expected to decrease by over 35 percent. In addition, over 1.5 million cattle have died since October 2008. In sum farmers will lose an estimated US$12.5 billion compared to last year, according to statistics from the Argentine Rural Confederations.
To President Kirchner’s credit, her government took emergency actions in early 2009 to provide relief, including substantial tax exemptions for the hard-hit farmers. Kirchner’s critics, however, argued that her actions presented no meaningful assistance. Though they may provide temporary relief, they do not reflect a major change in governmental policy toward Argentina’s agriculture sector. Unsurprisingly, the various agricultural interest groups are calling for greater, more permanent reforms, citing their plight as proof of the hazards of the Kirchner policies.
The unprecedented circumstances have again put government officials and agricultural representatives across from each other at the bargaining table, while reminding the Argentine populace of the countryside’s predicament. And as Kirchner’s popularity continues to suffer, she may feel compelled to give into the demands of those whom she has long opposed. Such drastic changes could come at the expense of the government’s fiscal stability. Argentina is already encumbered by a growing debt, which has only increased as the nation tumbles into economic crisis. The nation will be further affected by the severe drop in agricultural production and by financing the resulting relief efforts. With nearly US$20 billion of debt obligations this year, Kirchner faces the difficult task of covering the requisite debt payments while maintaining government operations. The outlook is increasingly grim as tax revenues fall, the economy continues to sour, and investor confidence in government bonds declines. Sacrificing unpopular export taxes for political expediency would further complicate government finances.
Though Kirchner will not be up for reelection until 2011, her actions now may determine her electoral fate. If either she or her husband plans to maintain power, Argentina must weather the current crisis. That will require more than a healthy soybean crop; it demands cultivating a healthier relationship with the farming community. More immediately, though, it means successfully navigating the precarious situation in which her country finds itself, reconciling the issues of global recession, tax policy, political pressures, and fiscal uncertainty.