Climate woes follow political strife for Argentina’s farmers

Argentina is suffering the worst drought in 20 years, with nearly all the country’s vast farmlands affected. La Nacion reports that 700,000 heads of cattle have died and up to USD$700 million could be lost by wheat and corn farmers this season. In some areas, like the northern parts of the Santa Fe and Córdoba provinces, rainfall is the lowest it’s been in 47 years.

The drought comes at a time when Argentina’s agricultural products are reaching high prices in an international market demanding ever-greater quantities of food products (although prices have slipped from the record levels reached earlier this year). It also comes on the heels of a 3-month strike by farmers, protesting export duties that they argued undercut their capacity to increase production and invest in technology.

The strike ended and the controversial increase in export duties has been dropped, but the situation between the farming sector and the government remains tense, with farmers continuing to demand an agricultural policy that encourages growth. The government argues that the export duties (now at 35%) are justified as a means of redistributing the massive gains farmers have made from the robust commodities market. By taxing exports, the government hopes to both keep domestic food prices down (about a third of Argentina’s population is poor, and many more would drop below the poverty line were food prices here to rise to international levels) and to raise revenues to pay off its considerable international debts.

The UN and other agencies argue that trade restrictions like export duties and farm subsidies distort markets and help contribute to world food shortages.

A recent New York Times article compares Argentina’s policies unfavorably with those of Brazil, and the Economist argues that the Kirchner government’s agricultural policies have contributed to Argentina’s recent bad run with foreign investor ratings.

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Is Argentina about to tank?

Is Argentina heading for another of its famous busts? The Economist seems to think talk of impending doom following recent investor jitters is unwarranted, but warns that without a change of direction in policy, things could get shaky.

Having scratched its head over Argentina’s sustained 9% growth rate despite its rejection of neo-liberal economic orthodoxy, the magazine has now joined a chorus of voices – including the S&P index, which recently downgraded Argentina’s credit rating from B+ to B – that suggest Argentina’s economy is headed for danger.

Argentina’s president, Cristina Fernandez de Kirchner, has had a tough year. She stared down a three-month farmers’ strike over increased export duties, only to have her own vice president dump the policy in a nail-biting senate vote that had half the country glued to the TV as though it were showing a River-Boca match.

Rising prices are as hot a topic as the weather among Argentina’s highly inflation-sensitive population. The government’s determination to manipulate inflation data – INDEC’s official rate is 9% so far this year, though reliable estimates set it at around 25% – may keep some of its debt repayments down but is met with increasing indignation by Argentine consumers.

The Economist’s advice is that the government reduce its enormous energy and transport subsidies. But with Argentines enduring increasing discomfort in the hip-pocket region, it’s hard to imagine the president, who is fast losing support among her previously disciplined Peronist party colleagues, visiting that kind of medicine on a fed-up public.