New Delhi — As Argentina awaits a new political leadership, farmers are concerned about the possibility of a change in agricultural policies leading to a higher export tax regime and non-tariff measures to curb grain exports.
The market is rife with speculation about export curbs and higher taxes ahead of president-elect Alberto Fernandez taking charge on December 10, along with vice president-elect Cristina Fernandez, whose term in 2007-15 was marked by populist measures, including higher taxes on grains exports.
"Argentinian farmers are worried about the policies that new authorities can apply, considering experience of the past times," the new president of Argentinian wheat growers association Argentrigo, Miguel Cane, said.
Higher taxes on grains will reduce profitability and reduce domestic production in future with the possibility of farmers shifting acreage to other low-investment crops.
Agriculture is the economic base of Argentina and a major contributor to its exports. Much will be at stake when the new leadership maps out new policies with the aim of fixing the recession-hit economy, analysts said.
"We are worried as we are not sure what the new government's agriculture policies will be. Will it increase export taxes or increase other taxes...?" a Buenos Aires-based farm manager and consultant and former president of Argentrigo, David Hughes, said.
Some farmer unions had met Alberto Fernandez before the elections and emphasized to him the need to keep grain exports open and maintain their growth. Even after the meeting it was unclear what the final policies would be, Hughes said.
RECENT GRAIN SALES
Farmers and traders have been selling grains at a more rapid pace recently on the fear of return of higher taxes, according to industry analysts and traders.
"Because of that [new government], farmers and traders are accelerating the pace of selling, worried about possible obstacles to export, or tax increasing," Argentrigo's Cane said.
Over November 14- 27, exporters bought 2 million mt of wheat from farmers, more than four times their purchases a year earlier, according to the data from the agriculture ministry's website.
Similarly, for corn, exporters' purchases for the two weeks were five times more than the 3.4 million mt a year earlier.
IMPACT OF HIGHER TAX ON GRAINS
Argentina is the world's sixth largest wheat exporter and third largest corn exporter, according to the data published by the USDA for 2018-19.
Corn and wheat contribute around 7.4% and 3.3%, respectively, to Argentina's export revenues.
"If additional taxation is implemented, profitability of producers and exporters will be reduced. That will affect internal production in the future," said Rubens Barbosa, executive president of Brazil's wheat association Abitrigo. Brazil is the largest buyer of Argentine wheat.
Taxes on grain exports have for long been a part of Argentine government policies.
Hefty taxes were imposed on Argentina's main grains from 2002 and quantitative export quotas on wheat and corn since 2006.
For many years, corn exports were taxed at 20% and wheat exports at 23%, according to a report from the Australian Export Grains Innovation Centre in November.
Though not gradual, Argentina's wheat production fell 37% to 11.3 million mt in 2015-16 (December-November) from 2007-08 and exports fell 14% to 9.6 million mt, according to data USDA data.
Corn production, however, rose during the same period.
But when ex-president Mauricio Macri removed export taxes on corn and wheat in 2015, corn production rose even further, and wheat began an upward trajectory.
Corn production rose 21.4% from 2015-16 to 2018-19, while corn exports rose 36.3%. Wheat production rose 73% in the same period, while exports rose 35.4%.
Currently, Argentina's corn and wheat exports are taxed at about at 6.7%, while soybeans, along with meal and derivatives, are taxed at 25%.
If taxes are increased on corn and wheat, farmers may also shift acreage to Argentina's principal crop, soybeans, which need lower investment per acre.
Soybeans are also a more reliable and durable store of wealth than a cash asset of pesos and therefore act as a natural hedge against inflation, according to the AEGIC report.
Some grain analysts, however, believe the new government's changes to farm and grain export policies may be limited.
"Regarding the extent of increase in taxes in the agricultural industry, I consider that everything is an emotional dispute...the opposition will not allow things to change," analyst with GRAIN Trader Argentina Juan Manuel Niveyro said.
-- Shilpa Samant, shilpa.samant@spglobal.com
-- Edited by Jonathan Dart, jonathan.dart@spglobal.com