Cablegate: Government Policies and Argentine Agriculture -- Lower


DE RUEHBU #0050/01 0151036
O 151036Z JAN 08




E.O. 12958: N/A
SUBJECT: Government Policies and Argentine Agriculture -- Lower
Prices, but Not Production

1. (SBU) SUMMARY: Government policies in Argentina have reduced
prices paid for goods from the most important agricultural sectors
(oilseeds, grains, beef and dairy) an estimated 30 to 40 percent
below world market prices. The lower prices are due to GoA
intervention in the market to keep down domestic food prices and to
collect taxes on exported products. Nevertheless, production
continues to remain stable for most products, and is even increasing
for soybeans, due to extremely high world prices and the undervalued
Argentine peso. Government intervention is accelerating the
long-term shift of livestock production from the traditional
producing areas to less fertile northern regions, as former pastures
are being converted to cropland. END SUMMARY

Intervention - Lower Prices, More Revenue

2. (SBU) The Argentine Government has intervened heavily in
agricultural markets to collect revenues from export taxes and
reduce domestic food prices. Overall, prices paid to local
producers are an estimated 30 to 40 percent below international
prices for oilseeds, grains, beef and dairy due to these measures.
The impact on production has been relatively limited, however, as
very high international prices and the undervalued peso have ensured
continued profitability for most agricultural sectors. Production
of soybeans has continued to increase, while dairy, beef and grain
production have remained flat.

3. (SBU) Export taxes are the main measure used to collect revenues,
with soybeans currently subject to the highest tax of 35 percent,
followed by wheat (28 percent), corn (25 percent), and beef (15
percent). Other measures directly targeted at keeping down domestic
prices include suspensions of corn and wheat export registrations;
price controls on some retail beef and dairy products; an export
quota for beef of around 40,000 tons per month; and a maximum export
price for milk powder of US$2,770 per ton (the government collects
any excess above this amount).

4. (SBU) These measures are in large part a response to high world
prices and (initially) the devaluation of the peso in 2002, as the
government sought to collect some of the additional revenues going
to agricultural producers and to keep down domestic food prices.
The greatest negative impact of these policies has been on the beef
sector, where world prices have not increased as much in relation to
oilseeds, grains or dairy.

Beef: Times are Changing

5. (SBU) The Argentine cattle/beef sector is going through a
significant transformation as competition from highly profitable
crop production and cattle and beef price restrictions have tended
to displace cattle production from traditional areas in the central
provinces. This has been largely offset, however, by growth in
production in the northern provinces, where large companies have
made new investments to increase productivity.

6. (SBU) While Government measures have lowered domestic soybean and
beef prices by roughly the same amount, the difference in
profitability of oilseeds compared to beef has widened. In December
2001, the gross profit margin for soybeans was US$244 per hectare,
and fattening cattle was US$45 per hectare, a difference of US$199
per hectare in favor of soybeans. In December 2007, soybean returns
grew to US$509 per hectare, while beef production grew to US$85 per
hectare, with a difference in profitability of US$424 per hectare.

7. (SBU) Cattle production is moving away from its traditional
region, the fertile pampas (province of Buenos Aires, center and
south of Cordoba, Santa Fe and Entre Rios provinces), to the
northern provinces such as Santiago del Estero, Salta, Formosa and
others. There is also a moderate expansion in the west-central
provinces. The environment is harsher in these provinces, but they
are expanding rapidly with strong investment, especially in higher
producing pastures.

8. (SBU) In the traditional cattle area, most pastures are now in
crop production, particularly soybeans. Cow-calf herds are located
in areas of the farms where crops cannot be planted. The number of
cattle in feedlots has increased, accounting for approximately 30
percent of the country's total current slaughter. Most analysts
indicate that grain-fed beef will continue to increase as production
moves away from traditional areas.

9. (SBU) COMMENT: While current Government policies have generally
not reduced agricultural production, the sustainability of these
policies over the long run is open to question. Rising inflation

has eaten into the competitive advantage gained from keeping the
exchange rate artificially low, with the real exchange rate (against
the dollar) for the agricultural sector getting close to the levels
before the crisis in 2001 and 2002. The cyclical nature of
commodity prices also suggests that prices will probably come down
from their current lofty levels at some point. Any drop in world
prices would present a major challenge for the government (which is
increasingly dependent on revenues from export taxes) and producers
(who are facing ever higher production costs).


© Scoop Media

World Headlines


Werewolf: Gordon Campbell On North Korea, Neo-Nazism, And Milo

With a bit of luck the planet won’t be devastated by nuclear war in the next few days. US President Donald Trump will have begun to fixate on some other way to gratify his self-esteem – maybe by invading Venezuela or starting a war with Iran. More>>

Victory Declared: New Stabilisation Funding From NZ As Mosul Is Retaken

New Zealand has congratulated the Iraqi government on the successful liberation of Mosul from ISIS after a long and hard-fought campaign. More>>

Gordon Campbell: On The Current US Moves Against North Korea

If Martians visited early last week, they’d probably be scratching their heads as to why North Korea was being treated as a potential trigger for global conflict... More>>


Gordon Campbell: On The Lessons From Corbyn’s Campaign

Leaving partisan politics aside – and ignoring Jeremy Corbyn’s sensational election campaign for a moment – it has to be said that Britain is now really up shit creek... More>>


Another US Court: Fourth Circuit Rules Muslim Ban Discriminatory

ACLU: Step by step, point by point, the court laid out what has been clear from the start: The president promised to ban Muslims from the United States, and his executive orders are an attempt to do just that. More>>


  • Pacific.Scoop
  • Cafe Pacific
  • PMC