Should We Set Up Export Taxes For African Products? Failing To See The Forest For The Trees In Argentina

Few issues can be as divisive in the Argentine socio-political field of play as the implementation of export-taxes on agricultural products, known colloquially as “retentions” (“retenciones

In recent history it brings to mind the high-stakes showdown between the second Kirchnerite government during Cristina Fernández de Kirchner’s first term and “the country” (“el campo”), which marked the first major break between that political group and an important sector of society, creating the ideological breeding ground of what has become the leading opposition coalition, Juntos por el Cambio. Taking a longer-term view, the issue of export duties on agricultural goods has been around since the founding of the nation and strikes at the heart of the eternal “grieta,” or deep-seated rift between conservative bourgeois landowners and “the working class,” as embodied by Peronism.

It’s not clear where President Alberto Fernández was going in a recent radio interview, when he told journalist Ernesto Tenenbaum that he needs Congress’ support to raise export-taxes while acknowledging that it was impossible to do so in this political environment. In the face of rising international prices – in large part due to the Russian invasion of Ukraine but also as a consequence of supply-chain issues in the aftermath of the global Covid-19 pandemic – Alberto said he would rely on retentions in order to “ capture unexpected riches” being gained by those who benefit from them and to “de-couple domestic prices from international ones.” As usual, Alberto laid the blame elsewhere, either on the Mauricio Macri administration that preceded him in office or the international context. At no point did he touch on the impact of Argentina’s rampant fiscal deficits or excessive money printing. It was a calculated comment, akin to saying: ‘I can try and pass a bill through Congress tomorrow to raise retentions, but I’d lose, I have the whole opposition doing tractor protests.’

The immediate reaction, unsurprisingly, was for the agricultural sector and the opposition to reject the president’s proposal. Even Alberto’s Agriculture, Fisheries & Livestock Minister Julián Dominguez denied the government was drawing up a bill to raise export-taxes on the agro sector. Different organizations representing farmers, including the Sociedad Rural Argentina and the Federación Agraria Argentina accused the Fernández-Fernández administration of generating uncertainty, while threatening new demonstrations. From the opposition, former Buenos Aires Province governor and national deputy María Eugenia Vidal said the coalition wouldn’t support new taxes and “reminded” the government that 70 percent of the population had voted against them. Among the supporters of the pan-Peronist coalition there were words of praise for the measure, many of those who had previously attacked Alberto Fernández, of course, courtesy of CFK and her son Máximo.

As many of these issues reveal, the debate about retenciones ultimately demonstrates how the state and society more generally have failed to figure things out over a very long period of time. While the conversation has become dichotomous and polarized, with each side blindly defending its ground, there’s a deeper debate to be had about the issue. Export taxes on agricultural goods have been around in Argentina since the 19th century and they have been one of the pillars of government revenue across several economic periods. While we’re not at the historical highs of the 1860s, we’re reaching the second-highest figures in the timeline and they have remained there near that level for nearly two decades.

Beyond being one of most important sources of revenue for the government, retentions are supposedly used to lower domestic prices of products that are attractive internationally and therefore tied to global market prices. The mechanism by which it works is by raising the total price charged by the exporter by a certain percentage (33 percent in the case of soybeans, 12 percent for wheat and maize), thus making the product less attractive for global markets and therefore forcing the exporter to lower the price in order to remain competitive. It’s important to note that exporters are also selling their crops at the official exchange rate, or around 120 pesos per dollar, compared to some 210 pesos at the unofficial rate, meaning they’re getting 75 percent less than if they managed to sell it abroad and bring the dollars in through “contact with liquidación” or other methods. It isn’t entirely clear whether such measures truly work to reduce prices, as the president claims, given that in the medium-to-long-term disincentivize production, therefore reducing supply. Another negative effect of these retenciones is that they are equally applied to all producers, large and small, obviously having an outsized impact on smaller producers and therefore fostering concentration, one of Alberto and Cristina’s favorite culprits for Argentina’s rampant inflation. Never mind the monetary financing of the deficit or the lack of reserves in the Central Bank. Food inflation is out of control and someone needs to do something about it. Or talk about doing something.

As usual, Argentina has a huge opportunity in a world at war that is suffering from supply-chain restrictions and is demanding food at an incredible rate. The United Nations Food and Agriculture Organization (FAO) puts together a food price index that hit its historic high in March. It has receded slightly but remained well above previous figures in April. FAO Director General Qu Dongyu gave a talk in New York at the UN headquarters in which he noted that 193 million people are acutely food insecure while more than three billion people cannot afford a healthy diet. He called for investments in agriculture and the private agrifood systems focusing on hard infrastructure (“roads, irrigation, electrification and digital”) and value chain infrastructure (“storage facilities, cooling facilities, banking infrastructure and insurance infrastructure”), among other things. All of these are areas in which Argentina has or should develop expertise and could very much benefit from international investment.

But, as usual, we’re stuck looking at a tree rather than the forest. The internal struggles between Alberto and Cristina, along with the rift with the opposition, trivialize the issue of export duties and other much needed reforms that would allow Argentina to unlock its potential and put itself, without anyone else’s help, on a road to economic sustainability . The same thing is happening with Vaca Muerta. Let’s hope we’re finally waking up.

this piece was originally published in the Buenos Aires TimesArgentina’s only English-language newspaper.

Leave a Reply

Your email address will not be published.