Argentina farmers cheer tax cut as nation jeers slump

Bloomberg

The popularity of Argentine President Mauricio Macri has faded since he took office a year ago, as Latin America’s third-largest economy slid into recession and inflation soared. But his appeal among the nation’s farmers remains as strong as ever.
That’s because of the stark difference between Macri and his predecessor, Cristina Fernandez de Kirchner, for an agriculture industry that generates the biggest share of Argentina’s export income. Where Fernandez once imposed steep export taxes to boost government revenue and keep domestic food prices in check, Macri is encouraging shipments and working to develop new markets.
“Before, it was a civil war,” said Julio Reumann, 41, who grows soybeans and raises cattle on 3,600 hectares (8,900 acres) around Intendente Alvear, a small town on the Argentine Pampas. “We were the government’s enemy. Now, we feel they’re at our side.”
Grain exports have surged after Macri cut taxes. Agricultural investments that languished for years are increasing, from new tractors and port terminals to a long-awaited revival of the nation’s storied beef industry. Even with global surpluses for many commodities muting the benefit of some reforms, farmers still come out ahead. A weakening peso means that crops and meat sold abroad for dollars are generating more profit at home.
Argentina is the world’s largest exporter of soy-based oil and meal and ranks third among shippers of corn and soybeans. Agriculture accounts for about 60 percent of the country’s foreign revenue, making it a key source of cash for an economy mired in its second recession in as many years.
While reviving growth is taking longer than Macri predicted, one pillar of his plan to double food production over five years is to expand free trade. He eliminated a 23 percent tax on wheat exports and cut the levy on
soybeans, soy meal and soy oil. At
the same time, the peso has plunged 18 percent this year — only the Venezuelan bolivar fell more in Latin America — which means growers make more money selling overseas than to domestic buyers.

EXPORT SURGE
As of Dec. 16, revenue from grain exports this year totaled $23.2 billion, 25 percent more than the same period in 2015, the chamber for grains exporters, Ciara-Cec, said in a Dec. 19 statement. Shipments of grain and related products will jump 20 percent in the year through April to 90.5 million tons, the Agroindustry Ministry forecast in November. On Thursday, the ministry raised its wheat production estimate.
The promise of profit gains is encouraging more production. Grain farmers will harvest 111.4 million tons in the new season, up from 106.5 million tons a year earlier, according to the Buenos Aires Grain Exchange. Beef producers, who saw their industry shrink as taxes and price caps under Fernandez forced some ranchers to switch to growing soybeans, are set to have their biggest cattle herd in eight years, according to the U.S. Department of Agriculture.
“If there were another election tomorrow, I’d vote twice for Macri,” said Marcelo Broto, 41, who raises 1,400 cattle across 1,600 hectares in Intendente Alvear, La Pampa Province. Broto has invested more than $370,000 in a new feedlot, a Case IH tractor and 500 additional cattle because he hopes to sell more animals to a local JBS SA slaughterhouse.

WORSENING ECONOMY
But not everyone in Argentina is cheering. Annual inflation is about 40 percent, and the economy has contracted for four straight quarters, including one that was the worst since 2012. Macri’s approval rating fell to 53 percent in December from 71 percent when he came to power last year, according to local pollster Ricardo Rouvier & Asociados. That’s not much better than Fernandez soon after becoming president in December 2007, though she dipped as low as 30 percent during her final year, according to pollster Management & Fit.
And some farmers complain Macri hasn’t gone far enough. In October, faced with a tightening budget, he delayed by a year a promised reduction in soybean export taxes to 25 percent from 30 percent. Growers also say value-added taxes are unfair, transportation costs remain too high, and untamed inflation makes loans harder to get, which hurts investment.
“As a world player, we need better competitiveness,” said Luis Miguel Etchevehere, president of the Argentina Rural Society, an influential farming association.
Still, the industry’s response to Macri signals optimism. Farmer investment for the 2016-2017 season will total $58 billion, about 12 percent more than the average of recent years, according to the rural society.
“Farmers are more inclined to plan ahead now,” said Alejandro Terre, exports manager for the Argentine Farmers Federate, a cooperative of 36,000 producers, citing the more friendly and predictable business climate for agriculture under Macri.

BUYING TRACTORS
Growers have purchased 4,671 tractors this year, up 32 percent, according to a Nov. 10 report by Indec, the national statistics agency. They bought 25 percent more harvesters and 85 percent more seeders, the data show.
Sales of pick-up trucks — favored mostly by farmers — are up almost 17 percent this year, according to the Argentine Association of Car Dealerships. About 30,400 Toyota Hilux pick-ups were sold between January and November, more than any other model of car or pick-up.
Reumann, the farmer in Intendente Alvear, recently said he spent 1 million pesos on a feed mixer and a tractor. “This year has been the best of the last six or seven,” Reumann said, recalling how he joined road blockades in 2008 to protest a failed move by Fernandez to raise grains export taxes. “And next year, we’re going to invest even more.”
At the same time, grains export companies like Bunge Ltd. and Renova, owned by Glencore Plc and Vicentin SAIC, are pouring $1.4 billion into Argentina’s chief port complex around the city of Rosario on the Parana River. The investments were announced in October as exporters prepare for bigger harvests under Macri.
Bunge, based in White Plains, New York, is making a joint $110 million investment with Terminal 6 SA that includes building new silos, increasing crushing capacity and installing cranes over the next two years. Renova will invest $410 million to build a new wharf, set to be finished late next year, and improve truck and barge unloading.
“The brakes had been on, but the new government has removed hurdles, paving the way,” Guillermo Wade, of the port and maritime chamber CAPyM, said of the investments by phone from Rosario.