Argentina export tax disrupting market
A strike by Argentine farmers over rising taxes on major export goods has entered its third week, with little sign of resolution.This has to be one of the most remarkable ignorant excuses for raising a tax I have ever heard. Raising taxes on exports is anything contributes to inflation by raising the price of products. It is not surprising that such a silly excuse would be put forward by a government bought and paid for by Hugo Chavez. It appears that Argentina is on the same road to ruin as Venezuela.Blockades by farmers have led to shortages in the shops and have also hit exports, with some companies saying they cannot fulfil their contracts.
The government says the tax increases are justified and it will use force if necessary to get food to the markets.
Rival demonstrators rallied in Buenos Aires overnight amid some scuffles.
The latest crisis was sparked by the government's decision to introduce a new sliding scale of export taxes, raising levies in some cases up to 45%.
President Cristina Fernandez has refused to back down, saying the taxes are a means to raise badly-needed revenue, curb inflation and guarantee domestic supplies.
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Argentina, a leading exporter of beef, corn, soy oil and soybeans, has benefited from the recent global surge in commodity prices.
But farmers say the taxes are hitting them and their communities hard.
"Our profit margins are getting smaller and smaller. What we pay to the state is not returned to us in the form, for example, of subsidies to buy fertilizers or to promote the social and educational development of our communities," Marcelo Rasseto, a small farmer from Santa Fe province, told the BBC.
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Actually, that would reduce inflation, domestically at least. Increasing global demand raises world prices for agricultural products, giving farmers incentives to export their goods. As a result, domestic agricultural supply decreases, and the prices of food in domestic markets rise w/o any concommitant increase in domestic food quality, hence inflation. By placing a tax on exports, the government prevents farmers from exporting their products, increasing domestic demand, and reducing food prices at home. Hence, reduced inflation.
ReplyDeleteThe problem with that argument is that there is no domestic demand for the soy that is being exported. Attempts to control the price of goods by government intervention have historically always failed.
ReplyDeleteThe Argentina government is just trying to take wealth from producers and give it to non producers who vote for them. This reduces the incentive to produce on both ends of the equation.
That's true, there is no domestic demand for the soy. However, there is lots of domestic demand for other food products, such as beef. Acreage that is used to produce soy cannot be used to produce other products. Farmers, seeing international demand for soy, switch from producing domestically demanded goods to the production of soy, hence domestic food prices rise.
ReplyDeleteIn addition, you also have to take into account the inflationary effects of loads of foreign cash entering the country due to the sudden boom in soy prices.
Of course all economic policy has distributive aims. It is impossible to maintain a distributively neutral economic policy in a democratic nation. As you said, redistribution is a very effective way to buy votes. That being said, reducing the incentive for farmers to produce for the international market is an effective way to get them to produce for the domestic market, and lower food costs at home in the process.
Also, you have to look at other things that are happening in Argentina. Food price increases are leading to calls from many sectors for either large government subsidies (inflationary) or large wage and welfare benefit increases (also inflationary). So I think in this case Fernandez is stuck between a rock and a hard place, and simply cannot make everyone in the country happy. We are hearing so much from the farmers (farm owners) mainly because they are a wealthy and very well organized group that has a long history of political activism. Its mostly a lot of sound and fury. In a few months, the government and the farmers will negotiate a deal that involves either a lower tax or subsidies to the farmers, and all will be well in Argentina again.