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Viewing cable 08BUENOSAIRES50, Government Policies and Argentine Agriculture -- Lower

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Reference ID Created Released Classification Origin
08BUENOSAIRES50 2008-01-15 10:36 2011-08-25 00:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Buenos Aires
VZCZCXYZ0004
OO RUEHWEB

DE RUEHBU #0050/01 0151036
ZNR UUUUU ZZH
O 151036Z JAN 08
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC IMMEDIATE 0041
INFO RUEHRC/DEPT OF AGRICULTURE USD FAS WASHINGTON DC
RUEHAC/AMEMBASSY ASUNCION 6753
RUEHBR/AMEMBASSY BRASILIA 6636
RUEHMN/AMEMBASSY MONTEVIDEO 6953
RUEHSG/AMEMBASSY SANTIAGO 0974
UNCLAS BUENOS AIRES 000050 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958:  N/A 
TAGS: EAGR ETRD PGOV AR
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). 
 
KELLY