Press Releases

About Hugo Sigman (www.hugosigman.es)
Media: Le Monde Diplomatique (www.eldiplo.org)
Date: May 2008

Reasons to be taken into account

I work in different fields of the business world, such as the chemical-pharmaceutical and the cultural industry, as well as in forest and agricultural activities. Upon fulfilling those different job positions, I have participated and enjoyed with pride the upturn of the economy and recovery of society, started in 2002. As an Argentine, I rejoice the fact that our country is at a better situation than that of other times before the international economic crisis. The virtuous combination of economic growth, favorable international balance of trade, fiscal surplus and substantial currency reserves allows facing the difficulties with good perspectives.

Nevertheless, in the last weeks, from what was called “the farm crisis”, the change of the economic situation and politics of this country have started to worry me. In fact, this farm crisis can be taken as a reference of a general phenomenon since the resolution of this crisis could set the model of governing our country in the near future.

From my point of view, the real conflict of the farm has a double origin. First, it is the ideological one that determines the way the government thinks about the farm, and what rights it gives to the State. Second is obviously the economic one. Both are related.

The ideological one, latent for years, started in the 2001 crisis as a result of the export tax levy on cereals and bovine by-products (see chart at page 16) to improve fiscal accounts (1) and to prevent internal prices of food from being influenced by international prices, so that it can be guaranteed to citizens the buying of such products. This policy affected the profitability of the agricultural sector, where some -the minority but still significant part of the sector- consider that the State does not have any rights upon their business nor of part of their benefits. Classical and clear, this is a confrontation between a state model and a liberal one of the economy. Because of these differences, the dialogue between the government and the agricultural sector have started to be more difficult and, at some points, almost non existing. At that moment, what prevailed was the confrontation among prejudices and the “images” from the past.

Even though public officials at the Agricultural Department, at the Health and Quality Food and Agricultural National Service (SENASA) and at the Agricultural Technology National Institution (INTA) know perfectly the reality of nowadays and have a modern point of view regarding the farm, the beginning of the differences between the leaders of the rural sector and the government, the historical characterization of the peronistas has prevailed in the latter: ideologically reactionary, unconcerned about other people’s needs and technologically backwards. On the other hand, among the leaders of the rural sector, the idea that we were going towards a model of state started circulating with the risk that the State would intervene even more, including upon the property rights. Therefore, the government decided the policies almost by itself, without any consent of the leader of the rural sector. This mutual ideological perception caused the last conflict, and settled that the dialogue of the State with the Rural Society and the Argentina Rural Confederations were almost of non existence and difficult, with ups and downs with the Agricultural Federation and Coniagro. The economic aspect of the argument was influenced, as it was said, by the increase of the international prices on one hand, which makes producers to foresee high incomes and the measures the

What prevailed in the dialogue between the government and agricultural sector was the confrontation among prejudices and the “images” from the past.

The difference is necessary

Thus, a differentiation is needed, when we talk about the rural sector, to analyze the conflict and to arrive to a solution which may benefit to all, we may start this by separating the word agricultural. A result has been obtained by the farming sector (land for cultivation) and another by the livestock sector. With the increase on prices as regards cereals and their industrial by-products – oil and biofuels – farming has achieved a high profitability, though tax collections. But the livestock sector, milk and beef and veal, has obtained a dreadful economic result.

It is also necessary to differentiate between “producers”, because there exist large and medium ones and family rural businesses. The former has had better results than the latter. Another necessary division for the analysis between the farming sector and livestock: in central areas the results has been far better than in peripheral areas, where productivity per hectare is far less and the expenses, mainly freights, much more expensive.

What is important is to determine the losers of the last years, because this was the cause of the unusual unity that the agricultural sector showed in this conflict.

Some examples: to maintain domestic prices, the government agreed the mechanism of fixing the sale prices of farm and livestock producers to industrialist producers and dealers. For the beef and wheat, the fixed price to the farm producer was less than the export prices, less tax collection. In the case of the beef, the price in the international market of the “Hilton quota” rose from 8.000 to 18.000 dollars per ton in the last years; as regards popular beef cuts, it rose from 2.000 to 3.000 dollars per ton. But, due to the mechanism of prices, the livestock producer did not get those increments but the cold storage plants did. So much so that several of them were negotiable and sold to a good price to Brazilian companies (2).

In the case of wheat exportation, 85% of its production is listed at FAS (free alongside sheep) price, less tax collection. The farming producer sells to mills and brokers to the price fixed by Trade Department and later the producer will get a subsidy equal to the 85% of the difference between the FAS price, less tax collections and the price the producer was paid. This subsidy is paid by the National Office of Agricultural Trade Control (ONCCA), with a delay in payment up to 180 days. However, exporters buy at the fixed domestic price for wheat and they get the FAS price, less tax collections. Thus, 250 million dollars approx per year have stayed at the hands of a few authorized exporters (one of the claims of farming producers is the setting of a registry for exporters) and not at the producers` pockets, nor at the revenue collection.

For the soy, the sunflower and the corn, the tax collection for beans and grains is 4% higher than that for the oil and around 20% more comparing with biofuels, but the price at which the producer buys is always the price of the exportation of the grain or bean. Taking into account that the 50% of soy production is exported as oil and that biofuels are around 200 million dollars annually, the transfer of income does not result less.

With these three cases the farming producer and the livestock producer claim they have lost money comparing themselves with other sectors, unreasonably. Lots of them understand and share the government intentions; particularly regarding the way to make food accessible to the citizens, but they point out the benefits did not go to them or to the administration.

There are other factors to be taken into account. In the last 6 years, a deep change has been produced within the Argentine rural sector: the substitution of land for cattle to land for cultivation encouraged by a better profitability of the latter. A result, among us, is that of Argentina in which the number of cattle heads stays more or less the same, around 55 millions for 20 years, while in the same period it went from 65 to 190 millions in Brazil.

In the municipality of Bolivar, center of the province of Buenos Aires, the land sowed for agriculture went from 10.000 hectares for farming between 1984 and 2003, to 180.000 hectares in 2007, over a total of 500.000 hectares. stockbreeding started sharing the lowlands of the municipality with water (floods), a land with those characteristics. In the municipality of San Miguel del Monte, Buenos Aires province, traditionally stockbreeder, the progress of agriculture –mainly soy– over the fields of hill and hillock determined that nowadays the best 30% of lands for fattening are intended for agriculture or a small farm. The cattle have been concentrating on fields of an inferior quality. The same is happening on other municipalities of the Cuenca del Salado and in other areas in the country, with the future risk of loosing the general quality of the Argentine cattle production.

The displaced stockbreeding has been concentrated in this last years in the lowlands of the farms and in areas called peripheral, that is to say not suitable for agriculture: northeast and northwest of Argentina (WOA, NEA), Patagonia, south of San Luis, etc. Independently of any measure taken by the government up to date, livestock activity is less profitable than agricultural and of longer investments of capital, thus less financed by bank institutions. In these zones, the first calf is obtained from a three or four year old cow, and during that period the capital remains stable without producing. Soils in these regions have the possibility to improve –in some cases implanting subtropical pastures; in other with silos, etc.– which would enable them to change a rearing zone, the less profitable activity of stockbreeding, into one for producing finished young bullock. But, for this to happen, a policy -absent until now- should be established.

The other new phenomenon of these last years is that 60% of the animals are finished fattening on feed-lots, a profitable activity for those who mix it with corn productivity. It is necessary to dedicate a whole paragraph to milk producers, dairy system whose situation is dramatic. With current prices the producer purely and simply loses money. And the smallest he is, the more he loses. It is because of this that dairy systems close day by day, others barely survive and some of them, the biggest ones or those who have mixed exploitation get by. In the first years of the Kirchner administration, an internal price on milk as well as beef was set, but lately there have been complaints of the consumers on account of that the prices the government suggests are not applied. On the other hand, the industry does not have a flourishing situation, in spite of the increase of the milk price in the international market. To sum up, for the dairy sector the governmental policy has derived in ruined dairy farmers, dairy industries in loss and unsatisfied consumers.

The combination of prices relative to agriculture and stockbreeding dedicated to beef or milk and measures taken by the government thought to favor the access of the citizens to those products make the stockbreeding activity not less profitable but loss-making. This sector has been the great loser and that, beyond any ideologies, is the cause of its great annoyance with reality and with the government.

It must be said that before the crisis, in 2007, the government attempted a correction and announced compensations for beef, milk and wheat producers for approximately 500 million dollars. This measure was positively accepted. But due to the characteristics of the function of the government, ,

In Argentina, the number of cattle heads remains near to 55 million since 20 years ago, while in Brazil the number grew from 65 to 190 million.

Represented mainly by the Agricultural Argentine Federation (FAA), the 333.000 small producers of the country, who cover 53% of rural employment and work 23,5 million of hectares- 13,5% of the total of the exploitations- were, in the beginning identified with the previous government and trusted in the current one. They started to be suspicious of the authorities, because the promise to create the Undersecretaryship of Rural Development and Familiar Agriculture didn’t come true, due to the fact that the funds promised didn’t arrive, they didn’t get positions in governmental departments and a bunch of administrative measures weren’t implemented –such as Monotributo Social (a simplified tax scheme for small-sized companies, sole proprietors and self-employed) for Familiar Agriculture– which would enabled them to make official the economic activity and have at disposal medical assistance, and have access to the retirement system, etc. They finally became allies of the government. In such circumstances and such environment, the government decided to modify the deductions and announced in past march, not long before the harvest, a new mobile system, for which they increased the deductions on soy and barely lowered those on wheat and corn. The system proposes a big change. It limits the profits, even though the international price of soy rises and makes unpredictable the future market, among other issues. It is evidently that it would have been better to previously reach a consensus on it and join it with positive announcements for the more fragile rural sectors. But the urged tax collection and the mutual distrust hampered the dialogue.

In addition to this, the change in the deductions regime arrived in a moment when agricultural production costs were changing. Until the end of 2006, costs were low due to government subsidies on fuel and an effective control on the prices of fertilizers and agrochemicals. But in 2007, this tendency started to get reversed, because of the cooling in the control of prices: nowadays is difficult, even impossible, to find gasoil at the price established by the government, for example. Among fertilizers, the urea got its price doubled; the diammonium phosphate and most used herbicide – glyphosate - got almost trebled. The transports rose, to such extent that to transport from the country to the port the product of one hectare of corn (approximately 8 tons), costs almost the same that to produce it. Inflation reached the farm.

In our opinion, what was succinctly pointed out until now has been the crucial fact of the agricultural strike. The different ideological point of views, plus the losers – not only because of reality but also because of the government measures – catalyzed by a measure announced in a bad moment, ended up confronting the majority of the rural sector with Kirchner administration. However, this confrontation has left a positive element. By the time this article was written, in mid April, the government and rural leaders begun talking, even though some difficulties arouse in the dialogue. Short and long term measures were discussed, that is to say, they were beginning to re-design the policy for the sector.

Even at this point, some measures were announced, that, from our point of view, improved what was already in existence: the creation of the Subsecretary of Rural Development and Familiar Agriculture, the exclusion of small producers from new deductions; subsidy of transport for distances greater than 450 kilometers, expansion of the beef exporter quota and set prices for thirteen popular cuts of meat; facilitation on the collection of compensations, among others.

It is to be expected that the agreements continue being expanded and the spirit of confrontation get cooler, due to the fact that it still remains a long way to get to the substantial part of those agreements. We are well aware that a series of measures, besides the ones already announced by the government, should be thought to detach the conflict and to put the sector in harmony with the country. None of those are new, but they are all necessary:

1. 1. As well as when there is exceptional profitability in the sector, this and many other governments of the world appropriate of a part of it, when there is a crisis the opposite must be done. The government should subsidy the livestock activity in a firm way, awarding the deduction of abdomens, the increase of weight of the task and the genetic improve; subsiding on preferential stocks or with tax exemption the infrastructure assembly: wires, tractors, mixers, feeding troughs, etc.
2. 2. To liberate the price of sale of the livestock; force meat processing plants, giving them a period of adaptation of 120 days, to sell butchering meet; set prices for most popular 13 meet cuts making an effective control of them and allowing free exports of tinned cow and of expensive cuts. A system similar to that of Uruguay, but focused on the food needs of our citizens. Thus, the illegal sale would be eliminated, and at the same time production, the increase of heads and abdomen deductions would be highly stimulated.
3. 3. Deductions on soy above 35% should be considered on account of income taxes. This would help to avoid casual economy and reward those who pay taxes.
4. 4. To increase the farm gate price of milk, with partial subsidy by the state to protect consumers.
5. 5. In addition to all measures announced destined to favor small producers, the plan should be launched so they can be fiscally officialized, and have health and retirement benefits. And the funds promised for the development of the sector should become a reality.

If these and other measures discussed in the agricultural area were implemented, Argentina could finally combine the increase of its agricultural and livestock activity with access to food to all citizens. And, last but not least, to end with the ridiculous and paralyzing contraposition farm-industry, interior-Capital Federal. In her assumption speech,

President Cristina Fernández called the argentines to join forces with the look focused on the bicentenary, in 2010. The rural conflict can leave, as a positive fact, the general experience to avoid useless clashes and the possibility to choose all together over a stimulating model to the agricultural and livestock activity.

1. 1. This year, incomes coming from agricultural and livestock deductions would be of about 40.000 million pesos.
2. 2. Swift-Armour was acquired by Friboi for $200 million dollars; Quickfood was acquired by Marfrig, in November 2007, for 140 million.