MarketLine Blog

Argentine agricultural exports: Tax on exports not helping to initiate economic recovery

Even during numerous economic crises during the early 2000s Argentina routinely registered a trade surplus, but that is no longer the case. To combat biting economic conditions the government has imposed austerity alongside a plethora of policies which include higher taxation on exports. The decision to tax exports at a higher rate to lower the deficit is therefore flawed. Instead of agriculture being helped to improve the economy, higher export taxation makes key Argentine products more expensive in an industry which is notoriously price sensitive. Instead of targeting the agricultural industry for short-term gains, a more prudent policy would be to adopt a more gradual approach to balancing the national finances.

The 2018 drought came at an especially inopportune time for Argentinian soybean growers. At the precise moment that the international trade in soybean was experiencing the distorting influences of the trade war between the United States and China, producers at home were struggling to grow amid an absence of rain. Right now Argentinian exports need to become more competitive on price. In years past the primary markets for soybean were in Vietnam and Indonesia, but the country was supplanted by producers in the United States. Argentina processes more soymeal for export than any other country, and the trade war could leave approximately half of the processive capacity free of work. Some companies including Bunge, Cargill and Dreyfus, have moved crushing processing out of the country and to the United States.

The ramifications of making exports more expensive to undertake for soybean growers could translate into the domestic market. Normally Argentina has no need to import soybean from other nations, but with processing plants increasingly desperate for raw beans and a 15% drop in prices from the United States towards the end of 2018, suddenly one of the largest soybean exporters began to import large quantities. For growers, therefore, the domestic market has become more crowded. Exports of unprocessed soybean have been rising since the drought – the 2018-19 crop is predicted to reach 54 million tons; up from 35.1 million the year before – and are expected to continue further. Despite the good news, exports of soybean by-products are down.

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