Agri-business boom lifts economy, amid tax ire

Federico Zerboni gazes out from his 4x4 as it rumbles across the pampas, fertile fields of rapeseed and soybean visible as far as the eye can see.

An agri-business boom in Argentina, fuelled largely by soybean and grain exports, has helped offset some of the pain of a bitter recession that forced Mauricio Macri to call on the International Monetary Fund for a US$56-billion bail-out.

Zerboni, 53, says his 6,000-hectare (14,800-acre) farm – and hundreds like it in the interior of the country –hold the key to economic recovery.

“It will be key for the recovery of the country. Other countries have oil, but Argentina depends on its agricultural production,” he said.

The sector has largely absorbed the pain of a drought that devastated last year’s harvest, bouncing back with what analysts say is set to be a record 2018 grain yield.

“It’s the main source of foreign currency, whatever the government,” said Zerboni, who employs 10 people at his farm near San Antonio de Areco, 120 kilometres (75 miles) northwest of Buenos Aires.

Tax U-turn

But Macri, whose government now has to dance to the IMF’s tune, has angered some farmers by performing a major U-turn on one of his signature policies, cutting grain export taxes.

After steadily whittling down taxes in a bid to boost exports, the market-friendly president slapped a 10-percent tax on exporters’ earnings in the last budget as a much-needed revenue-generating measure.

Gustavo Grobocopatel, Argentina’s so-called “Soy King” and chief of the Los Grobo agro-industry giant, calls the tax a “distortion.”

“Because it’s not a tax on profits, but on income, that is to say that you continue to pay, even when you lose money,” he said in an interview at his office in Buenos Aires.

Zerboni and others have had to suck up the discomfort, hoping the government will keep to its word that the tax is temporary.

Previous leftist governments with an urban voter base “discriminated” against the sector, argues Zerboni, who sees the tax as “a helping hand” at a time of dire need for the Treasury.

However, he acknowledged that “it doesn’t help us that we’re a sector that’s working well in a country that’s falling apart.”

A little further along in his 4x4, Federico Zerboni points to a state-of-the-art horizontal silo, where grains are stocked in a huge sausage-shaped white bag.

“This is my bank,” he said. Zerboni’s tactics is the type of behaviour that leaves producers open to accusations of hoarding.

“The country complains that the producer isn’t selling, when it needs sales to bring dollars into the economy,” he said.

But ultimately, it’s “a tool to protect ourselves against the volatility of the dollar,” he added.

Dependence

The grain crop highlights “Argentina’s dependence on agriculture,” said economist Rodolfo Santangelo, as it accounts for some 50 percent of the foreign currency flowing into the country.

Argentina, the world’s eighth-largest country, is the world’s foremost producer of soybean flour and soybean oil.

“Results in the agricultural sector have a knock-on effect on the rest of the economy,” said Santangelo. “We don’t feel it so much in the capital and the metropolitan area, but in the interior of the country.”

The export tax may be the price to pay for having a friendly centre-right government in place, especially for exporters who have experienced the Peronist alternative, but farmers have a limit to their patience.

“We understand the recent measures taken by the government as reasonable to stabilise the exchange rate... but we are concerned about the effects of these measures” in the longer term, said Gustavo Idigoras, president of the Centre of Export Cereals (Centro Exportador de Cereales, CEC).

“It’s essential the government reverses those measures as soon as possible,” he warned. “Because if not, investment levels in Argentina next year will be very low. That’s why we’re worried about the recession.”