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ECONOMY | 16-03-2019 10:19

SRA head Daniel Pelegrina: 'Export duties were a step back, an outdated policy'

The head of Argentine Rural Society on President Macri’s term in office, which presidential candidate matches the SRA’s outlook and why the Macri administration was wrong to reinstate export duties.

Last September, Daniel Pelegrina was reelected head of the Argentine Rural Society (Sociedad Rural Argentina, or SRA in its Spanish acronym), the association that groups together the country’s largest rural producers.

The Mendoza-born agronomist had assumed the post in September, 2017, after President Mauricio Macri appointed Luis Miguel Etchevehere, then the SRA’s chief, to head the Ministry of Agro-Industry (now downgraded to a Secretariat) — a move that highlighted the close ties between the farmers’ interest group and the Cambiemos (Let’s Change) administration.

A year and a half on, Pelegrina says he can’t complain. Yet he occasionally does, revealing some outstanding points of contention with the Casa Rosada, such as the reinstatement of grain export taxes last year, an emergency measure taken as part of the government’s response to one of Argentina’s worst economic crises in years.

The Times sat down with Pelegrina at the Residencia Peña, the downtown headquarters of the SRA, days after his return from a trip to India and Vietnam, during which he formed part of President Macri’s official entourage.

What were the concrete results from the recent trip to India and Vietnam?

It was very positive, in several aspects. In order to export we need to have ties with countries around the world, to prioritise the opening of new markets and to eliminate trade barriers. The government has been doing this right and we support that.

We also held some positive talks with agricultural producers and agro-industrial companies. As an organisation which represents farm leaders we weren’t there for the business-to-business meetings, but we held talks with think-tanks from India and representatives of animal producers from Vietnam. We saw clear export opportunities for meat, poultry and milk.

Vietnam said it was open to importing grapefruit, tangerines, oranges. What about meat?

Vietnam is a major importer of Argentine beef and a gateway to Asia – though not always through ‘official’ channels [a reference to undeclared or ‘black market’ trade, for example, Argentine meat reaching China through Vietnam]. It’s a country of 100 million people, we must not forget that.

In its 2019 Budget, the Macri administration estimated a whopping 20.9 percent increase in exports this year. Is that possible?

I don’t know how much of that increase is accounted for by livestock production. But I can tell you that if the weather is good this year, our harvest this year will be far better than the one we saw in 2018. Exports of meat, dairy produce and products from regional economies are up. Compared to last year, when we ‘missed’ 20 million tonnes of harvest, we’ll surely be seeing good numbers in 2019.

Last month you met with Roberto Cardarelli, the head of the International Monetary Fund’s (IMF) mission in Argentina, and expressed your opposition to the government’s decision to reinstate export duties. We know the IMF reiterated the view that taxes on grain exports were “bad taxes,” but was there any concrete action to emerge from that meeting?

No, the goal of the meeting was merely to tell Cardarelli our perspective on how the country is doing. We said export duties were a step back, an outdated policy.

We were heading in the right direction when the government nixed almost all grain export taxation [shortly after taking office, the government scrapped levies on corn and wheat] and set up a timeline to lower taxes on soy and soy products. We had two record harvests! And last year, if it wasn’t for bad weather, we would have had a great harvest too, because the provinces were starting to reap the benefits of the virtuous circle of the measures adopted at the beginning of Macri’s term.

But regrettably, because of macroeconomic issues, Macri announced a number of emergency measures which included a hike on export duties.

What else did you discuss with Cardarelli?

We also spoke about the effect that the high interest rates are having on agricultural producers.

I will give you an example. China has increased its demand for Argentine meat and this demand has generated an interesting price for exploiting cattle, but due to this context – of incredibly high interest rates – the producer has decided to sell its cattle to pay up debts, and this will undoubtedly affect future production.

Our recommendation… well, not quite our recommendation but our vision, was that the next government will have to talk more about production and less about finance. What we really need are more stimuli for producers in order to make production a true alternative to financial investment.

Let me take you back to export duties. The measures announced by the Macri administration differed from its forerunners by not being a percentage but a fixed sum of four pesos per US dollar earned abroad, in the case of primary products, and three pesos per dollar for those with added value. In the case of a devaluation, this tax will somehow dilute: with the greenback at 40 pesos, it’s a 10-percent tax, but if it jumps to 50 it’s just eight percent…

The problem is that this new tax is a blow to the virtuous effect that last year’s devaluation had on the country’s less competitive or more remote areas. We don’t know what will happen once the tax dilutes. The decision to reinstate taxes affects the expectations of many producers, for instance, a breeder who has heifers set to provide a calf in four or five years. The measure is a blow to confidence in the government’s economic policies.

All sectors have made efforts. Workers, state employees and pensioners have lost purchasing-power, public works were cancelled… there is an argument in favour of making the agricultural sector bear some share of the austerity burden, too, isn’t there?

That is why we understood the decision, and in the face of the economic emergency we said we would be putting our shoulders to the wheel once again. Let bygones be bygones, we’re concentrating on what’s ahead now. But we insist that if we keep on taxing exports, we’ll find ourselves having access to new markets but being unable to produce for those markets. We don’t want subsidies, just less taxes.

This is an electoral year and the government is trying its best to keep the dollar at bay. In February you said that the dollar was “lagging a little bit” for producers. Now it has gone up to 43 pesos. Do you believe it is still behind?

I think my comments were taken a little bit out of context. The value of the dollar is the result of supply and demand, so the ‘adequate’ value will depend according to each case. A producer 50 kilometres away from Rosario, with spectacular productivity and access to Argentina’s best soils, is not making the same money as a producer from Salta for whom transport represents 40 percent of its costs.

What I did say last month is that for economies from the provinces — that is, producers from the non-Pampas region who are making cotton, fruit, wines — these last measures were a huge blow. That’s when I say that the dollar was lagging, because last year these struggling economies finally saw an improvement in international competitiveness but right after that the government comes and reinstates export duties and they end up losing 12 percent of their earnings.

Which sectors would you say are going through a bad time?

Milk producers, to begin with. Just when they have some kind of opportunity to enter foreign markets amid intense international competition, they found themselves having to pay these four pesos per dollar, something that eliminates any possibility of exporting.

The same with meat, although in that case they have better chances of placing those products abroad. Wine production and fruit production are in serious trouble, too.

Moving onto meat, some 53 percent of Argentine meat exports go to China, but those cuts are not the same that Argentines eat.

That’s right.

In the case of Europe it’s a completely different story, because there we send high-quality cuts. Wouldn’t you say there is a competition between internal consumption and our meat exports to the EU?

China is buying low-quality meat, but they tend to buy the entire unit. In the case of the EU, we’re talking about a very demanding market that can be seen as a complement to the local market because we only sell them tenderloin, sirloin, ribeye — it’s different to the consumption habits we see throughout the Argentine territory, where people are more prone to buy vacío, asado, chop meat [costeleta]...

Meat prices in Argentina are up 7.8 per cent in the first two months of 2019. Do you blame the devaluation for it?

Livestock must be analysed in cycles. If you compare the current prices to the ones seen three years ago, you would see that meat prices have not yet matched the inflation rates of that same period. Meat is just catching up with inflation.

This year, your organisation is meeting with different presidential candidates and handing them a ‘document,’ in which you demand greater access to international markets, solutions to issues of competitiveness and the elimination of export duties. What candidate best embodies the beliefs of the SRA?

Not that many candidates have launched their bids so far. On one hand we have Macri, who presented his 13-point plan before the previous election [NB: in April 2014, Macri presented a party document that proposed the elimination of export duties and the elimination of the Registry of Export Operations, best known as ‘ROE’] and, truth be told, he kept his promises. Then we have Cristina [Fernández de Kirchner], or some candidate representing Kirchnerismo, and it’s clear what they did when they were in government and how much they hurt the agricultural sector, so that’s flogging a dead horse.

Then there’s this other space [the so-called ‘moderate’ Peronists] but it still has no definite candidate, so we can’t decide yet whether to support their programme.

Seven months away from the elections, neither Sergio Massa nor Juan Manuel Urtubey nor Miguel Ángel Pichetto have outlined their plans for agriculture...

Massa was part of the government that messed with the agricultural sector, and when he launched himself as a presidential candidate [in 2015] he made a number of proposals that didn’t sound quite right. In the case of Urtubey, we see no progress in his province [of Salta] regarding practical measures to help local farmers.

One of your group’s most insistent demands is the lowering of taxes. Wouldn’t you be closer to the stance of Javier Milei, José Luis Espert or Roberto Cachanosky?

I haven’t been following their proposals, although I can imagine them since we’re talking about people who defend absolute liberalism. Our ideas are also abso.. also liberal [corrects himself]. But we understand that sometimes market forces need to be counterbalanced.

What is your assessment of Macri’s term in office? Has it lived up to your expectations?

Yes, his political project and his work regarding the opening up of new markets was good. Some things are taking longer than expected – for instance, the reorganisation of control agencies. There were obvious miscalculations regarding the government’s capacity to solve structural problems and the current administration did not outline alternatives for a soft landing [after launching its reforms].

We also need a stable macroeconomic context and an optimal size of government, and the government has not succeeded in those areas. The size of the government has grown enormously during the Kirchnerite years and I don’t think it has decreased during these three-and-a-half years. And if it did, well, it doesn’t show.

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Federico Poore

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