AGRICULTURE ought to be Argentina’s strength. Instead, incessant intervention has turned it into a source of weakness. The government has meddled in wheat production since 2006 by raising export taxes and setting export quotas. This interference, defended by the government as “protecting the tables” of Argentine consumers, has simply discouraged farmers from planting the crop.
The interventions show no sign of stopping. Last year’s unexpectedly poor wheat harvest caused the price of bread to double, prompting the government to suspend exports of the crop. Last month was the first December in 25 years that Argentina did not export any wheat.
The restraints have now eased up a little. On January 13th Axel Kicillof, Argentina’s mutton-chopped economy minister, announced that the government would allow 500,000 metric tonnes of wheat and 50,000 tonnes of flour products to be exported. If this year’s harvest went well, he added, the government would consider gradually releasing another 1 million metric tonnes.
If Mr Kicillof expected applause from the farming community, which he insisted was “pleased with the decision”, he was soon disappointed. The four major agricultural associations issued a communiqué saying that the government’s continued meddling in the sector would only damage production. They accused the government of trying to flood the internal market with wheat to suppress inflation, unofficially estimated to have risen by 28% in 2013, at the expense of agricultural producers. For good measure, they pointed out that the 2013/2014 wheat harvest, which runs from November to January, is already nearly over.
The farming community sees the amount of land given over to a crop as the truest indicator of its attractiveness. According to Argentina’s National Institute of Agricultural Technology (INTA), the average area of wheat planted since the government began intervening in the market in 2006 has not exceeded 5m hectares. The average area planted in the preceding five years was 6.2m hectares. Reinaldo Muñóz, an INTA engineer, told reporters that the 3.16 million hectares planted with wheat in 2012/2013 was the “lowest in more than 100 years.”
As a result, wheat production in Argentina has plunged—from nearly 16m tonnes in 2005 to 8.2m tonnes in 2013. Not all the intervening years have been terrible, says Santiago del Solar, an Argentine agronomist and farmer. There were decent wheat harvests in 2008, 2011 and 2012, as high international prices incentivised farmers to plant wheat despite the unpredictability of government policy. But with export restrictions becoming tighter and tighter, Mr del Solar has slashed the area he plants with wheat. He expects other farmers will do the same.
The retreat from wheat has devastated exports. According to the US Department of Agriculture, Argentina was the world’s fourth-largest exporter of wheat in 2006. By 2013, it had dropped to tenth place. It risks losing trading partners as a result. Argentina has long been the largest exporter of wheat to neighbouring Brazil, shipping 4m-5m tonnes to the country between 2008 and 2012. In 2013, however, Argentina was only able to provide 2m tonnes. To fill the gap left by Argentina, Brazil began importing wheat from the United States and Uruguay. When the export ban wasn’t lifted in December, Argentina was forced to default on its January contracts with Brazil.
Similar policies have ravaged Argentina’s beef industry. In 2005 Argentina was the third-largest exporter of beef; in 2012 it stood in 11th place, behind Paraguay and Belarus. According to Cronista, a business newspaper, production has tumbled from 57m heads of cattle in 2007 to 51.7m heads in mid-2013.
“The government is the only one that doesn’t understand that Argentina needs to produce and export freely to succeed,” laments Leonardo Sarquis of CONFIAgro, an agricultural consultancy. If officials do not change tack, production could fall even further, leading to shortages, price spikes and more restrictions. State coffers may well suffer, too. With its foreign-exchange reserves having dipped to a seven-year nadir, the government is in need of every last dollar it can rustle up from agricultural export taxes. “It’s lose-lose,” sighs Mr Saquis.