Argentine Economy

"Last month, I met an Argentine farmer in Paraguay. Paraguay is Argentina's neighbour."

We knew that.

"The farmer had come to buy millions of dollars worth of Paraguayan farmland on behalf of a small farming village in Argentina. This village used to be one of the richest farming towns in northern Argentina, he told us. But the government's new laws are ruining the way of life. So the town's farmers pooled their money together and sent this guy to Paraguay to buy up as much land as possible."

Nothing like basing an opinion on a sample size of one. Hope it works out for those guys.

"Paraguay's land is just as fertile;"

Rolling on the floor laughing my ass off at this statement.

"The political risk there is a mere fraction of Argentina's political risk."

Ever heard of Alfredo Stroessner? Solano Lopez father and son?

"Paraguay's currency – the guarani – is one of the top three best-performing currencies in the world so far this year."

Now [b]there[/b] is an example of long-term critical thinking that should be examined pretty closely. You have a bid-ask spread of 5% between Guaranis and dollars, and between Argie pesos and Guaranies it is about the same. You might want to keep [b]convertibility[/b] in mind.

[QUOTE=Andres]You will gain more by reading about Argentine history than by just "believing". But that's your call.[/QUOTE]History sometime is a predictor of the future, sometime not. Argentina went from the world's 10th wealthiest nation in 1913 to the world's 36th wealthiest in 1998. (Economist Intelligence Unit, EIU Country Profile, 1996-1997, p. 17.) So if history repeats itself it should become the 10th wealthiest nation again? Don't think it will happen with the countries present policies.

[QUOTE=Andres]Of course, And they will continue to do so even if retenciones keep the current level.[/QUOTE]The tax want up, so the level should go down.

[QUOTE=Andres]If you take just what you see on TV to make a sound assessment, then there isn't much reason in discussing about this issue because you need to compare figures and arguments from different sectors.

I read articles that soy is slowly replacing other agricultural business due to the impressive short-term benefits. This is one of the reasons for a presumably stagnant cattle industry.[/QUOTE]I think it is a bigger reason is that their are price controls on meat, and exports are stopped when ever the government wants. Since soy makes money, people are giving up on cattle.

I wrote this before.

[QUOTE=Tessan] There is no reason why Brazil should produce so much more cattle then Argentina. Argentina has lots of pastures that are perfect for cattle. The government limits the profits, so the ranchers do not expand, since there is no point in spending money, when your profits are so limited. I saw an interview with a rancher that said, "what was the point of expanding his herd, since he could not know when he can export anything. Or if the government allows some exports, high export tax that makes outbound beef too costly for many foreign buyers. So ranchers must keep selling 80 percent of their meat to swamped local markets where profits as well as prices are low. So there is no point in expanding."[/QUOTE][QUOTE=Andres]

That's exactly what the government is intending to do.[/QUOTE]If the government is changing from controlling prices, to allowing the cattle farmers to make more money, over time, it should increase production. It would be a big shift for this government.

[QUOTE=Andres]C'Mon Tessan. You REALLY believe that a short term increase in World commodities prices brings prosperity to a country? It takes decades of stability to get to that point. [/QUOTE]Price have been going up for the last few years, production should go up too. It has not, since the government keeps trying to take all the extra profits from the farmers, by increasing taxes. The government is harming itself, for short term gains. Food price look like they will stay historically high, because of new demand from Asia, as well as bio fuels. Argentina should benefit from this, production should grow. But it is not.

[QUOTE=Andres]"Ruining the way of life"? That's clearly an exaggeration. Even with the retenciones, those who rent the land and those who exploit it are making record profits. Maybe they are uncomfortable by not being able to not impose their rules, but that's another issue.[/QUOTE]Many Argentian farmers are buying up land in Uruguay and Paraguay, There must be a reason? Uruguay is considering limiting land sales to foreigners. Too much land is being brought up.

[QUOTE=Andres]I wouldn't convert my savings in Guaranies, for sure.

As of Paraguayan rural reality, have you read recently (1 week ago) about the sizing of farms by dispossessed peasants? Lugo just won the elections, and their support was an important factor. Real trouble on the horizon there. [/QUOTE]Land is being brought up in both Uruguay and Paraguay. Think is has to do with the taxes being changed on exports from Argentina.

[QUOTE=Dickhead]"Last month, I met an Argentine farmer in Paraguay. Paraguay is Argentina's neighbour."

We knew that.

Snip]

"Paraguay's land is just as fertile;"

Rolling on the floor laughing my ass off at this statement.[/QUOTE]I did not write the article, just posted it. The point of it had nothing to do with how fertile Paraguay is compared to Argentina. The point was that farmers that can, are moving out of Argentina to buy land abroad taking their skills with them. That article also mentioned that Paraguay farmers are using outdated farming methods, and are surprised when they see the yield the Argentinean farmers get from the same land.

According to Argentine political analysts Joaquin Morales Solá the court has no specific matter on the controversial Resolution 125, but two appeals which refer to export taxes and regional trade are ready for a ruling.

Basically the Court believes that any levies, whenever higher than a few percentage points, are taxes and therefore it is mandatory that they be considered by Congress. The 1994 Constitution is very strict in the issue of collecting moneys from citizens.

One of the two cases before the Court, presented by a fishing company refers precisely to export taxes and if they are effectively constitutional.

"Levies, o whatever they call them if percentages are above 25, to mention an excessive number, must necessarily be considered by Congress". Apparently and according to Morales Solá this is the prevailing opinion among the magistrates.

The farmers conflict detonated on March 11 when export levies were hiked well above 35% from an existing floor of over 25% , which not only means they are technically unconstitutional but also triggered a "senseless" four months plus conflict.

A second case refers to one of Argentina's main dairy exporters and levies on butter shipped to neighboring Paraguay, a founding member of Mercosur. The company argues that Mercosur guarantees the free circulation of goods, services and production among country members and the elimination of customs duties and non tariff restrictions to the circulation of goods, or any other equivalent restrictive decision. The Mercosur treaty also binds country members to macroeconomic and sector policies coordination between country members particularly regarding "foreign trade, agriculture and manufacturing".

The dairy case is also before the Mercosur arbitration tribunal, but if the Argentine Supreme Court rules that export taxes violate the block's foundation charter, the whole Kirchner administration stance would fall to pieces.

Whole article.

[url]http://www.mercopress.com/vernoticia.do?id=13871&formato=HTML[/url]

[QUOTE=Tessan]History sometime is a predictor of the future, sometime not. Argentina went from the world's 10th wealthiest nation in 1913 to the world's 36th wealthiest in 1998. (Economist Intelligence Unit, EIU Country Profile, 1996-1997, p. 17. So if history repeats itself it should become the 10th wealthiest nation again? Don't think it will happen with the countries present policies.[/QUOTE]History books go well beyond rankings and mere numbers. History books can give you many clues of why people behave the way they behave, why they apparently choose a set of alternatives over other, and especially why some policies work fine in some countries and some circumstances and not well in others.

Remember: This isn't the stock market, so short-term price tables published by Bloomberg, Forbes and such don't do the job for understanding very complex social issues.

[QUOTE=Tessan]The tax want up, so the level should go down.[/QUOTE]I don't get your point. What are you referring by "level"?

[QUOTE=Tessan]I think it is a bigger reason is that their are price controls on meat, and exports are stopped when ever the government wants. Since soy makes money, people are giving up on cattle.

I wrote this before.[/QUOTE]The dispute over retenciones is strictly limited to soy prices. Remember the famous "curve" that the government defined and that the farmers want to smooth.

[QUOTE=Tessan]If the government is changing from controlling prices, to allowing the cattle farmers to make more money, over time, it should increase production. It would be a big shift for this government.[/QUOTE]The problem from your reasoning is that meat is not only a commodity but also a basic ingredient of the Argentine food, and that Argentineans cannot afford meat at international prices. So, if farmers and all the related supply chain were given the choice of exporting or selling to the internal market, they would prefer exporting due to an obvious greater profit.

That's an example of how a country (or a part of its population) can become richer while many of its citizens become poor.

Andres

[QUOTE=Tessan]Price have been going up for the last few years, production should go up too. It has not, since the government keeps trying to take all the extra profits from the farmers, by increasing taxes. The government is harming itself, for short term gains. Food price look like they will stay historically high, because of new demand from Asia, as well as bio fuels. Argentina should benefit from this, production should grow. But it is not.[/QUOTE]It seems that we have a different definition of "prosperity" and "Argentina".

To me, prosperity is something that goes far beyond a high price of a commodity for a long run. Prosperity is related to an important increase in purchase power from a vast majority of the population. I fail to see how the increase in soy price would benefit most of the Argentine population if taxes were taken away.

Also, "Argentina" may mean the whole population of just a social sector.

[QUOTE=Tessan]Many Argentian farmers are buying up land in Uruguay and Paraguay, There must be a reason? Uruguay is considering limiting land sales to foreigners. Too much land is being brought up. [/QUOTE]Another clue that explains that Argentine farmers aren't as broken as they claim. Otherwise, they wouldn't be able to buy land abroad.

[QUOTE=Tessan]Land is being brought up in both Uruguay and Paraguay. Think is has to do with the taxes being changed on exports from Argentina.[/QUOTE]It has to do more with extremely high prices of land in Argentina and an exceptional time of high profits for rural products.

Andres

[QUOTE=Tessan]The point was that farmers that can, are moving out of Argentina to buy land abroad taking their skills with them.[/QUOTE]Really? I never heard of traditional families selling their thousands of hectares.

Andres

[QUOTE=Andres]History books go well beyond rankings and mere numbers. History books can give you many clues of why people behave the way they behave, why they apparently choose a set of alternatives over other, and especially why some policies work fine in some countries and some circumstances and not well in others.

Remember: This isn't the stock market, so short-term price tables published by Bloomberg, Forbes and such don't do the job for understanding very complex social issues.[/QUOTE]Taxing things to a point where you limit production, does not work in any country.

[QUOTE=Andres]Don't get your point. What are you referring by "level"?[/QUOTE]The taxes on soy went up, recently, so the level of soy production should go down in the future.

[QUOTE=Andres]The dispute over retenciones is strictly limited to soy prices. Remember the famous "curve" that the government defined and that the farmers want to smooth.[/QUOTE]The new sliding scale tax on exports also applies to wheat, corn and sunflowers. The rate on soy is the highest.

[QUOTE=Andres]The problem from your reasoning is that meat is not only a commodity but also a basic ingredient of the Argentine food, and that Argentineans cannot afford meat at international prices. So, if farmers and all the related supply chain were given the choice of exporting or selling to the internal market, they would prefer exporting due to an obvious greater profit.

That's an example of how a country (or a part of its population) can become richer while many of its citizens become poor.[/QUOTE]Suppose the Government taxes meat exports at 20%. And lets suppose that the price of meat in Argentina is selling at 40% less then international prices.

If the government subsidies the 20% of the international price of meat. Production of meat will increase, as it increases, the 20% export tax, will start to cover the locale subsidy. Eventually over time, Argentina can export more then it eats, which would give the government a profit.

[QUOTE=tessan]The reason the government taxes the meat exports is to keep domestic prices low. By doing that, they limit production. If they subsidized the meat price, it let the rancher make more money, they will expand, which will over time give the government more money. Under the present tax, there will be no expansion in cattle. The subsidy is necessary, since if prices of meat where to go up to international prices, the people would revolt.

The government says it has an $869 million dollar budget surplus this year, as tax income rose by more than 50 percent. I do not believe the government on this, since the governments dept load is going up. It makes no sense.[/QUOTE][QUOTE=tessan]There is no reason why Brazil should produce so much more cattle then Argentina. Argentina has lots of pastures that are perfect for cattle. The government limits the profits, so the ranchers do not expand, since there is no point in spending money, when your profits are so limited. I saw an interview with a rancher that said, "what was the point of expanding his herd, since he could not know when he can export anything. Or if the government allows some exports, high export tax that makes outbound beef too costly for many foreign buyers. So ranchers must keep selling 80 percent of their meat to swamped local markets where profits as well as prices are low. So there is no point in expanding."[/QUOTE]

[QUOTE=Andres] It seems that we have a different definition of "prosperity" and "Argentina".

To me, prosperity is something that goes far beyond a high price of a commodity for a long run. Prosperity is related to an important increase in purchase power from a vast majority of the population. I fail to see how the increase in soy price would benefit most of the Argentine population if taxes were taken away.

Also, "Argentina" may mean the whole population of just a social sector.[/QUOTE]As production goes up, government income goes up, as income from export taxes go up. With the extra money, the government can spend more to help out the poor. No one is saying not to tax the farmers, only to tax them at a level that encourages an increased in production.

[QUOTE=Andres]Another clue that explains that Argentine farmers aren't as broken as they claim. Otherwise, they wouldn't be able to buy land abroad. [/QUOTE]They might be using savings, or pooling money together. The fact that they are doing it, is bad for Argentina. Something is wrong with the present farm policy.

[QUOTE=Tessan]The taxes on soy went up, recently, so the level of soy production should go down in the future.[/QUOTE]That would be beneficial on the long run, given the devastating side effects of transgenic soy and other GMO. Did you see the documentary "The World as of Monsanto" (Le Monde selon Monsanto, in its original) by the journalist MM Robin?

I think that we are running in circles with this discussion, specially as you insist on the meat market as open as any unregulated one, which is not the case, so I don't see any use in continuing this discussion.

Thanks,

Andres