VZCZCXYZ0018
RR RUEHWEB

DE RUEHBU #1049/01 1442231
ZNY EEEEE ZZH (CCY ADC3F53C MSI1110-695)
R 242231Z MAY 07
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC 8262
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/USDOC WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE USD FAS WASHINGTON DC
RHMFIUU/HQ USSOUTHCOM MIAMI FL
RUEHAC/AMEMBASSY ASUNCION 6195
RUEHMN/AMEMBASSY MONTEVIDEO 6472
RUEHSG/AMEMBASSY SANTIAGO 0438
RUEHBR/AMEMBASSY BRASILIA 6062
RUEHLP/AMEMBASSY LA PAZ MAY SAO PAULO 3300
RUEHRI/AMCONSUL RIO DE JANEIRO 2238

UNCLAS E F T O BUENOS AIRES 001049 
 
SIPDIS 
 
SENSITIVE NOFORN SIPDIS 
 
C O R R E C T E D COPY CLASSIFICATION 
 
PASS NSC FOR JOSE CARDENAS 
PASS USTR FOR SUE CRONIN AND MARY SULLIVAN 
USDOC FOR 4322/ITA/MAC/OLAC/PEACHER 
US SOUTHCOM FOR POLAD 
 
E.O. 12958: N/A 
TAGS: ETRD EAGR AR
SUBJECT: NEW AGREEMENT PUTS BEEF BACK IN MARKETS - FOR NOW 
 
Ref:  2006 Buenos Aires 560 
 
SUMMARY 
------- 
 
¶1. (SBU/NF) To counter increasing shortages of beef products in 
Argentina, Economy Minister Felisa Miceli and Argentine beef 
producers agreed May 9 to raise wholesale beef prices by 
approximately 12% on average.  The agreement affects prices for 
cattle sold at the main beef wholesale market in Argentina, and is 
valid until the end of 2007.  Meat packers and butchers also agreed 
to freeze the prices of a number of widely consumed beef cuts for a 
year.  The GoA also committed to allow at least 500,000 tons of beef 
exports for 2007, an increase of 25%, and to provide about USD 71 
million for production subsidies.  The goal of the GoA may simply 
have been to get beyond the October elections with as little 
disruption in consumer markets as possible, as the agreement clearly 
addresses the symptoms - rather than the domestic inflation and 
heavy-handed GoA regulation that is the cause of the problem.  END 
SUMMARY. 
 
PRICES, EXPORTS, AND SUBSIDIES 
------------------------------ 
 
¶2. (SBU/NF) The GoA has used price controls, export tariffs and 
restraints, subsidies, and has been accused of manipulating 
statistics in its effort to keep headline consumer inflation below 
10% in advance of October 2007 elections.  Argentines consume more 
beef per capita than any country in the world at 63 kilograms (139 
pounds) per year and beef makes up a significant 4.5% of the CPI 
basket.  Therefore, the sector has been a prominent target of the 
GoA's price control policy. 
 
¶3. (SBU/NF) Previous GoA efforts to constrain wholesale beef prices, 
including the publication of "reference" wholesale prices, export 
tariffs, bans and limits have indeed helped hold headline inflation 
down.  But with costs not similarly constrained, producers have 
predictably limited sales at government-approved prices.  This has 
led to periodic shortages at supermarkets which have attracted 
considerable media attention. 
 
¶4. (SBU/NF) Following two months of negotiations, an agreement 
between the GoA and most cattle ranching associations was reached on 
May 9.  The agreement raised wholesale prices from 5% to 20% on most 
cuts of beef at the Liniers Cattle Market (the primary location for 
cattle sales in Argentina), and by about 12% on average, until the 
end of 2007.  Packing and butchers associations also participated in 
the negotiations, and agreed to maintain prices on the most popular 
cuts.  Post contacts indicate that the prices in the agreement are 
closer to current unofficial market prices than to previous GoA 
"reference" prices. 
 
¶5. (SBU/NF) The agreement also called for an increase in exports. 
The GoA has capped exports since March 2006 (at that time, exports 
were temporarily banned - Reftel - though the restrictions were 
later relaxed), and the previous limit was 400,000 tons of beef per 
year.  The new agreement raises the limit to 500,000 tons - a 25% 
increase - by the end of 2007.  (Note: export taxes, another tool 
the GoA has utilized since 2002 in efforts to keep domestic prices 
down, were not addressed in the agreement.  End Note.) 
 
¶6. (SBU/NF) Another important aspect of the agreement is a 
commitment by the GoA to provide subsidies of approximately USD 71 
million to increase cattle productivity, especially breeding 
operations, and also to negotiate loan subsidies aimed at increasing 
herd size.  However, post contacts note that, if those funds were 
solely allocated to improving pastureland, that amount would be 
sufficient to increase herd size on a national level by only about 
710,000 head of cattle - no more than 1.4% of the estimated 50 to 60 
million head in Argentina. 
 
LONG TERM QUESTIONS REMAIN 
-------------------------- 
 
¶7. (SBU/NF) These GoA measures will likely result in increased 
supply in the short term.  In fact, the volume of cattle sold at the 
Liniers market has already returned to early 2007 levels.  However, 
repeated GoA interventions in the beef market have significantly 
altered the dynamics of cattle production in Argentina.  According 
to press reports, beef export volume in the first four months of 
2007 was 40  lower than the same period in 2006 (which was already 
18  lower than the first four months of 2005).  In the last eighteen 
months the number of cattle slaughtered has dropped by a million 
animals per year, about 7-8%.  During this same period, sales of 
seeds to improve pasture grazing land have fallen 40%; the price of 
breeding heifers has fallen 20%, and approximately one million 
hectares of land have been switched from livestock to agricultural 
production.  The reasons for these changes are twofold:  price 
controls and related GoA measures have reduced profitability, making 
alternative land uses more appealing; and the beef market has been 
subject to a higher degree of GoA intervention than have other 
agricultural markets,  creating levels of uncertainty that have 
impacted producers willingness to invest in building herds. 
 
COMMENT 
------- 
 
¶8. (SBU/NF) While beef is now back on the table of the typical 
Argentine, the effects of the GoA accord seem transitory at best. 
The latest negotiations occurred not long after the GoA last set 
"reference" prices, and with headline inflation running around 10%, 
rising costs ensure that the beef producers will be asking for new 
negotiations before long.  Beef is the largest component in the CPI 
and emblematic of Argentina's image both domestically and 
internationally.  The goal of the GoA may simply have been to get 
beyond the October elections with as little disruption in consumer 
markets as possible, as the agreement clearly addresses the symptoms 
- rather than the domestic inflation and heavy-handed GoA regulation 
that are the cause of the problem.  The fact that not all cattle 
ranchers were represented in the negotiations is potentially 
significant, and at least one group that did not participate 
announced that it would continue to defy (or disregard) the GoA 
price regime.  End Comment. 
 
¶9. (U) To see more Buenos Aires reporting, visit our classified 
website at: http://www.state.sgov.gov/p/wha/buenosaires.< /a> 
 
WAYNE