VZCZCXYZ0004
RR RUEHWEB

DE RUEHBU #0014/01 0051715
ZNR UUUUU ZZH
R 051715Z JAN 09
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC 2832
INFO RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHMFIUU/HQ USSOUTHCOM MIAMI FL
RUCNMER/MERCOSUR COLLECTIVE

UNCLAS BUENOS AIRES 000014 
 
USDA FOR FAS/OA/OCRA/ONA/OGA/OFSO 
 
SIPDIS 
SENSITIVE 
 
E.O. 12958:  N/A 
TAGS: EAGR ECON EINV PGOV ELAB PHUM AR
SUBJECT: Argentina: New Agricultural Measures Will Have Little 
Impact 
 
¶1.  (U) Summary: On December 22, 2008, President Cristina Fernandez 
de Kirchner (CFK) announced a new package of stimulus measures for 
the Argentine agricultural sector.  Although previously announced at 
the beginning of December, a plan to reduce the export tax on wheat 
and corn by five percentage points was confirmed -- for wheat, the 
new export tax will be 23%, and for corn it will be 20%.  The 
President also announced that when historical production averages 
are exceeded -- 13 million tons for wheat and 15 million tons for 
corn -- export taxes will decrease by one percentage point for large 
producers (those producing over 2,500 tons of wheat, and 5,000 of 
corn), two percentage points for medium-size producers (between 
500-2,500 tons of wheat, and between 1,000 and 5,000 tons of corn), 
and five percentage points for small producers (up to 500 tons of 
wheat and 1,000 tons of corn), per each additional million tons 
produced.  This plan has been called "Plus-Programs."  In an attempt 
to stimulate cattle production, the GOA plans to build five feed-lot 
operations with a total capacity of 200,000 cattle, which is 
projected to produce 100,000 tons of beef for the export market. 
With regard to fruits and vegetables, the export tax for pears, 
apples, peaches, citrus fruit, grapes, blueberries, strawberries, 
onions, frozen potatoes, beans and pulses will be reduced by 50% 
(i.e., fresh deciduous fruit and stone fruit will pay a 5% export 
tax, while citrus fruit and vegetables will pay 2.5%).  Contrary to 
expectations reported in the local press, the GOA did not include 
tax reductions for soybean and sunflower exports.  Many attribute 
this decision to former president Nestor Kirchner, who reportedly 
still bears a grudge against soy farmers for their leading role in 
the March-July showdown over export duties.   End Summary. 
 
----------------------------------------- 
New Measures Likely to Have Little Impact 
----------------------------------------- 
 
¶2.  (U) On December 22, 2008, President Cristina Kirchner announced 
a new package of "stimulus" measures for the Argentine agricultural 
sector.  Although previously announced at the beginning of December, 
a plan to reduce the export tax on wheat and corn by five percentage 
points was confirmed (published in the Boletin Oficial on December 
24).  For wheat, the new export tax will be 23%, and for corn it 
will be 20%.  Post contacts maintain that this reduction will not 
create any significant benefit for producers.  Currently, the GOA 
does not allow exports of either wheat or corn in order to increase 
the domestic supply.  That export ban has prevented FOB prices from 
rising the additional $6 to $8 per ton expected under the new tax 
rate.  When exports are permitted (along with the expected rise in 
FOB prices previously mentioned), an additional $106 million will 
likely be passed along to farmers.  From a fiscal standpoint, the 
GOA stands to lose that estimated $106 million.  The farm sector has 
characterized these measures as insufficient, explaining that tax 
reductions totaling $106 million are a miniscule part of the $6.15 
billion the sector contributes in the form of annual export tax 
revenues.  Farmers were expecting the export taxes on oilseeds 
(soybeans and sunflowers) to also be lowered by 5%.  The GOA has 
avoided doing so, however, as that would generate tax revenue losses 
estimated at $800 million. 
 
¶3.  (U) The President also announced that, when historical 
production averages are exceeded -- 13 million tons for wheatand 15 
million tons for corn -- export taxes will decrease by one 
percentage point for large producers (those producing over 2,500 
tons of wheat, and 5,000 of corn), two percentage points for 
medium-size producers (between 500-2,500 tons of wheat, and between 
1,000 and 5,000 tons of corn), and five percentage points for small 
producers (up to 500 tons of wheat and 1,000 tons of corn), per each 
additional million tons produced.  This plan has been called 
"Plus-Programs."  These measures will create no benefit for farmers 
this year since all planting has already occurred for those crops 
and production will not reach the necessary levels for farmers to 
receive the benefits -- grains production for the 2008/09 season is 
expected to fall significantly due to lower planted area and severe 
drought. 
 
¶4.  (U) Post contacts believe that the Plus-Programs will be largely 
ineffective at promoting increased grains production for future 
crops due to: 1) the GOA's inability to accurately estimate overall 
production (there is also a fear that the GOA will purposely 
underestimate production to avoid giving producers the benefit); and 
2) a lack of real incentives for farmers to increase planting 
intentions, since the benefits of the program are tied to all 
farmers' decisions, as well as climatic variations that affect the 
country's overall production.  Producers argue that the program 
benefits should have been tied to an individual farmer's planted 
area rather than overall historical production. 
 
¶5.  (U) In an attempt to stimulate cattle production, the GOA plans 
 
to build five feed-lot operations with a total capacity of 200,000 
cattle, which the GOA expects to produce 100,000 tons of beef for 
the export market.  It is unclear that this will be a viable 
stimulus to overall beef production.  Experts warn that these 
operations are extremely complicated and question whether the GOA 
has the technical capability to bring this project to fruition. 
 
 
¶6.  (U) With regard to fruits and vegetables, the export tax for 
pears, apples, peaches, citrus fruit, grapes, blueberries, 
strawberries, onions, frozen potatoes, beans and pulses will be 
reduced by 50% (i.e., fresh deciduous fruit and stone fruit will pay 
a 5% export tax, while citrus fruit and vegetables will pay 2.5%). 
To date, this measure has not been published in the Boletin Oficial. 
 Even if the measure is enacted, Post does not expect the changes 
announced to have a significant impact on overall fruit and 
vegetable production.  Export taxes for these products are already 
relatively low (5% to 10%) and a reduction by half does not amount 
to a significant alleviation of tax burden.  Critics also point out 
that the government did not extend the same benefits to other 
products grown in different regions of Argentina such as tobacco, 
tea, wool, and yerba mate. 
 
----------------------- 
Reaction from the Campo 
----------------------- 
 
¶7. (U) Agricultural leaders and the Agricultural Liaison Committee 
harshly criticized the announcement, though the measures were 
ostensibly made on the farm sector's behalf.  The Liaison Committee 
stated that the new measures are "not enough" and that "the 
announcements confuse the lay person.  Not only do they [GOA] 
present measures that were already announced as new, they try to 
sway public opinion that by lowering export taxes, they are 
providing solutions for producers."  President of the Sociedad Rural 
Argentina (SRA), Hugo Biolcati, considered the President's 
announcement a "clear provocation" and stated earlier this week that 
if the government does not "change its attitude" toward the sector, 
new protests are "inevitable."  He indicated that February or March 
would be the best time for such action. 
 
¶8.  (SBU) The disappointment expressed by the farm groups stems from 
the fact that many of their members had hoped that the GOA would 
include reductions for soybeans and sunflowers.  This did not 
happen, prompting speculation that influential former president and 
presidential spouse Nestor Kirchner withheld them because of his 
grudge against soy farmers for their leading role in the March-July 
showdown over export duties. 
 
Comment 
------- 
 
¶9.  (SBU) Post contacts confirm that the financial situation and 
outlook of agricultural producers is worse now than it was in March 
2008, when farm organizations staged a four-month long strike 
against the GOA.  With  farmers' finances deteriorating and anger 
mounting over the perceived insufficiency of the GOA's latest 
measures, it seems very possible that early 2009 could see the start 
of yet another chapter in Argentina's recent history of conflict 
between agricultural producers and the government.  End Comment. 
 
WAYNE