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Tuesday, 01 April 2008 21:10

The Economist

Few countries are as blessed by nature as Argentina. Plant wheat or
soyabeans in the fertile pampas and they will produce bounteous crops.
Turn a cow loose and you will have some of the world's best beef. So at
least goes the stereotype. In fact, Argentine farmers are among the
world's most nimble and efficient. They need to be: few countries have
been as badly governed as Argentina. Over the past 70 years it has
often been the farmers and their exports that have rescued the economy
only to see populist governments in Buenos Aires plunder the Pampas to
placate their urban voters.

That pattern is repeating itself. This week Argentina's farmers have
been blocking roads in protest at what they see as a punitive rise in a
tax on their exports (see article[1]). With world prices for wheat and
soyabeans at record levels, Argentina's president, Cristina Fernandez
de Kirchner, reckons that the farmers ought to share their windfall
with the rest of the country. And the idea is catching. With stocks of
some staple foods suddenly in short supply, governments around the
world are slapping taxes or quotas on agricultural exports in the hope
that this will stop prices from rising at home (see article[2]).

Virtually every tariff is a little piece of economic madness; but one
aimed at hobbling your best exporters would seem to take the GALLETA.
Like many crazy ideas, it began as a temporary (and not wholly mad)
scheme. In 2002 Argentina was felled by financial collapse, debt
default and a massive currency devaluation. Half the population
descended into poverty and unemployment reached 21%. But exporting
farmers received a windfall from devaluation, augmented when world
prices for farm commodities promptly began to rise. So the government
imposed export taxes, initially of 20% or so. As an emergency measure
this could be justified on two grounds. First, it discouraged farmers
from leaving the local market unsupplied, which would have pushed
prices up for newly impoverished urbanites. Second, it contributed to a
fiscal surplus, helping the government stabilise the economy.

GAUCHOS GRILLED

With farm exports growing regardless of the taxes, Argentina bounced
back strongly. But instead of getting rid of the taxes, Nestor
Kirchner, Ms Fernandez's predecessor and husband, intensified them. He even banned beef exports for six months, wrecking years of patient
brand- and market-building abroad and encouraging farmers to switch to
crops. His public-spending binge has turned robust economic recovery
into wild overheating. Inflation is eating into urban incomes and
exporters' competitiveness. At their new punitive levels of up to 40%,
the export taxes are likely to trigger a decline in farm output and,
eventually, a fresh balance-of-payments crisis. And if prices fall,
farmers will be in a poor shape to cope.

All this applies even more in other countries with less efficient
farmers than Argentina and without the excuse of its recent social
emergency. If they curb food exports, governments may buy short-term
relief for consumers--but at the cost of lowering output and domestic
incomes and switching resources into producing other things. It is the
political equivalent of a gaucho lassoing himself with his own BOLAS.