Argentina Tries to Reconcile Exporting Food With Prices at Home

By Monte Reel
Washington Post Foreign Service
Saturday, April 26, 2008

BUENOS AIRES, April 25 -- Inside a busy church hall early Friday morning, many of the 60 men waiting for a free breakfast tilted their heads upward to watch news flashes periodically scroll across a wall-mounted television.

"Government in Crisis . . . Minister of Economy Quits . . . Price of Food Increasing Worldwide . . . "

This country, in theory, should be protected from the global food crisis. Argentina's government touts steady economic growth, and in recent years the country has become a top exporter of the same grains, vegetable oils and beef that are now in such high demand.

But instead Argentina is becoming a symbol of the far-reaching effects of global food inflation. Like other developing countries that depend on agricultural exports, Argentina is struggling mightily to figure out how to protect local food sources without breaking the backbone of its economy.

"This country is in chaos right now," said José António Oliveira, 54, who said he has been eating at the church food kitchen in recent months because he can't afford food at today's escalating prices. "They tell us the economy is growing, but what's growing is hunger. The food kitchens are always full now because prices are going through the clouds."

Inflation -- and the government's efforts to control it -- have magnified existing fissures in the economy. The government and the country's agricultural producers for years have had a troubled relationship, but now they are locked in a full-scale war. Citizens are choosing sides, increasingly divided over an economic strategy praised for stimulating growth and cursed for fueling inflation. A lack of reliable economic data undermines constructive debate.

In March, President Cristina Fernández de Kirchner announced the third tax hike in six months on exports of soybeans and other products -- part of an overall strategy that aims to keep local food prices low and generate revenue.

That revenue, she said, would allow the government to redistribute the agricultural sector's disproportionate wealth to the people most vulnerable to price hikes.

But farmers balked at her plan, launching a three-week strike and setting up roadblocks that sparked food shortages and intensified inflation. A temporary truce between the government and leaders from the agricultural sector has resulted in bitter and as-yet unfruitful negotiations. After the truce ends May 2, more protests could erupt.

From the farmers' perspective, the government is threatening to smash the country's golden egg: soybeans.

"We feel as if we're committing suicide," said Pablo Karnatz, a soy farmer and cattle breeder who has participated in negotiations with the government. "After Argentina's economic crisis in 2001, you wouldn't have seen the economic growth we've experienced if it wasn't for soybeans."

Cultivation of soy has nearly quadrupled since 1990 and now consumes about half the country's farmland, generating nearly $25 billion a year in export income.

But Fernández de Kirchner -- like many of the crop's detractors -- has criticized the high-tech soy industry for enriching corporate farmers, harming the environment and failing to create new jobs. She has said she wants to put the brakes on the expansion of soy-based products, which are not widely consumed by Argentines.

"That's impossible for us to do, because some farms that are good for growing soy, for example, are not good for growing another crop, like maize," said Juan Nelson, an Argentine farmer with several plots of land throughout the country. "Farmers are not going to suddenly change their cycles and start growing other crops there."

In a country that is the third-largest exporter of soy after the United States and Brazil, the turmoil over taxes resulted in a 50 percent decline in soybean processing in March. Argentina also blocked exports of wheat, hoping to avert shortages and price increases at home.

Although that step has exacerbated food supply pressures internationally, Fernández de Kirchner said protecting domestic supply is the best way to maintain Argentina's economic growth, which has averaged about 8 percent annually since her husband, former president Néstor Kirchner, took power in 2003.

But new studies suggest that food inflation has begun to outpace growth, resulting in the first increase in poverty figures since late 2002.

Independent economists say the government has whitewashed the effects of inflation since last year. Last month, the government canceled the publication of reports that would have measured changes in the country's poverty levels in 2007.

SEL, a Buenos Aires-based economic consulting firm, recently undertook an independent statistical analysis that showed Argentina's recent trend of poverty reduction reversed last year, with the percentage of Argentines living below the poverty line jumping from 26.9 percent to 30.3 percent.

The firm also reported this month that the government's methods of taming inflation by controlling agricultural production might be contributing to that reversal, said Ernesto Kritz, the director of SEL.

"The policy doesn't discriminate between poor consumers and rich consumers, and it actually favors the better-off," said Kritz.

Economy Minister Martin Lousteau reportedly clashed with Fernández de Kirchner this week over inflation control policies, and he resigned late Thursday.

The new minister, Carlos Fernández, suggested that he firmly supported the president's export tax increase in the face of continued pressure from the agricultural sector.

"With my appointment," Fernández told the Associated Press on Friday, "nothing is going to change."