BUENOS AIRES, Nov 8 (Reuters) – Argentine farmers are holding back domestic corn and wheat sales in hope that the government will open the door wider to exports, boosting dollar reserves at the risk of fueling already high inflation.
Argentina could authorize up to 425,000 tonnes of international wheat sales this week, bringing relief to farmers after months of waiting, according to an export company executive who received advance notice of the authorization.
Another 400,000 tonnes of corn may soon follow.
The hoped-for releases would be the first since President Cristina Fernandez easily won a second term last month. Some growers and business leaders object to the president’s interventions in the marketplace, including a quota system by which the government controls wheat and corn exports.
Growers call the export market their only hope for selling corn and wheat because prices in the domestic market have been pounded artificially low by government intervention.
The administration has also adopted currency controls over the last two weeks to try to slow capital flight sparked by double-digit inflation and jitters about the world economy and the long-term viability of Fernandez’s unorthodox policies.
The corn and wheat export quotas are intended to control domestic food prices because high food inflation could cause political problems for Fernandez. But the government’s need for dollars is a rising, and competing, priority.
«If the government approves an export quota today, it will get dollars tomorrow. That’s a big temptation for Cristina and that’s what growers are betting she’ll do,» said Mario Fernandez, who operates machines that fill and empty the long, vertical «silo bags» that dot Argentina’s countryside.
«Domestic prices are too low because the government has intervened in that market. So farmers are holding back, waiting for export permission,» the contractor said. «I’ve been filling a lot of silo bags, but I have not emptied many lately.»
Argentina — with its vast, fertile Pampas — should be in a good position to cash in on growing world food demand. But it lags its neighbors in attracting private capital while bank depositors, fearing a devaluation of the peso, chase dollars.
«The government will allow greater wheat and corn exports, but only to the extent that doing so doesn’t create shortages that could result in higher domestic food prices,» said Mark Jones, Latin American expert at Rice University in Texas.
Corn is especially needed in Argentina at this time of year, as it is used to fatten cattle for Christmas barbecues. Ample wheat supplies are needed to keep bread inexpensive.
Consumer prices are a sensitive issue in Argentina, where inflation is estimated privately at above 20 percent, the second highest rate in Latin America after Venezuela.
The grains boom contributed to high economic growth during Fernandez’s first term. The expansion continues at about 8 percent annually, but some fear her policies may leave the country vulnerable to fallout from the troubled world economy.
While foreign direct investment flows to Latin America are poised to reach an all-time high this year, inflows to Argentina contracted 30 percent in the first half of 2011 versus the same 2010 period, according to United Nations data.
SCRAP EXPORT QUOTAS?
Soon after winning re-election on Oct. 23, with help from a surprising number of votes from farm areas that once stood as a block against her, Fernandez clamped down on access to U.S. dollars in a new bid to halt capital flight. [ID:nN1E7A00NA]
«The first priority for this government is cheap food for voters. But there is a rising need to replenish central bank reserves,» said one grains trader, who asked not to be named.
«I expect the government to free all the wheat and corn that it can for export in order to, one, bring more dollars into the country and, two, court the agricultural sector.
«The smaller farmers voted for Cristina in October, so she’s starting to see them as citizens rather than businessmen out to destroy her,» the Buenos Aires-based trader said.
Tempers have cooled since 2008, when growers rocked the government with protests against a soy export tax increase.
Fernandez may even scrap the corn and wheat export quota system altogether. Farm cooperatives that have reached detente with her government have proposed a new scheme.
A certain amount of corn and wheat would be earmarked for domestic use under the proposal while the rest, estimated at 60 percent but subject to supply and domestic demand, would be freed for export without the quotas that farmers say are killing profits by limiting potential buyers.
The government has told farmers they have until Nov. 21 to declare their wheat stocks, to help calculate how much can be approved for export.
«Given the apparent need to increase the influx of dollars, the government could be tempted to open the export market,» said local agricultural economist Manuel Alvarado Ledesma.
«In less than a month, 2011/12 wheat harvesting will begin and the crop will be at least 13 million tonnes,» he said. «So, today, growers won’t hesitate to export wheat from previous harvests if they are given the chance to do so.»
Source: Reuters