Argentina's taxes on food exports

Killing the pampas's golden calf

A contender for the dottiest tax around—and its use is spreading

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). With world prices for wheat and soyabeans at record levels, Argentina's president, Cristina Fernández 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).

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, Néstor Kirchner, Ms Fernández'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.