Fox in the Hen House: What Argentina’s New President Means for the Country’s Agriculture Agenda

On October 27, Argentines went to the polls and selected Alberto Fernández as their new president. Fernández ran on behalf of the ‘Frente de Todos’ party, the most recent incarnation of Argentinean Peronism. Even more significant then Fernández himself was his running mate, Cristina Fernández de Kirchner, who served as Argentina’s president between 2007 and 2015 and presided over a period of economic decay.

The sound victory of the Fernández ticket represents a rejection of the business centric ideals of president Mauricio Macri and a return to populism. Over the last four years of Macri’s administration, the Argentine government made important strides with respect to transparency and fiscal responsibility. But ultimately, he was unable to overcome inflation, Argentina’s Achilles heel, and a politically unpalatable bailout from the IMF likely served as one of the nails in his coffin.

Argentina’s agriculture sector was probably one of the greatest beneficiaries of Macri’s administration. The reorientation of the economy toward exports, combined with a willingness to engage in bilateral and multilateral trade agreements, opened new doors for Argentina’s agricultural bounty abroad. Under Alberto Fernández, however, the future is uncertain, and many agricultural stakeholders are dreading a return to the oppressive policies the sector endured over the last decade.

Argentina Speaks

With the votes counted, Fernández carried 48.1% of the national vote, while Macri tallied just 40.4%. Interestingly, Fernández’ victory was not equally spread across the republic. The map below, created by the La Nacion newspaper, shows the distribution of votes. The provinces in blue were won by Fernández while the provinces in yellow were won by Macri.

From left to right, the yellow provinces forming a band across central Argentina are Mendoza, San Luis, Córdoba, Santa Fe, and Entre Rios. The yellow territory in the box represents the capital city of Buenos Aires. These provinces contain some of the Argentina’s best agricultural land, sandwiched between the hot northern provinces, and the tundra-like south. Because of their ideal climatic conditions and high soil quality, these provinces, along with La Pampa and the province of Buenos Aires, are the nucleus of Argentina’s agricultural, horticultural, and livestock economy.

One province in particular, Córdoba, stands out. This province, located in the middle of the country in the deepest shade of yellow, produces about one third of Argentina’s corn and more than a quarter of its soybeans. In 2017, agriculture contributed 22.9% of the province’s GDP in real terms and is an important source of employment. It is strongly indicative then, that Macri posted his strongest performance in Córdoba, winning the province with 61.3% compared to Fernández’ 29.3%.

Agricultural Implications

So, what exactly is it about a return to populism that has Argentina’s agricultural community concerned? Of course, the list is long and varied, but for the purposes of this piece I will focus on a few key policy elements:

Taxes 

Agriculture is an important revenue generator for Argentina’s government and for years the government has imposed export tariffs on agricultural products in order to generate monies which fund social programs and other activities. The principal protagonist is soybeans, which faced an export tariff or ‘retention’ as high as 35%, implemented in 2008. Macri’s administration attempted to reduce these retentions but had only mixed success.

The Fernández administration is coming into office on a promise to expand social programs and to ease the burden of the average Argentine. However, with government coffers virtually empty, the administration will have to look for new opportunities to raise revenues. And as it seeks to levy additional taxes, agriculture will be a top candidate to shoulder this load. Historically, populists have also marketed such taxes as an effort to keep domestic food prices low, despite the destructive impact they have on long term agricultural productivity.

Currently though, there is one key difference that will impact the ability of agricultural producers to absorb any new taxes. In July 2008, when soy retentions were raised to 35%, soybeans were selling at a record high price of over $16 USD per bushel. Since then, soybean prices have dropped significantly, and are currently sitting around $9 USD per bushel. While this is still a healthy price, it doesn’t leave as much margin available to sacrifice before farmers go into the red.

Open Markets 

As an agricultural powerhouse, Argentina looks to sell its agricultural production to the rest of the world. Of course, in order to make this goal a reality, there must be a market in which to sell the product. Argentina is one of the world’s most protectionist countries, with trade policies designed to insulate the domestic market from foreign competition. However, for international trade, it takes two to tango, and this closed posture has prevented Argentina from capturing its share of the global consumer.

Macri’s government committed significant effort and resources to expanding Argentina’s trade relationships. Perhaps the most celebrated was the ceremonial signing of the trade deal between Mercosur and the European Union. This agreement would have been pivotal in giving Argentine beef, grain, dairy, and biofuel producers more access to the European markets.

Under Fernández, we can expect to see the protectionist movement emboldened as new steps are taken to shield inefficient local industries. Although Fernández has not unequivocally stated that he will block the EU-Mercosur trade agreement, his comments to date demonstrate his clear disapproval and it is difficult to imagine that the deal will be successfully ratified. Clear ideological contrasts between Fernández and Brazil’s president, Jair Bolsonaro, have also raised questions about the future functionality of the Mercosur trade bloc.

Infrastructure Spending

In addition to broad economic stability, Argentina’s agricultural areas depend heavily on high quality infrastructure – roads, rail, and other public works that allow them to relocate their harvests to port. The Macri administration undertook a huge number of infrastructure projects, and new highways and byways now cross Argentina’s most productive areas, connecting the ‘campo’ with the ports. Some argue that there may have been too many projects, as many of these were funded through US dollar denominated bonds and financial instruments, which ultimately contributed to Macri’s downfall. Nevertheless, the fact is that rural Argentina is benefitting today from improved infrastructure.

Cristina Kirchner’s record on public works during her last administration was dismal. Massive projects were left unfinished and budgets were heavily padded with kickbacks and laundered money. Kirchner herself has been named in 11 corruption cases, from which her vice presidency will provide immunity. The former president argues that the accusations are nothing more than political attacks, even though there is exceedingly strong evidence to the contrary.

Corruption is a widespread disease in Argentina, and certainly the Macri administration was not able to eradicate it, even within his own house. However, I expect that under Fernández it will play a more central role in government spending. As a result, public works will likely suffer, and projects will be left undone as political cronies reap the benefits of their professional network.

Land Appropriation

The most worrisome scenario if Argentina moves too far to the left would be the potential appropriation of farmland. To be clear, this action is not something that has been proposed by Fernández. However, in early September, Juan Grabois, a lawyer, professor, and labor activist associated with the ‘Frente de Todos’ party, publicly presented a proposal for agrarian reforms to Fernández.

Grabrois’ proposal includes limiting the amount of land that a single person or entity can own to 5,000 hectares. In addition, 50,000 parcels of land would be expropriated and redistributed to people who ‘work the land’. Unsurprisingly, the proposal is strongly denounced by Argentina’s key agricultural groups such as the Sociedad Rural which called the agreement anachronistic and unconstitutional.

Personally, I don’t believe the Fernández’ government would choose this path, if only because it depends on tax revenues from large scale agricultural production. Nonetheless, it is critically important for the industry to be aware of this movement and to be prepared to combat it wherever it may appear.

Summary

In spite of the long election cycle, surprisingly little is known about Fernández’ intended policy agenda when he takes office on December 10. Indeed, most of the drama and conversations in recent weeks have swirled around his running mate and the degree to which she will exert control over the political agenda.

Whether or not Fernández proves to be more moderate than Kirchner, Argentina’s agricultural sector can expect to feel the ground shift under its feet. Even as specific policies remain to be defined, the road ahead is going to be tougher for agricultural stakeholders in Argentina.