Argentina: Farming crisis batters world food provider

The worst drought in 50 years, combined with a drop in soybean prices and unpopular tax policies, imperils a traditional beef exporter.

If any place encapsulates Argentine pride it is the pampas, the plains that have yielded endless fields of corn and wheat and nourished cattle that produce some of the world's finest beef.

But these days, the pastures are brown. The wheat won't grow. And the cows are dying.

Argentina is facing its worst farming crisis since becoming one of the most prolific food providers in the world. A devastating drought, the most severe in more than 50 years, has dried up grassland and left cattle with nothing to graze.

It comes amid a drop in soybean prices and unpopular tax policies on grains, beef, and milk that have squeezed farmers. This year, wheat planting is the lowest in 100 years. Some estimate that Argentina, whose meat-loving citizens each consume about 70 kilos (154 pounds) of beef a year, could become a net importer by next year.

"The image of Argentina as a world provider of food is being battered," says Ernesto Ambrosetti, chief economist at the Institute for Economic Research at the Argentine Rural Society.

European immigrants in the 1800s transformed Argentina's countryside, creating vast estancias, or country estates, where cattle were raised and grains cultivated – turning the nation into a key international producer. Today, the agricultural sector comprises about 9.5 percent of Argentina's gross domestic product and more than half of its foreign exchange.

A rift between farmers and the government began under populist president Juan Perón, who was elected in 1946. "The government pictured the agricultural sector as dominated by very rich people, against the interests of the poor," says Sergio Lence, an Argentine economics professor at Iowa State Uni­versity.

That attitude has sharpened in recent years. In the wake of Argentina's devastating financial crisis of 2001-2002, the government of Nestor Kirchner, who was succeeded by his wife, Cristina Fernandez de Kirchner, began to curb exports with taxes and cap prices to keep milk and beef cheap for consumers.

Steadily rising taxes came to a boil last year, when President Fernandez de Kirchner attempted to hike taxes on oilseed exports – soy is already taxed at 35 percent – as prices soared internationally. It led to a four-month standoff that Fernandez de Kirchner ultimately lost in Congress.

"Probably, for a government that desperately needs income, it does not have very many options," says Birgit Meade, an economist at the Economic Research Service of the United States Department of Agriculture. But the timing, amid a world slump and then a relentless drought, sent shock waves through the industry. "Talk about a double, or triple whammy," she says.

The agricultural sector is expected to bring in 50 percent less in profit this year than last, losing $5 billion. Wheat production has dropped in half this season, to 8.5 million tons, and economists do not expect the nation to cover domestic demand. Soybeans are among the few crops for which farmers have not reduced plantings, but earnings and production are down. "The drought demonstrated the dramatic distortion of the Argentine tax system," says Gustavo Grobocopatel, one of the biggest soy producers in Argentina.

Drought hits cattle hard

For cattle-raising regions, like San Miguel del Monte, south of Buenos Aires, the drought has cut deeply. Here, the lakes have dried; pastures are so barren that cattle graze by the roads.

On a recent day, local producer Lorena del Rio looked at two dozen cows feeding on corn from a special plastic trough, an expensive alternative to pasture. Her family has lost eight of their 600 cows, and many cows are too weak to get pregnant. "It is horrible not to be able to feed your animals," Ms. Del Rio says.

The Argentine Rural Society estimates the country has lost 3 million cows since September, and ranchers are selling cattle they can't feed. The rate of female cows sold to slaughterhouses – considered liquidation at 43 percent – is about 50 percent.

Del Rio is among some 250 small- to medium-sized cattle producers in this town – which is increasingly dotted by soy fields. Two years ago, she joined the trend. "It's the only thing you can count on," she says. "It helps us invest back into cattle."

Soy production has doubled in the last decade, with 17.4 million hectares planted last year, compared with just 8 million a decade ago. "But that is not necessarily good for Argentina," says Mr. Ambrosetti. A monocrop culture depletes the soil and presents greater risk if the market plummets, he says.

Still, politically, many see a bright spot. Fernando Vilella, the former agricultural minister in the province of Buenos Aires who resigned over the oilseed export tax conflict, says that the Kirchners' loss in recent legislative elections bodes well for producers.

"All of the winners are in favor of a solution for the countryside," he says. "In my opinion, things are going to improve."