Argentina farmers neglected unpopular quota system

BUENOS AIRES: Argentina's grains industry is debating a proposal to overhaul local corn and wheat markets so exporters pay farmers higher prices a reform the government could very well adopt.

The state intervenes in corn and wheat trade now with incremental export quotas and subsidies to local millers, which are aimed at guaranteeing affordable food supplies in Argentina one of the world's biggest grains suppliers.

Officials also set minimum prices, but farmers say they are largely ignored by mills and grain exporters the biggest buyers in the market.

Farmers in Argentina, a leading global wheat exporter and the No. 2 corn supplier, have long wanted to change the system. They say it hurts their profits by allotting buyers a certain amount of grain to be purchased, thwarting competition.

The proposed reform, outline by farmers’ federation close to the centre-left government, would keep a cap on total exports to ensure sufficient domestic supply but it would eliminate the gradual quota system.

"This mechanism is aimed at making sure exporters will have to pay higher prices in the local market," said Fernando Botta, an analyst with the Agrobroker grains brokerage in Rosario.

Major global grain exporters in Argentina include Bunge , Cargill and Louis Dreyfus.

Under the new system, officials would announce the amount of corn and wheat to be set aside for domestic consumption from each harvest and farmers could sell the rest freely on the local market.

A state-funded agency, administered by grains exchanges, would buy grains from farmers and sell them to local mills and cattle ranchers at a discount. This would eliminate the need for state subsidies, which are often subject to long delays.

"This would solve the problem of purchasing grains for domestic consumption," said Omar Barchetta, vice president of the Argentine Agrarian Federation, which represents small- and medium-scale farmers.

Argentina exported 9 million of the 15 million tonnes of wheat harvested in the 2010-11 season, and it sold abroad 14.5 million of the 22 million tonnes of corn that farmers produced, according to the US Department of Agriculture (USDA).

The proposal was drafted by the Federated Argentine Farmers (AFA), which has risen to prominence in recent months along with the Association of Argentine Cooperatives as the government seeks to forge ties with farming groups that are less critical of its interventionist policies.

"To a great degree this is in line with our political thinking, so I think the proposal will be received well," said Deputy Agriculture Secretary Oscar Solis.

"We'll bring this to the president's attention," he added.

Polls show President Cristina Fernandez is poised to win re-election in an Oct. 23 vote and she has vowed to deepen policies aimed at boosting state participation in key economic sectors, including agriculture.

Fernandez has had a difficult relationship with farmers since a tax hike on soy exports unleashed months of protest in 2008, but tensions have eased over the last year or so.

The proposed changes were discussed by farming groups and exporters this week and a concrete proposal should be presented to government officials in the coming weeks.

The changes are endorsed by some major agricultural groups, but the Argentine Rural Confederation (CRA) said if it is implemented, it will continue giving exporters the upper-hand.

"It's a ploy to conceal the transfer of profits from wheat producers to buyers, (including) mills and exporters," said CRA, which groups farming associations throughout the country.

Argentina is a leading global exporter of soybeans, corn and wheat, and brisk economic growth in recent years has been fueled partly by high global grain prices.

Copyright Reuters, 2011
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