Argentina's collapse as the world's greatest beef trader epitomizes the troublesome political policies bringing this beautiful country to its economic knees. That's one of the take-home messages from a recent trip I made there as part of IFAJ's 2013 Congress, the first ever held in Latin America.
The world knows Argentina for its tasty, grass-fed beef. If ever there was a world-class brand, it is Argentine beef. Yet, government pricing curbs and export taxes are putting many Argentine meat producers out of business, or forcing them to shift to other farm enterprises.
In March 2006 Argentina’s government, led by President Cristina Kirchner, banned beef exports for 180 days in an effort to lower the rising price of beef for its people. The government followed that up by imposing a 15% export tax on fresh beef – a tax that’s still in force.
Did the policy work? Well, the export tax choked off exports and domestic beef prices dropped. As my colleague Paul Queck reports, the government assumed ranchers and farmers would continue to raise cheap beef for the domestic market. But instead, they cut their herds and converted their pastures to soybean production – which was more profitable than raising cattle for the artificially depressed beef market.
Traders lose money when forced to sell their product locally. Meanwhile domestic beef consumption in Argentina is falling. Consumption per capita peaked at 222 pounds of beef per person in 1956 and fell to its lowest point ever, 121 pounds, in 2011. (That's still more than twice as much as the average American, who consumed 57 pounds of beef per capita last year.)
Argentina was once the world leader in beef exports. Argentina’s ranchers and farmers produced more than 3.1 million tons of beef, exporting some 745,000 metric tons to the world market.
Argentina was the third largest beef exporting country (behind Brazil and Australia) in the world in 2005. And yes, it managed to export all this beef while also supplying the needs of its people – who had the second highest annual beef consumption rate in the world back then at more than 136 pounds per person.
That was eight years ago. USDA reports that in 2012 Argentina exported only 164,000 metric tons of beef, slipping to 11th place as a global beef exporter.
The Argentine national beef herd has dropped from 54 million head in 2009 to 49 million head in 2012, largely to due to government policies (as well as drought).
Farmers disputing agricultural policies of President Kirchner have, over the past two years, staged protests, gone on strikes and blocked exports in an effort to impact government actions. But the government's refusal to budge on agricultural taxation policies has kept farm groups and officials on a collision course.
One of the more absurd rules requires Argentine importers to balance imports with equal value of exports, even if they have to access other sectors. So that leaves Argentine machine part importers struggling to export grains and other commodities of equal value, often wasting effort and resources in unfamiliar fields.
The one bright spot for Argentina is the soybean complex. Even though the Argentine government taxes soy exports at 35%, China's voracious appetite keeps this sector in expansion mode, which doesn't help cattlemen one bit.
When governments meddle with trade and free markets, they often forget the unintended consequences. When markets are free and open, farmers are motivated to produce more – and a rising tide lifts all boats. Everyone wins, including both domestic and export markets.
In Argentina's case, meddling with beef trade has its beef sector scrambling for survival.