Will Argentina's soybean hangover become a global headache?
03/04/2008 12:38

MOSCOW. (RIA Novosti political commentator Andrei Fedyashin) - It became clear in early April that the farmers' strike in Argentina - soy, maize, and wheat producers - was creating a threat to the world economy.

Some countries hinted to President Cristina Fernandez de Kirchner that a soya trial was no longer a domestic problem. She suspended her visits to Britain and France, scheduled for April 4 and April 7, to deal with agricultural troubles.

Soybean troubles started in Argentina right after March 11, when the cabinet announced a tax hike from 35% to 44.1%. The farmers considered it too high. On March 14 they stopped working, drove their combines into the streets and barred all agricultural shipments.

By the end of March, bread, pasta, poultry, and milk started disappearing from shops in many cities, including Buenos Aires. Beef was almost gone. For a country, where more beef is consumed than anywhere else - 74 kg per capita in one year (compared to about 46 kg in the United States and a little over 16 kg in Russia) this was quite an ordeal.

But the farmers continued the strike and even received support from other producers and urban residents from well-to-do districts.

The Kirchner couple is hugely disliked by the Argentine farmers and the part of the nation which the Peronist movement has long demonized as "relics of the agrarian oligarchy."

Kirchner said she will "not yield to any extortion" and denounced the strikers for protesting while making record profits and unwilling to share them with the rest of the country.

By April 1, the strike turned into a national disaster. The farmers promised to lift the blockade of roads on April 2, and Kirchner was ready for some concessions.

But rather than cure the disease, these concessions will only remove its symptoms for some time to come. If we mix all the negative ingredients of globalization - price escapades of oil and gas, common greed and the most primitive populism - in a shaker, we'll get quite a cocktail. Anyone who drinks it will get a headache similar to Argentine soy-provoked hangover.

Experts predict that the Argentine problem will hit other countries.

The Kirchners themselves are largely to blame for what is happening in Argentina. Christina came to power last December when her husband Nestor did not run for a second term. On the eve of the elections, he almost doubled the state budget for pensions and government projects. No wonder that the Argentinians voted for his wife. But they ended up with two Kirchners for the price of one. The budget extravagance whipped up inflation, which has already topped 15%. Now the farmers are being told to contribute to the budget so that the government could pay for the couple's populist moves. It appears that two for the price of one was not at all a good deal.

As for soy, Argentina is its third biggest producer after the United States and Brazil. But it is the world's leader in the export of soy oil and products - last year its revenues were $13.47 billion out of the world's sales of $24 billion. Half of Argentina's agricultural lands have already been given to the farmers. If it goes like this, there will be no pampas left in the country, because growing soybeans is easier than raising cattle.

Argentine exports cover nearly half of China's soya consumption. Incidentally, China was the first to hint to Buenos Aires about the need to resolve the conflict as soon as possible.

A dollar shower started in Argentina with a skyrocketing demand for grain; the latter began rising with a rapidly growing demand for ethanol; and the latter started going up with the growing oil prices. Demand for soya beans began to increase because Argentina needed fodder instead of grain, which was exchanged for oil....

This pumping of grain from the food sphere into the fuel and energy sector may produce unexpected results. Scientists from Illinois have calculated that in 2006 the demand for ethanol grain in the United States alone was 54 million metric tons, and grew to 81 million metric tons in 2007. When 62 ethanol-producing plants are put into operation in America by the end of this year, this demand will increase to 114 million metric tons. A barrel of crude oil will cost about $100, while the producers of ethanol from fodder maize are ready to double what they offered for a bushel of maize early this year. When the food value of grain becomes less important than its energy yield, it is clear where these grain bushels will go.

Original article: RIA Novosti
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