Argentina misses out on grain bonanza as farm crisis sparks fears of economic downturn

by Dave

From a sound economic point of view, it is more effective for governments to make direct cash transfers or provide vouchers to the poor than to mess with the price mechanism this way. Government-induced price distortions always end in more tears for the poor. Politicians around the world seems to have trouble with the concept of opportunity cost.

via International Herald Tribune

So far, the strikes have cost Argentine farmers US$2.3 billion in missed soy, wheat, corn and sunflower seed sales, said Pablo Adreani, an economic analyst with AgriPAC Consultores, a Buenos Aires consulting firm.

“The fact that we’re even considering a crisis amid this historical commodities boom makes no sense,” said Gabriel Torres, a senior analyst at Moody’s Investor Services in New York. “It tells you how incredibly self-inflicted this is.”

Had the government taxed rising farm income at its previous rate(35% instead of the current 46%), the windfall could have financed needed utilities and energy sector infrastructure or funded programs for the country’s 10 million poor, analysts said.

“The opportunity cost of this paralyzed economy is huge,” said Ricardo Baccarin, chief analyst at Paniagricola S.A., a Buenos Aires grain brokerage. “There’s practically a complete paralysis of commercial activity.”