As Food Prices Soar, Brazil and Argentina React in Opposite Ways

by Dave

And South America’s agricultural powerhouses, Brazil and Argentina, are responding to the farming windfall in opposite ways.

Mr. da Silva’s government recently announced record farm credits, a form of indirect subsidy, to encourage Brazil’s farmers to produce more while the price of their exports are high on world markets, a move that should improve Brazil’s economy. But Argentina, Brazil’s economic and political archrival, decided to share the agricultural windfall at home.

Worried about the wave of inflation rippling around the world, the government of President Cristina Fernández de Kirchner of Argentina increased export taxes on some crops, a move meant to keep down domestic food prices by encouraging farmers flush from global profits to sell more at home.

“In our country the government is trying to get money to subsidize other sectors of the economy,” said Eduardo Cucagna, president of FN Semillas, an Argentina seed company, objecting to the policy. “I think Brazil is doing the opposite, adapting to what the world is offering now. They’re doing it right.”

In the race to take advantage of the tight global food market, Brazil has a number of advantages over its southern neighbor. It is much bigger, with around 173 million acres of land currently under cultivation, more than twice that of Argentina. It has a wider range of agricultural exports. And while Argentina is the world’s second biggest exporter of corn and the third biggest exporter of soybeans, Brazil is the world’s first or second largest exporter of beef, soybeans, orange juice, chicken, sugar and coffee.

The [Brazilian] government’s main goals are to help producers expand onto available land and increase productivity on their current land. It estimates there are up to 220 million unused acres available for planting.

[M]any trade analysts believe both countries will eventually benefit from the run-up in global food prices.

“They have different approaches to what is happening in the world
agricultural markets,” said Simla Tokgöz, an international grain
analyst at the Food and Agricultural Policy Research Institute, an
research center based in Iowa. But “short-term volatility happens in
all countries. In the long term, Argentina has great potential to
increase production and to continue to be a major exporter of grains
and oil seeds.”