Argentina Slashes Export Taxes to Rescue Drought-Hit Farmers

(Bloomberg) — Argentina slashed taxes on its major crops that provide billions of dollars in export revenue as it seeks to throw a lifeline to farmers wrestling with a drought and low global prices.

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The government of President Javier Milei cut tariffs on exports of soy meal and oil to 24.5% from 31%. The levy on unprocessed beans was cut to 26% from 33%. The tax on corn was reduced to 9.5% from 12%. There were cuts for other major crops, including wheat, barley and sunflowers.

“We thought this display of solidarity was very important given farmers’ situation,” said Economy Minister Luis Caputo at a news conference. “We’re seeking nothing other than justice,” he added.

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Argentina has taxed shipments for years as a way to fund bloated government budgets, even though it’s held back development of key export industries and, especially, beleaguered farmers. Milei is on a crusade to slash spending, but Caputo said they still aren’t in a position to afford a blanket, permanent removal of the export taxes.

The policy will go into effect Jan. 27 and will last for most of the harvest, with the bulk of fieldwork done in the second quarter. The taxes would be scheduled to go back up in July. That will spur farmers to trade their soy and corn straight away, beefing up central bank dollar reserves that Milei needs to help stabilize the economy ahead of midterm elections.

Growing reserves is also a key issue in talks that Argentina is holding now in Buenos Aires with the International Monetary Fund for a new program to succeed the current $44 billion deal. A sticking point is Argentina’s foreign-exchange policy, whereby inflation outpaces the government’s monthly peso depreciation.

The resulting strong peso, low global crop prices and the drought are eating into farmers’ profit margins, with many operating at a loss this season. In essence for them, the tax breaks are a compensation mechanism.

For global crop traders, the policy boosts the competitiveness of Argentine food shipments against rivals like neighboring Brazil. Argentina is usually the world’s biggest exporter of soy meal and oil, and the third-biggest supplier of corn.

“This is crucial for farmers at a time when global prices are low and there are regions suffering a bad drought,” Sergio Iraeta, the government’s agriculture chief, said at the conference. “I hope it rains.”

(Adds quotes from government officials.)