Argentina repeats inflationary measures that have already failed
(Bloomberg) – Argentina’s new ban on exports of its famous meat will not stifle runaway inflation if past interventions serve as a benchmark.
Because red meat prices were rising by roughly 65% annually, easily outpacing inflation of 46%, the government of President Alberto Fernández will suspend meat shipments from the world’s fifth largest exporter for 30 days.
While the measure may bring quick political payoffs, the long-term repercussions for the beef industry are well known in Argentina, which implemented similar restrictions for a decade to 2015: ranchers go out of business, production drops and falls. Price pressure resumes.
“It is not even very clear to me that it will have a genuine impact on controlling food inflation,” said María Castiglioni, director of the consulting firm C&T Asesores in Buenos Aires. “Losing markets when it takes so long to open new markets for export, above starting to lose employment in a sector that works, the truth is inexplicable.”
Fernández saw the impact of the export ban firsthand in 2006, when he was chief of staff to President Néstor Kirchner, the late husband of current Vice President Cristina Fernández de Kirchner, who also ruled the nation between 2007 and 2015. As well that now, the idea back then was to direct more beef to the local market and lower domestic prices.
But the measure failed. When ranchers turned their backs on the industry after the ban, Argentina lost almost 20% of its cattle in 2011. Cattle prices increased more frequently in subsequent years, including a 126% annual increase at the end of 2010 , and the country was surpassed by its smaller neighbors, Uruguay and Paraguay, in the international market.
The move also sparked anger across Argentina’s beef industry, famous around the world for its tender cuts, and was criticized by farmers for lasting much longer than originally advertised.
Miguel Schiariti, president of the meat industry and trade group Ciccra, said that in 2006 the ban was supposed to last 180 days and ended up lasting 10 years, referring to strict export controls thereafter. He assures that they are blaming the sector for the prices, but inflation is the government’s fault due to the fiscal deficit and the printing of money.
Fernández argued that he was forced to take action because of the rise in world prices of basic products in recent months, which caused meat prices in Argentina to spiral out of control.
International demand “creates a tension with domestic prices that can no longer be held,” Fernández told a radio station on Tuesday. “Because we cannot continue having to see how meat rises month by month in prices without any justification.”
Suspending beef exports gives the government political ammunition at a time when the ruling Peronist coalition faces fierce infighting ahead of midterm elections in October. By pointing the finger at wealthy farmers, traditionally seen as opposed to Peronism, Fernández may find a scapegoat to rally his voter base and deflect the blame for accelerating inflation that is hurting his approval ratings.
“If you are not going to solve the problem, you have to find enemies,” said Marcelo Elizondo, an economist specializing in trade. “Perón 70 years ago spoke of the bovine oligarchy. For the Peronist voter, that is very traditional ”.
At the same time, the clash with the farmers shows the growing power of the extreme left wing of the coalition, led by Kirchner. Some senior officials opposed the ban when it was first introduced in April, according to a person with knowledge of the matter. Fernández himself told beef exporters in November that he viewed them as a focal point in the economic recovery, and during his campaign he said that exports were Argentina’s only source of dollars.
Among farmers, the fear is that Argentina is eroding the gains made under the pro-agriculture policies of former President Mauricio Macri, who ruled from 2015 to 2019. The cattle herd increased by 2.3 million during his presidency and exports of meat were one of the few Argentine success stories in a period marked by recession.
Juan Ouwerkerk, president of Alfa, an agricultural cooperative in southern Buenos Aires province, complains that they insist on doing things that have already caused a lot of damage and that did not work. He adds that the government paints them as enemies only a few months before the elections, in a populist measure.
Original Note: Inflation Near 50% Leads Argentina Down Path That Failed Before
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