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What does Argentina's election mean for crop production?

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Sunday will see Argentina go to the polls, in a presidential election that that is likely to prove crucial Argentina's agricultural prospects.

The winner, who will take power before the end of the year, will be faced with the choice of whether or not to unravel a web of currency controls, export taxes and trade barriers.

The moves could be dangerous in an economy where the threat of consumer inflation looms large, but one group who are likely to be hoping for a loosening of restrictions are Argentina's beleaguered farmers.

Race reaches finish line

Currently the front runners are Daniel Scioli, a centrist candidate put forward by the ruling FpV coalition, who is considered a moderate member of the left-wing, Peronist grouping, and Mauricio Macri, the right-leaning Mayor of Buenos Aires, running for the Cambiemos party.

Mr Scioli, who has a lead in the polls, has put himself forward as the continuity candidate with the outgoing Christine Fernandez, while Mr Macri paints himself as a liberalising reformer, who will sweep away the fixed exchange rates, export taxes and export limits that have been weighing on farmer incomes for years.

Sergio Massa, who running for the UNA alliance, is also considered a viable candidate. Mr Massa is also likely to favour a policy of economic liberalisation.

Export restrictions

Among other free-market policies, Mr Macri promised to remove restrictions on agricultural exports.

Christina Fernandez, the outgoing president, has maintained strict export controls on corn in particular.

These limits, particularly on corn, have been designed to shield consumers from food price inflation.

Soybeans favoured

Dr Michael Cordonnier of Soybean and Corn Advisor said the effect of this export control policy has lead farmers to favour soybean sowings, as exports were less heavily controlled.

"Therefore, they kept reducing their corn acreage in favour of additional soybean production," he said.

"Instead of having a crop rotation similar to the US where farmers have a 50-50 crop rotation between corn and soybeans, Argentine farmers now basically grow a monocrop of soybeans year after year."

"Farmers realise this is not a sustainable long term practice, but they say they are being forced to do it because of government policies."

Dr Cordonnier said that a win by Mr Macri, therefore, would be likely to trigger an increase in corn sowings.

Time to revise

Speaking to Agrimoney.com, Dr Cordonnier pointed out that recent changes in Argentine agronomy meant there was plenty of time to change their planting intentions even if the election result is not decided until mid-November.

Farmers avoid sowing corn in November, in order to protect it from pollinating during the hottest weather in January.

Where corn had previously been sown primarily in October, now about about two thirds of the crop is planted in December.

"This two phases started a couple of years ago," Dr Cordonnier said. "The later planted corn actually yielded better."

But although corn production is likely to be the big winner from a change in government, other agricultural commodities are also likely to see support.

This month the US Department of Agriculture cited Argentine taxes exchange rate controls as supressing soybean production.

"Much of the industry expects these policies to be modified after a new administration takes power," the bureau said, voicing a widespread belief that even Mr Scioli will be forced to liberalise the sector, if to a lesser degree than his opponents.

Burden of taxation

Opposition candidate Mr Macri has promised that if he is elected, he will eliminate the export taxes on commodities, while his opponent Mr Scioli has pledged to re-examine the issue.

"Actually, it is easy to promise eliminating the commodity export taxes, but it would be very difficult to do because they bring in 10-11% of the government's revenue," said Dr Cordonnier.

For soybeans, for example the tax runs at 35%.

The Fundacion Agropecuaria para el Desarrollo de Argentina farm (Fada) research institute last month estimated that the combined effect of taxes reduces farmer's net income by 94%.

Debt crisis

Dr Cordonnier explains that the export taxes were implemented in the wake of Argentina's sovereign debt default in 2002, when Mrs Fernandez's husband Nestor Kirchner was president.

The default caused the peso to plummet, boosting incomes for farmers who were holding reserves of dollar-priced grain.

"When the farmers sold their grain and converted it into devalued pesos, they did OK and that caught the attention of the then president Mr Kirchner," Dr Cordonnier said.

"He categorized that as windfall profits for the farmers, which he decided to tax, thus the implementation of the export taxes."

Exchange rate boosts

And a win by Mr Macri could also offer an end to currency controls, which would again benefit farmers.

On international markets, the peso trades within a band, that is currently around 9.59 to the dollar.

The currency band is imposed by intervention in the money markets, using government foreign currency reserves.

A network of currency restrictions exist, to keep money from being pulled out of Argentina, and redenominated into dollars at this inflated exchange rate.

Black market rates

But on the black market inside Argentina exchange rate is now reported by more than 16.4 pesos to the dollar.

Mr Macri has already pledged to pull currency controls altogether, which would lead to a sharp downward adjustment in prices.

And even if Mr Scioli wins, markets are expecting an exchange rate fall, as Argentina is fast burning through the cash reserves needed to maintain its official exchange rate.

The effect of a lower peso would be to boost the returns of farmers selling dollar-denominated commodities.

With polls indicating that the election hangs in the balance, markets should be looking out for a result that could boost production in what has traditionally been one of the world's major agricultural economies.

By William Clarke

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