Argentine Strike

Just wondering what people here thought about the farmer's strike Argentina is having.

 

Apparently, the president wanted to up export tarriffs on all foodstuffs by 50%, which has not been taken well by farmers.

 

http://www.cnn.com/2008/WORLD/americas/03/25/argentina.strike/index.html

 

"It is the sector that exports almost everything," she said. "About 95 percent of soybeans are exported. They're not exported in Argentine pesos, they're exported in euros, in dollars. But the costs are Argentine costs."

... and the investments those farmers are going to make will very likely be Argentine investments. The products these farmers purchase will likely be Argentine products.

But of course, statist reasoning says national governments know best how to spend money for the people. Farmers are absolutely right on to demand no such thing be implemented. Seems to be plain government greed at work there.

 

Sphairon:

But of course, statist reasoning says national governments know best how to spend money for the people. Farmers are absolutely right on to demand no such thing be implemented. Seems to be plain government greed at work there.

 

That is a nice and conveniently libertarian explanation, but I think it is at best an incomplete truth. Methinks the complete truth is that Argentina is, like every other country, experiencing rapidly rising food prices and, in an effort to avoid food shortages and riots, the government is trying to restrict the market where farmers can sell their goods, reducing effective demand and lowering prices. A native population with productive farms all over the place can starve if demand in wealthier foreign markets is such that they will pay more than the starving natives are capable of.

JCFolsom:

 

That is a nice and conveniently libertarian explanation, but I think it is at best an incomplete truth. Methinks the complete truth is that Argentina is, like every other country, experiencing rapidly rising food prices and, in an effort to avoid food shortages and riots, the government is trying to restrict the market where farmers can sell their goods, reducing effective demand and lowering prices. A native population with productive farms all over the place can starve if demand in wealthier foreign markets is such that they will pay more than the starving natives are capable of.

The "government greed" thing may be a libertarian reflex, but the point remains that excessive tariff increases due to looming food shortage are just another slide down the spiral of interventionism:

First, central banks create artificial booms with low interest rates, later, after the party's over, misallocated capital is hedging against inflation by investing in commodities which increases the price for nutrition. Politicians then force their domestic producers to stop exporting, hoping this will drive down prices at home. If just one country acts that way, it might even work, unfortunately copy-cats will soon step in and restrict their food exports until, in the end, every nation is close to self-sufficiency. Needless to say, prices in such a scenario will be much higher than when governments decided they were too high to allow exports, at least for countries where agriculture only accounts for a marginal percentage of GDP.

I'm not sure whether we should call that an improvement?

JCFolsom:

 A native population with productive farms all over the place can starve if demand in wealthier foreign markets is such that they will pay more than the starving natives are capable of.

Not so long as they can provide labor to the farm.

Stranger:

Not so long as they can provide labor to the farm.

 

There are not necessarily going to be anywhere near enough such jobs to go around.

That being said, I don't necessarily support their actions, I just don't want us to be too glib in how we talk about this situation. People all over the world are facing dire consequences of actions they didn't necessarily have any input on.

JCFolsom:

That is a nice and conveniently libertarian explanation, but I think it is at best an incomplete truth. Methinks the complete truth is that Argentina is, like every other country, experiencing rapidly rising food prices and, in an effort to avoid food shortages and riots, the government is trying to restrict the market where farmers can sell their goods, reducing effective demand and lowering prices. A native population with productive farms all over the place can starve if demand in wealthier foreign markets is such that they will pay more than the starving natives are capable of.

No, it's not that.

The declared intention of Cristina Fernandez (the president) is to relocate the resources currently spent in soy farming to other less successful crops like corn and wheat. The real reason (confessed in a few speeches) is to make more money to finance populist politics, like the building of schools and hospitals.

Between one thing an the other, Argentinians keep less than the half of the money they make. The rest goes to the state.

The farmers decided to go on strike because the goverment has been imposing new taxes and regulations on every agricultural and cattle breeding sector for decades, until soy became the last really profitable crop to grow. If soy is busted like the others (milk, corn, wheat, etc) were, the whole Argentina is going to collapse.

Cristina and his husband are just trying to make enough to finance the populism that will give them another term, and steal as much as they can in the meanwhile. Google a little for the data on the impressive growth in the family fortune since Nestor Kirchner (the penguin) was a governor.

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Milk is not a crop. I meant agricultural activities.

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The Kirchners already blocked exports of foods in the past. Among other things, they almost managed to ruin the richest industry in the country: meatpacking, with everything else in the supply chain. The Kirchners gave up just in time.

Please, try to read a little before judging.

 

OT. By the way, who is going to the Austrian Congress in Rosario, Argentina?

Argentine farmers, like the rest of argentine society, are corpororatists.

Right now they are blocking 'public' roads which means that ordinary people can't move freely. These farmers are not hitting back at the government that taxes them - they are attacking their neighbors. Farmers behave in the same way that marxist unions do.

They are by no means honest free-market entrepreneurs, but rely on government subsidies and regulations. A favorite trick of them is to borrow money from state-owned banks and pay it back in devalued currency. That's exactly what happened in 2001 - farmers borrowed money when the exchange ratio between pesos and dollars was 1:1 - and payed it back at the new 3:1 exchange ratio. Their debts were 'magically' reduced by 66%...As a matter of fact, farmers were one of the groups behind the coup of 2001.

Products from Brazil like pork and chicken have been banned because, you see, they were damaging 'our' local producers...and the list goes on and on.

Yes, the export duties are ridiculous and will of course cause more damage. Problem is, farmers have no economic or moral arguments to oppose them.

JCFolsom:

Argentina is, like every other country, experiencing rapidly rising food price

Yes, and that's because of homegrown inflation and 'global' inflation. It seems to me that inflation does benefit farmers and other producers of commodities and raw materials, so they are quite comfortable with thatkind of interventionism. Problem is, when the government that caused inflation asks them to share the spoils, they are not happy...

Hi Juan. I agree with you. I think the really effective measure would have been to refuse to sell grains or burning the farms in a "Wyatt's Torch way".

I think the really effective measure would have been to refuse to sell grains or burning the farms in a "Wyatt's Torch way".

But Gus, the problem is that farmers here are not Rand's heroes - if anything, the system they prefer is that of James Taggart's.

Juan:

Problem is, when the government that caused inflation asks them to share the spoils, they are not happy.

Here I come to think you don't really know the reality of agriculture. The government has been killing farmers for ages. They are benefited by inflation (that's why they are giving me a hard time paying 30, 60 or 90 days later for the machines I sell) but that's a side consequence of the government's measures to boost macroeconomic indexes and its own finances, not something the government did to help them.

Juan:

farmers here are not Rand's heroes - if anything, the system they prefer is that of James Taggart's

And I agree again. If the government really wants to f*** them, the only thing they need to do is to free imports on beef, chicken, pork, milk, soy, corn, rice, etc. But the penguins lack imagination for that. It would break the ideologic inertia.

gussosa:

The declared intention of Cristina Fernandez (the president) is to relocate the resources currently spent in soy farming to other less successful crops like corn and wheat. The real reason (confessed in a few speeches) is to make more money to finance populist politics, like the building of schools and hospitals.

 

Bah. You do realize that saying you're doing this to help poor wheat farmers or building schools sounds better than saying "We're doing this to avoid future food riots," right? Less likely to cause panic and economic retraction? Governments, whether in the US or Argentina, do not want people thinking things could get that bad, for fear that it will hasten the collapse as people hoard and otherwise fortify their positions. Governments are desperately trying to convince people that nothing is wrong, or that it is at most a passing thing, a dip into a recession at worse.

JCFolsom:

You do realize that saying you're doing this to help poor wheat farmers or building schools sounds better than saying "We're doing this to avoid future food riots," right? Less likely to cause panic and economic retraction?

Now tell me...

Raising taxes will decrease profit and decreasing profit will decrease supply.

Prices are almost fixed, as regulated by a huge international market, so the prices of grains can be kept low only artificially by a presidential decree and thus lowering farmer's profits even more. That will reduce the grain supply even more.

Then you have a famine, created by government regulation.

Let's say the people start urging the government to nationalize farms and put the State in charge of supplying food. Too late, it takes a year to grow crops again, and the government was too busy before raising taxes.

Dude, I'm not supporting their actions. I'm just trying to explain why. I know they're mistaken, I know all the theory.

gussosa:

Raising taxes will decrease profit and decreasing profit will decrease supply.

Too simplistic an analysis. Just because farming becomes less profitable doesn't mean it's unprofitable. In any case, if current demand for Argentine crops would support farming on more land than is available to farm, than the actual amount of farming won't decrease. That is to say, farmland is a limited resource, and demand for it must be decreased to the point that other land-use demands will be greater before it is converted. It is entirely uncertain that this will occur, and even then, total farming can be reduced and, if it reduces by less than the market loss by cutting off exports, more will end up on domestic markets.

 I am beginning to see a trend here. Bear with me a minute please.

Gussosa is absolutely right in pointing out that it boils down to a "fundraising" drive to provide cash for populist programs. There are many persons with strong family and business ties in Argentina in my town (our emigrants went almost exclusively to Argentina and Brazil) and they are kept well informed by relatives there. The moral basis for this latest robbery is the usual: the farmers are making more profits by "price gouging" and "luck". They need to be punished, wealth needs to be distributed. I also suspect that these populist programs will be aimed at providing "something" to urban populations, which are still suffering from the recent grave Argentinian economic crisis and provide a very large mass of voters, at the expenses of rural populations, which are seen as "profiters", taking advantage of high foodstuff prices ("starving the poor") and a favorable international situation.

Bear in mind that I have very little sympathy for the modern farmer (my grandfather was one and I fully subscribe to Mencken's comments about the American farmer of the '30s) but as I always say "pick your own friends very carefully". Can you really trust the government as a friend? Perhaps for a few years, until they need your help and "your man" is in power but absolutely not in the long run. To quote a line from the Judge Dredd comics "I forgot to tell you: your new friends are cannibals". Guess what they'll do when they run of food.

This also point to a new and disturbing trend in politics worldwide: the "just profit" as an excuse to increase taxation on some sectors. Apart from Argentina there are talks about introducing new "Robin Hood taxes" (sic) in Europe, particulary on the oil and insurance companies. The excuse is always the same ("price gouging" and "unethical profits") and the end result is always the same: the money will be used to "buy consent" by providing small handouts to some political relevant categories, like retired persons on government pensions. Of course multiply the "small" part by a few millions and add the usual inefficiency and you get the result. You'll say "it's just government at work, nothing new under the Sun". But I'll tell you: what do you have to say about Populism meeting Socialism? Pretty scary in my opinion.

Kakugo:

the "just profit" as an excuse to increase taxation on some sectors.

They don't know their economics then. Economists have this concept called tax incidence, which I don't see why Austrians would disagree with. Sometimes the seller might share the burden of a tax by cutting on profits, working harder or something (and, by the way, taxes like on income, like any other cost of doing business, will be reflected in the price as well), but, very rarely, this taxes won't be passed to the consumers; sometimes at 100%. If people start eating less because of food costs rising, then farmers might find it is to their benefit to reduce their price to make up in the extra sales. This might be true for meat, chocolate and other stuff you can get by not eating. But for stuff that people do need to eat, then it won't hurt much demand, and consumers will bear the taxes. Furthermore, food is one of those items that when it gets expensive, there is more demand for it: for instance, if the price of rice, potatoes, etc rises, then people might not afford meat to eat along with it, and will buy more rice, potatoes, etc to make up for it.

Government interference is more or less, but always disastrous. Prices serve a function of motivating people to invest into going to that market. The government only has to get out of the way, don't put entry costs or distorce the playfield by giving tax benefits and stuff to a few. What Argentina seems to need is more people investing in farming, until the pay of the farmers is equal to that of any other job. In static equilibrium, firms don't make profits or suffer loses.

JCFolsom:

That is to say, farmland is a limited resource, and demand for it must be decreased to the point that other land-use demands will be greater before it is converted. It is entirely uncertain that this will occur, and even then, total farming can be reduced and, if it reduces by less than the market loss by cutting off exports, more will end up on domestic markets.

Please, please, rewrite that. You lost me.

If farming becomes less profitable than, say, French government bonds, farmers will sell their lands to put the money on bonds. But what will the land buyer do? Not farming, that doesn't make money. A country-side resort and spa then. Or maybe a retirement village for the retired 1st worlders.

In the end the result is less farming and less food.

OK. Let's do some algebra.

So, we have the current level of farming, which, profitable as farming has become with rising prices, we can assume to be near the maximum level possible with available land resources. We will represent this current level of farming with the variable m. However, because it is near the maximum possible based on limited land resources, it is probably quite a bit less than the maximum would be based on demand. This is to say, the amount of farming that could be supported by domestic demand (d) and foreign demand (f) would be greater than the land they actually do support, as represented in this inequality.

                    m < d + f

Export tariffs will effectively lower foreign demand, let us say eliminate it, for the sake of simplicity. However, no decrease in production will occur so long as

                   m < d

We do not have enough information, at this time, to know if the inequality above is true or false. However, if it is false, we know that

                   m > d

...is true. This means that production can drop below land-limited maximal levels and still meet domestic demand, and at a lower price than it would before.

However, as you pointed out there are other demands on land use. This means that there are competing demands, which we'll denote c. However, so long as no c is falsifies this inequality

                    c < d

You cannot establish that there will be any such c, so it is premature to state with such certainty the outcome of the export tariff. The theories you base your conclusions on are correct in general, but they are based on idealized situations. They fail to take into account many variables that exist in the real world.