Argentina: Where's the beef? Populism vs. contracts and trade
Friday, April 9, 2010
BUENOS AIRES - Argentina halted beef exports at customs posts last week and containers were unloaded from ships. No law had been passed, no legal decree had been issued--apparently just a telephone call from Commerce Secretary Guillermo Moreno to Customs (not even in his bailiwick). This populist contempt for contracts and for trade is crippling our economy.
Moreno believes domestic meat prices are too high: Argentines eat about 70kg of beef a year (compared with about 45kg in the USA) so politicians are terrified of popular discontent. Reports about Moreno's phone call have not been contradicted nor has the order been confirmed legally: he has even said exports can resume but exporters told reporters they still cannot export without a new form signed by Moreno himself, giving him Soviet-style day-by-day control.
None of this is new. Meat exports were banned for a time in 2006 and Moreno's hectoring phone calls are well known to business people, with threats about "suggested prices" or commands to cancel foreign orders.
His immediate motivation is the Consumer Price Index, up 1.2% in February (independent economists reckon it is twice that), the highest rise since March 2006. The basic basket is up 4.7%, with more than half due to the rise of meat.
This inflation follows the policies that ex-President Néstor Kirchner and his wife and successor Cristina Fernández have imposed on this traditional Argentine sector, with export limits or bans and failed attempts to control prices.
The controls have of course discouraged production. The total beef herd fell from 58.8 million in 2006 to 55.4 million head in 2008. Forecasts for 2009-10 put it at 48 million. In 2009, exports rose but this may not be good news: it signifies that owners are selling their stock in favour of growing soy beans. One clue is the high level of slaughter of cows.
The short term effect of the latest export ban was indeed to make prices fall, by 30% in the Buenos Aires market, but this cannot last.
What will last is the threat to more than 10,000 jobs in the export business, to say nothing of the economic outlook for producers, the investment in the sector and, above all, foreign confidence in doing business with Argentina.
Not suprisingly, Argentina has fallen from being the top recipient of foreign investment in South America at the beginning of the 20th century to third at the end of it, behind Mexico and Brazil, and now fifth, behind Chile and Colombia.
The top foreign investor is Spain, at 23%, already hammered by the December expropriation of its stake in Aerolíneas Argentinas. The second is Brazil with 10% but some of the top meat storage companies are Brazilian. In third place is the USA with 8%: its biggest investments are in auto-makers but next comes agriculture, where corn and wheat exports are already curbed and soy faces high export taxes. The oil business faces similar interference.
Contract law just goes up in smoke when businesses have to violate their agreements on an arbitrary whim--a phone call, not even an order or decree. It makes no sense to buy Argentine products if you do not know if they will be allowed out until they reach the customs post--and if the container can even be removed from the cargo ship after loading.
If this can happen to Argentina's proudest icon, it can happen to any product or industry or import that upsets the ruling family's wishes. It is the economy that suffers most, hitting the people hardest at a time when trade is the only way out of global recession.