Emergency Taxes in Argentina Putting Pressure on Producers

Summary

Argentina’s new tax on agri­cul­tural exports, imposed by President Mauricio Macri to increase gov­ern­ment rev­enue and com­bat infla­tion, has been neg­a­tively impact­ing olive oil and table olive pro­duc­ers, who are strug­gling to stay afloat due to the addi­tional taxes. Producers like Julián Clusellas and Frankie Gobbee warn that the taxes, along with ris­ing pro­duc­tion costs, could lead to bank­ruptcy for many in the indus­try, and are call­ing for the gov­ern­ment to recon­sider the mea­sures in order to pre­vent fur­ther eco­nomic decline.

Argentina’s new tax on agri­cul­tural exports, which was instated last September, has been weigh­ing heav­ily on the country’s olive oil pro­duc­ers.

Mauricio Macri, the Argentine pres­i­dent, imposed the taxes in order to increase gov­ern­ment rev­enue and help to keep ram­pant infla­tion in check.

“We know that it is a really bad tax that goes against what we want to stim­u­late, which is more exports,” Macri said at the time in a tele­vised speech. ​“But I ask you to under­stand: it’s an emer­gency and we need your sup­port.”

However, the weight of pro­vid­ing this sup­port has olive oil and table olive pro­duc­ers stag­ger­ing toward an uncer­tain future.

Olive oil pro­duc­ers have been pay­ing an addi­tional three Argentine pesos ($0.08) in tax on every U.S. dol­lar of rev­enue they earn from exports. For table olives, pro­duc­ers pay four pesos ($0.11) for every U.S. dol­lar earned.

While it may sound small, these pesos add up and have been forc­ing many pro­duc­ers to sell through their stocks as quickly as pos­si­ble. Sometimes this is still not enough.

Julián Clusellas, the pres­i­dent of the San Juan-based Rio de la Puerta olive oil com­pany, told Olive Oil Times that his com­pany could face bank­ruptcy soon if some­thing does not change.

“We are in a sit­u­a­tion of bank­ruptcy and the tax does not help, but wors­ens it,” he said. ​“The pro­duc­ers are not able to feel out the pulse of the mar­ket and we must sell all our pro­duc­tion and as fast as pos­si­ble to stay alive.”

Frankie Gobbee, the co-founder of the Argentina Olive Group, echoed sim­i­lar sen­ti­ments. He told Olive Oil Times that Latin America’s largest olive oil pro­duc­ing com­pany was also in finan­cial dan­ger as a result of the new taxes.

Both Clusellas and Gobbee acknowl­edged the need for the Argentine gov­ern­ment to do some­thing in order to com­bat ram­pant infla­tion, which has seen the value of the peso halved in the past year. However, they worry that their indus­tries will be col­lat­eral dam­age in the effort to sta­bi­lize the cur­rency.

On top of the new taxes, increased energy, fuel and equip­ment costs have already been eat­ing away at many pro­duc­ers’ bot­tom lines as they push up pro­duc­tion costs.

“The taxes, [which are] called reten­tions are impor­tant, given that once again we have a delayed exchange rate in rela­tion to inter­nal costs,” Gobbee said. ​“It is com­mon knowl­edge that a large part of the inputs are dol­lar­ized agro­chem­i­cals and energy and fuels. Labor costs are the only expense in pesos while the rest has risen around 50 per­cent.”

The Economic Research Institute of the Buenos Aires Grain Exchange, which has ana­lyzed the poten­tial impacts of the taxes for the cur­rent har­vest sea­son as well as the upcom­ing one, said the increased export duties are likely to hurt agri­cul­tural pro­duc­ers of all types.

“The mea­sure will have neg­a­tive impacts on the planted area, invest­ment per hectare, pro­duc­tion, milling and exports,” the group said in a state­ment.

Argentina’s Ministry of Agroindustries has remained silent on the issue and have not released a for­mal state­ment regard­ing the tax increases. The Ministry did not respond to a request for com­ment on this story either.

However, the Buenos Aires Grain Exchange said that these new taxes will con­tinue to hurt pro­duc­ers as well as the over­all econ­omy while they are in force.

“The sum of the cam­paigns would reg­is­ter a decrease of $2.762 mil­lion in the Gross Agroindustrial Product, with respect to what would be achieved with the pre­vi­ous esti­mates,” the group said. ​“The Argentine econ­omy would regress by 0.2 per­cent and 0.4 per­cent growth, accord­ing to these esti­mates, in 2019 and 2020.”

The exchange has urged the gov­ern­ment to recon­sider these taxes, stat­ing that the gov­ern­ment should be work­ing on a solu­tion that would help increase exports as well as address infla­tion.

“As a result, and despite the urgency implied by the imbal­ances of pub­lic finances, it is impor­tant to move towards a more effi­cient tax sys­tem that pro­motes invest­ment and exports, the engines of a sus­tain­able eco­nomic growth process,” the group said.

Until this emer­gency tax is removed and the value of the peso rebounds, pro­duc­ers such as Clusellas and Gobbee will con­tinue sell­ing down their stocks and hope for a wind­fall from the upcom­ing har­vest, which is esti­mated to be record-set­ting.

• Punto Biz


• Bloomberg