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Emergency Taxes in Argentina Putting Pressure on Producers

The tax has been forcing olive oil producers to sell down their stocks as quickly as possible and dampening the optimism that had previously been palpable in the sector.

Jan. 23, 2019
By Daniel Dawson

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

We are in a sit­u­a­tion of bank­ruptcy and the tax does not help, but wors­ens it.- Julián Clusel­las, the pres­i­dent of the Rio de la Puerta olive oil com­pany

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.”

See more: Olive Oil Busi­ness

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.

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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.





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