Benefiting From U.S. Drought : Brazil and Argentina Expecting Windfalls From Farm Exports

This summer’s drought may be devastating for North American farmers, but it has handed a multibillion-dollar bonanza to grain growers in Argentina and Brazil, generating a glimmer of optimism in an otherwise desperate economic climate.

Argentina expects a windfall of up to $2 billion in extra revenue from agricultural exports because of higher prices this year, government officials say. Nearly half the bonus is attributed directly to the drought in the United States and Canada.

In Brazil, too, agriculture ministry officials predict an increase in farm exports of $1.2 billion this year, thanks to the general trend toward better prices and the extra price surge caused by the drought.

“I am sorry for the Americans, but I am happy for our own farmers, who have suffered for years,” said Fernando Miguez, 37, a Buenos Aires agronomist who also is co-owner of a 340-acre farm in Rojas, near Buenos Aires. Miguez expects his income to rise 25% to 30% this year. He is investing in fertilizers, herbicides and new machinery to increase production in the coming season.

He and other Argentine farmers worry, however, about the current political scramble for a share of the spoils. The farm sector is fighting to be allowed to keep the profits, while others want the money to be used to assist industry or to help reduce the government’s enormous budget deficit.

Timely Boom

In its anti-inflation package imposed this week, the government opted for a temporary compromise, involving different exchange rates for export earnings, that left farmers angry and uncertain about their future. Further policy decisions are expected in coming months.

The outcome of the debate, farmers contend, will signal whether Argentina is resolved to make agriculture once again the engine of its economic growth or to resume the half-century-old policy of exploiting farm earnings to subsidize other, less-efficient sectors.

In any event, the current boom could not have been more timely.

Brazil is the largest Third World debtor, owing $121 billion to foreign creditors. Argentina, with a $58-billion debt, ranks third behind Mexico. When the anti-inflation plan was announced, Argentine prices were rising by more than 300% a year; Brazil’s inflation rate is double that.

Falling world grain prices during the early and mid-1980s aggravated unrelenting economic crises in both countries at a time when they urgently needed foreign currency.

Nestor Niell, president of the government’s Argentine Grain Board, said the fall in prices, caused largely by American and European subsidies that led to vast stockpiles, cost Argentina $13 billion to $16 billion in lost export earnings in this decade.

Farmers ran up debts, and production tumbled to just 32 million tons of grain in 1986-87 from a high of more than 43 million. When things were bad, Niell said wryly, “nobody ran to us offering to help. But now, when things are better, they all want a piece of this extra money.”

Year’s Harvest Rose

Niell contends that the fresh funds must be allowed to stay in farmers’ hands to let them reinvest to ensure future growth. “We believe Argentina must base its rebirth on agriculture--on an agriculture that doesn’t subsidize inefficient industry,” he said.

Until last year, Argentina taxed farm exports by retaining a share of export revenue. The removal of the retention system for most products encouraged farmers to sow more crops, and this year’s harvest rose to 37 million tons.

Thus, when prices began rising early this year and then shot up further because of the drought, the bumper crop suddenly was worth much more. Niell projected the total increase in earnings at $1.7 billion to $2 billion this year purely because of the higher prices.

Given the combined effect of higher prices and a larger crop to export, total grain and grain product exports are expected to earn $7 billion this year, up from $3.6 billion last year, according to the department of agriculture. The department says the drought has directly contributed an additional $500 million to export revenue, an estimate somewhat lower than Niell’s.

“We would have preferred that this (boom) occurred because of the elimination of the cause of the world’s agricultural problems--subsidies,” Niell said. “This is the root cause of the problem. It is always a permanent threat.”

That has been a refrain in Argentina since the end of World War II, when new American subsidy programs effectively shut Argentine grain out of many markets. In contrast to the United States and Europe, Argentina pays no subsidies or support prices to its farmers.

Industrial Exports Favored

Postwar President Juan D. Peron gave farmers a further disincentive by imposing the retention system to help finance Argentina’s industrialization, discouraging production and leaving farmers short of cash for modernization.

President Raul Alfonsin pledged not to reintroduce export retentions, but government officials concede privately that there was heavy pressure to take advantage of the fresh income to meet daunting financial needs.

In the anti-inflation program, the government ruled that dollars earned from agricultural exports will continue to be exchanged at the official rate, now 12 australs, while industrial export earnings will convert at a higher rate--halfway between the commercial and the free, or black market, rate of 14.20 australs. That favors industrial exports without technically breaking Alfonsin’s promise not to penalize farmers for the windfall.

But farm groups say Alfonsin has resuscitated the old system in a different guise, opting for short-term profits that will undermine confidence and farm output. They were mollified only partially by the removal of export retentions on hundreds of minor farm products and by Alfonsin’s pledge to try to unify exchange rates next year.

Guillermo E. Alchouron, president of the Argentine Rural Society, a powerful farmers’ organization, said that over the past 50 years, “the agricultural sector has transferred $300 billion to other sectors of the society. This was a bad use of resources.”

Now, he said, Argentines have realized that they must restore the former role of agriculture as Argentina’s main source of wealth. “The thinking in the country now is against a transfer to sectors that have not shown efficiency,” he said.

Diego Elizalde, spokesman for the secretary of agriculture, said the boom has had spinoff effects for all sectors, not just farmers. Tractor orders, for example, have soared to 1,170 so far this year, compared to 220 for the same period last year.

Farmer Miguez said many of his friends had used their higher earnings to pay off bank loans incurred during the bad years, with staggering monthly interest rates of up to 27%.

“For farmers like me who don’t have loans, this price rise was really an important benefit,” he said. “Now we can increase the areas being sown; we can afford more fertilizers and machinery, even though they are much more expensive because of inflation.”

“Now, we have some hope,” he said. “We think this is just for this year, and perhaps next. But if the United States has another bad year, we will be in good shape for at least the next five years.”