Voluntary Report - Public distribution

**Date:** 4/03/2008

**GAIN Report Number:** AR8013

AR8010

**Argentina**

**Agricultural Situation**

**Argentina Imposes Variable Export Taxes; Raises Duty on Major
Commodities**

**2008**

**Approved by:**

![](media/image1.wmf)David Mergen

U.S. Embassy

**Prepared by:**

Dwight A. Wilder

**Report Highlights:**

On March 12, the GOA modified its agricultural export tax regime by
implementing a sliding tax, based on FOB prices. At current world
prices, the change significantly increased taxes for soybeans and
sunflowerseeds, while corn and wheat were slightly reduced. Differential
export taxes were slightly modified, but continue to create incentives
to process primary products. This new measure is a sweeping change that
de-links producer prices from world prices and will generate many
shifting incentives.

Includes PSD Changes: No

Includes Trade Matrix: No

Annual Report

Buenos Aires \[AR1\]

\[AR\]

Table of Contents

[Executive Summary 3](#executive-summary)

[Argentina Implements Sliding Export Taxes
4](#argentina-implements-sliding-export-taxes)

[Table 1. Summary Effects of Sliding Export Tax
4](#table-1.-summary-effects-of-sliding-export-tax)

[Differential Export Taxes 5](#differential-export-taxes)

[Table 2: Differential Export Taxes
5](#table-2-differential-export-taxes)

[Changing Incentives 6](#changing-incentives)

[Chart 1: Internal Prices After Levying Floating Export Tax
7](#chart-1-internal-prices-after-levying-floating-export-tax)

[Increased Revenue for Fiscal Surplus 8](#__RefHeading___Toc195011673)

[Agricultural Sector Strike 8](#agricultural-sector-strike)

# Executive Summary

On March 12, the GOA modified its agricultural export tax regime by
implementing a sliding tax, based on FOB prices. The new tax scheme will
be in place for four years. As a result, under current market
conditions, the GOA will collect an additional US\$1 billion in revenue
(0.4 percent of GDP). The change significantly increased taxes for
soybeans and sunflowerseeds, while corn and wheat were slightly reduced.
Differential export taxes were slightly modified, but continue to create
incentives to process primary products. Producers will be forced to
re-evaluate the profitability of continually expanding soybean acreage,
and have apparent incentives to increase production of grain crops.
However, the overall effect will be a reduction in profitability for
producers. In protest of the government intervention, Argentina's four
predominant agricultural entities supported a strike by the sector from
March 13 to April 2.

# Argentina Implements Sliding Export Taxes

On Tuesday, March 11, the GOA closed export registrations for all major
grains and oilseeds for a period of two days (later extended to three
days), indicating an imminent increase in export taxes for those
products. The following day, Wednesday, March 12, the export tax regime
was modified by implementing a sliding tax, based on FOB prices for
soybeans, sunflowerseed, wheat, and corn. At current prices, the applied
tax on soybeans increased from 35 to 44.1 percent, while the tax on
sunflowerseed rose from 32 to 39 percent. Corn and wheat taxes were
slightly reduced as a result of the action to 24.2 percent (from 25) and
27.1 percent (from 28), respectively. The new tax scheme will be in
place for four years. Additionally, the GOA indicated that part of the
revenue will be used to subsidize other agricultural sectors, such as
meats, dairy, and to encourage increased use of fertilizers.

Resolution 125/2008, defines a formula by which the applied tax rate is
determined. The formula utilizes the FOB price of the commodity at the
time of registering the export sale, and other variables (pre-determined
trigger values established for each commodity), to calculate the applied
rate. Table 1 below shows a summary of the effects of the new tax
collection scheme.

# 

## Table 1. Summary Effects of Sliding Export Tax

+----------+--------+----------+-------------+-----+------------------+
| **Com    | **Ave  | **New    | **FOB Price | **  | **New tax rate** |
| modity** | rage** | sliding  | (USD/ton)** | Old |                  |
|          |        | export   |             | ta  |                  |
|          | **FOB  | tax**    |             | x** |                  |
|          | P      |          |             |     |                  |
|          | rice** | **(Avg.  |             |     |                  |
|          |        | FOB      |             |     |                  |
|          | **Feb  | price    |             |     |                  |
|          | .'08** | for      |             |     |                  |
|          |        | Fe       |             |     |                  |
|          | **(in  | b.'08)** |             |     |                  |
|          | USD)** |          |             |     |                  |
+----------+--------+----------+-------------+-----+------------------+
| Soybeans | 515    | 44.1%    | 0-200       | 35% | 23.5%            |
|          |        |          |             |     |                  |
|          |        |          | 201-300     | 35% | From 23.5% to    |
|          |        |          |             |     | 28%              |
|          |        |          | 301-400     | 35% |                  |
|          |        |          |             |     | From 28% to 36%  |
|          |        |          | 401-500     | 35% |                  |
|          |        |          |             |     | From 36% to 43%  |
|          |        |          | 501-600     | 35% |                  |
|          |        |          |             |     | From 43% to 49%  |
|          |        |          | More than   | 35% |                  |
|          |        |          | 600         |     | 49%              |
+----------+--------+----------+-------------+-----+------------------+
| S        | 569    | 39.1%    | 0-200       | 32% | 23.5%            |
| unflower |        |          |             |     |                  |
|          |        |          | 201-300     | 32% | From 23.5% to    |
|          |        |          |             |     | 25%              |
|          |        |          | 301-400     | 32% |                  |
|          |        |          |             |     | From 25% to 31%  |
|          |        |          | 401-500     | 32% |                  |
|          |        |          |             |     | From 31% to 37%  |
|          |        |          | 501-600     | 32% |                  |
|          |        |          |             |     | From 37% to 45%  |
|          |        |          | More than   | 32% |                  |
|          |        |          | 600         |     | 45%              |
+----------+--------+----------+-------------+-----+------------------+
| Wheat    | 345    | 27.1%    | 0-200       | 28% | 20%              |
|          |        |          |             |     |                  |
|          |        |          | 201-300     | 28% | From 20% to 24%  |
|          |        |          |             |     |                  |
|          |        |          | 301-400     | 28% | From 24% to 30%  |
|          |        |          |             |     |                  |
|          |        |          | 401-600     | 28% | From 30% to 46%  |
|          |        |          |             |     |                  |
|          |        |          | More than   | 28% | 46%              |
|          |        |          | 600         |     |                  |
+----------+--------+----------+-------------+-----+------------------+
| Corn     | 217    | 24.2%    | 0-180       | 25% | 20%              |
|          |        |          |             |     |                  |
|          |        |          | 181-220     | 25% | From 20% to 25%  |
|          |        |          |             |     |                  |
|          |        |          | 221-260     | 25% | From 25% to 32%  |
|          |        |          |             |     |                  |
|          |        |          | 261-300     | 25% | From 32% to 40%  |
|          |        |          |             |     |                  |
|          |        |          | More than   | 25% | 40%              |
|          |        |          | 301         |     |                  |
+----------+--------+----------+-------------+-----+------------------+

#  

# Differential Export Taxes

In addition to changing the export taxes on primary products, the GOA
(in the original Resolution) slightly modified the differential export
taxes applied to derivative products. Differential taxes were again
modified on March 17, 2008, with Resolution 141/2008, which increased
the differential for several oilseeds products.

Differential export taxes continue to provide incentives for processing
primary products domestically. For example, the differential between the
export tax on soybeans and soybean oil and meal increased from 3 to 4
percent (which is a slight benefit to soybean crushers), while the
differential between wheat and wheat flour was reduced to 10 percent,
from the previous 20, narrowing millers' margins. Table 2 shows the new
differential taxes applied to major derived products.

The differential taxes function by subtracting the fixed percentage
point differential from the variable tax applied to the raw product. For
example, if the variable tax on soybeans is calculated at 45 percent on
the day that an exporter registers an export of crude soybean oil, the
export tax applied to crude soybean oil will be 41 percent, (i.e., 45
minus 4).  Likewise, if the FOB price for soybeans increases the
following week, creating a new sliding export tax of 49 percent, the
export tax applied to crude oil will then be 45 percent (i.e., 49 minus
4). See the differential for crude oil below from Table 2.    

The GOA increased the export tax for biodiesel in a separate Resolution
(126/2008) from 5 to 20 percent. By doing so, the margins for biodiesel
producers was reduced \-- since the differential between the tax on
soybean oil and biodiesel was reduced from 29.5 percent to around 22.5
percent (at current prices, the soybean oil export tax is 40 percent).
However, producing biodiesel should still be highly profitable (at least
for now), although the profit margins will decrease further if soybean
oil prices fall.

## Table 2: Differential Export Taxes

+------------------------+------------------------+--------------------+
| **HS code of processed | **HS code of primary   | **Differential     |
| product**              | product**              | export tax**       |
|                        |                        |                    |
| **(Derived Product)**  | **(Primary Product)**  | **(%)**            |
+------------------------+------------------------+--------------------+
| 1101.00.10             | 1001.90.90             | 10                 |
|                        |                        |                    |
| (wheat flour)          | (wheat)                |                    |
+------------------------+------------------------+--------------------+
| 1208.10.00             | 1201.00.90             | 4                  |
|                        |                        |                    |
| (soybean meal)         | (soybeans)             |                    |
+------------------------+------------------------+--------------------+
| 1507.10.00             | 1201.00.90             | 4                  |
|                        |                        |                    |
| (crude soy oil)        | (soybeans)             |                    |
+------------------------+------------------------+--------------------+
| 1507.90.11             | 1201.00.90             | 4.5                |
|                        |                        |                    |
| (refined soy oil, in   | (soybeans)             |                    |
| containers \<= A 5L)   |                        |                    |
+------------------------+------------------------+--------------------+
| 1507.90.19             | 1201.00.90             | 4                  |
|                        |                        |                    |
| (refined soy oil,      | (soybeans)             |                    |
| except in containers   |                        |                    |
| \<= A 5L)              |                        |                    |
+------------------------+------------------------+--------------------+
| 1507.90.90             | 1201.00.90             | 4                  |
|                        |                        |                    |
| (soy oil NES)          | (soybeans)             |                    |
+------------------------+------------------------+--------------------+
| 1512.11.10             | 1206.00.90 (1)         | 4                  |
|                        |                        |                    |
| (sunflower oil, bulk)  | (sunflowerseeds)       |                    |
+------------------------+------------------------+--------------------+
| 1512.19.11             | 1206.00.90 (1)         | 4.5                |
|                        |                        |                    |
| (refined sunflower     | (sunflowerseeds)       |                    |
| oil, in containers \<= |                        |                    |
| A 5L)                  |                        |                    |
+------------------------+------------------------+--------------------+
| 1512.19.19             | 1206.00.90 (1)         | 4                  |
|                        |                        |                    |
| (sunflower oil NES)    | (sunflowerseeds)       |                    |
+------------------------+------------------------+--------------------+
| 1517.90.10 (2)         | 1201.00.90             | 4.5                |
|                        |                        |                    |
| (mixed refined oils,   | (soybeans)             |                    |
| except hydrogenated,   |                        |                    |
| in containers \<= A    |                        |                    |
| 5L)                    |                        |                    |
+------------------------+------------------------+--------------------+
| 1517.90.90 (3)         | 1201.00.90             | 4                  |
|                        |                        |                    |
| (mixed oils, except    | (soybeans)             |                    |
| hydrogenated or        |                        |                    |
| refined)               |                        |                    |
+------------------------+------------------------+--------------------+
| 1901.20.00 (4)         | 1001.90.90             | 10                 |
|                        |                        |                    |
| Mixes of flour for     | (wheat)                |                    |
| baking                 |                        |                    |
+------------------------+------------------------+--------------------+
| 1901.90.90             | 1001.90.90             | 10                 |
|                        |                        |                    |
| (flour NES)            | (wheat)                |                    |
+------------------------+------------------------+--------------------+
| 2304.00.10             | 1201.00.90             | 4                  |
|                        |                        |                    |
| (soybean flour and     | (soybeans)             |                    |
| pellets)               |                        |                    |
+------------------------+------------------------+--------------------+
| 2304.00.90             | 1201.00.90             | 4                  |
|                        |                        |                    |
| (cakes and solid       | (soybeans)             |                    |
| residuals of soybean   |                        |                    |
| oil)                   |                        |                    |
+------------------------+------------------------+--------------------+
| 2306.30.10             | 1206.00.90 (1)         | 4                  |
|                        |                        |                    |
| (sunflower pellets)    | (sunflowerseeds)       |                    |
+------------------------+------------------------+--------------------+
| 2306.30.90             | 1206.00.90 (1)         | 4                  |
|                        |                        |                    |
| (sunflower residuals   | (sunflowerseeds)       |                    |
| NES)                   |                        |                    |
+------------------------+------------------------+--------------------+
| Note:                  |                        |                    |
|                        |                        |                    |
| (1) Excluding          |                        |                    |
|     sunflower seeds    |                        |                    |
|     for confectionary  |                        |                    |
|     use and shelled    |                        |                    |
|     sunflower seeds    |                        |                    |
|                        |                        |                    |
| (2) Only mixes that    |                        |                    |
|     contain soybean    |                        |                    |
|     oil                |                        |                    |
|                        |                        |                    |
| (3) Only mixes, food   |                        |                    |
|     preparations and   |                        |                    |
|     other products     |                        |                    |
|     that contain       |                        |                    |
|     soybean oil        |                        |                    |
|                        |                        |                    |
| (4) Only preparations  |                        |                    |
|     of a wheat flour   |                        |                    |
|     base (excluding    |                        |                    |
|     pastas in disk     |                        |                    |
|     form and other     |                        |                    |
|     solid forms, and   |                        |                    |
|     preparations for   |                        |                    |
|     making cakes,      |                        |                    |
|     biscuits, and      |                        |                    |
|     similar products   |                        |                    |
|     in packages that   |                        |                    |
|     contain less than  |                        |                    |
|     or equal to1       |                        |                    |
|     kilogram) with     |                        |                    |
|     added ingredients, |                        |                    |
|     including salt, in |                        |                    |
|     any proportion     |                        |                    |
+------------------------+------------------------+--------------------+

# 

# Changing Incentives

The GOA has utilized export taxes on agricultural products for a dual
purpose: 1) to generate tax revenue; and 2) to put downward pressure on
domestic food prices by limiting exports. As soybean production in
recent years has grown more rapidly than wheat and corn, the GOA has
attempted to increase the incentives for farmers to opt for producing
the latter grain crops, thereby relieving price pressure on domestic
food products.

The strong increase in export taxes applied to major oilseeds crops,
combined with the insignificant decrease for grains crops, creates
significant changes to producer incentives. Producers will be forced to
re-evaluate the profitability of continually expanding soybean acreage,
and have apparent incentives to increase production of grains crops.

## Chart 1: Internal Prices After Levying Floating Export Tax

![](media/image2.wmf){width="6.499305555555556in"
height="4.433333333333334in"}

The chart above shows the internal prices that will be received at
varying FOB prices under the new scheme. As shown, at current FOB
prices, internal prices received for sunflowerseeds and soybeans are
nearly at their de facto ceiling price. Only increases in FOB prices for
wheat and corn will result in small internal price increases that would
be passed to farmers.

At this point, it is difficult to forecast the quantitative effects of
the new regime with regard to next year's planting decisions. Despite
the apparent incentives to shift production from oilseeds to grains,
wheat and corn (corn to an even greater extent) require more expensive
inputs than soybeans\--fertilizer costs for the 2008/09 season will be
significantly higher than this year, complicating farmers' planting
decisions (at this point it is unknown what incentives or subsidies the
GOA will create to increase fertilizer use). Furthermore, corn and wheat
are more susceptible to climatic variations than soybeans, which make
grain crops more risky than soybeans. Due to these changing risks,
incentives, and profitability created by the new regime, it is likely
that there will be an increase in minor crops, such as barley, sorghum,
rapeseed, and others, that do not face high export taxes. Much of the
shift in crop production will likely take place in the more distant,
marginal production zones, while the core agricultural areas will likely
continue to produce those crop rotations (particularly wheat and
soybeans) that prove most profitable.

[]{#__RefHeading___Toc195011673 .anchor}**Increased Revenue for Fiscal
Surplus**

Argentina relies heavily on revenue generated through export taxes to
generate a fiscal surplus. With the latest change to their export tax
regime on agricultural commodities, the GOA will collect, at least, an
additional US\$1 billion (0.4 percent of GDP). Analysts estimate that
this year, given current commodity prices, Argentina's fiscal surplus
could reach 4 percent of GDP \-- an equivalent of 40 billion pesos
(US\$12.7 billion).

# Agricultural Sector Strike

In protest of the new variable export tax, Argentina's four major
agricultural producer entities (Sociedad Rural, CRA, Coninagro and FAA),
were on strike from March 13 to April 2 during which no commodities were
sold.