ANALYSIS-Argentine tax hike sows discontent among farmers

By Nicolas Misculin

BUENOS AIRES, Jan 16 (Reuters) - Argentina's decision to raise taxes on soy exports to subsidize food prices has further strained relations with the country's farmers who say they are paying too high a price in the government's war on inflation.

The government on Monday began charging more tax on soy exports, the latest in a string of measures that have sought to address the rising cost of basic foodstuffs which have soared along with bumper farming exports.

The South American country is a leading exporter of farm goods such as soy, beef and corn. But a third of Argentines live in poverty and they have been hard hit by inflation that was 9.8 percent last year and 12.3 percent in 2005.

Proceeds of the tax rise, which applies to soybeans as well as oil and meal, will fund a subsidy to millers, animal-feed makers and dairy producers that aims to keep down the cost of everyday products such as bread, milk and chicken in the nation's shops. Millers and other large consumers of grains, such as poultry farmers, welcomed the step. But it has angered the country's powerful farming sector, which went on strike early last month over the government's agricultural policies.

"The farmer lacks a framework of stable agricultural policies," said Enrique Erize, vice president of the Buenos Aires-based Novitas consultancy.

"Relations are strained. The government is trying to change prices with short-term measures when, in my opinion, the issue is structural," he added.

Some Argentine newspapers said on Tuesday farming leaders were considering another strike to protest the increase in soy export taxes, following December's action that brought grains and cattle markets to a near standstill for more than a week.

"There are meetings today (Tuesday) and tomorrow. The organizations are analyzing what measures to take in response to this resolution," an industry source told Reuters. "Some action will be taken, although it hasn't been decided what."

'MICRO INTERVENTION'

Farmers have clashed repeatedly with the government of President Nestor Kirchner over the administration's efforts to keep a lid on prices, which have also included a temporary ban on most beef exports and recommended prices at cattle markets.

They are not the only ones to criticize the government's approach.

Referring to this week's tax rise, investment bank Goldman Sachs said it was "representative of the excessive micro intervention of the government in the production process."

"This approach leads to growing inefficiencies and relative price distortions that hurt business confidence and investment prospects," the bank said on Tuesday in a report.

However, the center-left government says the country's shoppers cannot be expected to pay international prices for food staples that weigh heavily on the inflation index.

"We're working to create mechanisms that make sure the country's growth is reflected in a more balanced fashion among the different sectors of our society," Agriculture Secretary Miguel Campos said in a statement.

It also cites the benefits enjoyed by farmers as a result of its policy to keep the peso currency weak against the dollar, which makes Argentine exports more competitive.

The Economy Ministry says the export tax rise of four percentage points to 27.5 percent on soybeans and 24.0 percent on soyoil and meal will generate $400 million in extra revenue and be used for an annual subsidy of $500 million.

Farmers say that's enough to jeopardize the investment that could boost future supplies.

"(The government measures) harm the country's farming sector and put its economic future at risk, stripping it of the capacity to increase production," farming group Carbap said in relation to the tax increase announced last week.

But other commentators think the biggest problem will be administering the fund.

"Managing a subsidy fund is always very complicated," said Martin Pineiro, an analyst with the agricultural consulting firm Grupo CEO, adding that it was unlikely the four-point tax increase would have a serious effect on output.

"Four points on soy won't have a significant impact on production, especially because the prices in Chicago (grains futures market) went up the next day and compensated for the effect the measure could have had," he said.

((Writing by Helen Popper, editing by Jim Marshall; buenosaires.newsroom@reuters.com; Reuters Messaging: helen.popper.reuters.com@reuters.net; Tel. +54 11 4318-0655)) Keywords: FARMING ARGENTINA/

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