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UPDATE 1-Argentina to control domestic wheat prices as Ukraine conflict heats market

(Adds comments from grains processor chamber, farming group)

BUENOS AIRES, March 3 (Reuters) - Argentina’s government said on Thursday it would establish a mechanism to control domestic wheat prices and temper food inflation as global prices have hit 14-year highs following Russia’s invasion of Ukraine.

The government, which was already limiting exports to contain food prices, said it had agreed with flour mills and exporters to set up a “trust” that would keep down local prices.

“This mechanism responds to the need to decouple prices to protect the domestic market in a global context of war and with the international price of wheat high and sustained,” the ministry of production said in a statement.

Argentina is a major exporter of wheat, as well as being the no. 1 global exporter of processed soy and no. 2 for corn. The 2021/22 wheat harvest is estimated at a record 22.1 million tonnes.

Russia and Ukraine are the top two wheat exporters, accounting for about 29% of exports worldwide.

The conflict has driven global wheat prices to historic levels. In the domestic Argentina market, the grain closed on Wednesday at an average of 32,103 pesos ($298) per tonne, 19% higher than just a week ago.

The price mechanism would remain in place until the end of January 2024 and would focus on prices of domestic sales of wheat flour and dry pasta, the ministry said.

“This policy contemplates transferring 800,000 tonnes of wheat to the domestic market to guarantee supply and achieve price stabilization of these key products,” it added.

‘COERCIVE’

Gustavo Idígoras, head of the CIARA chamber of grain processors, said that for each tonne of wheat declared for export by agro-exporters, they must pay a certain percentage into a trust, which would be capped at 1%.

That fund will then be used to subsidize the industry that produces food for the local market, added Idígoras, who described the measure as “coercive” and said it would disrupt production decisions ahead of the 2022/23 wheat cycle.

Argentina’s government has previously limited wheat exports from the 2021/22 harvest to 14.5 million tonnes. According to official data, exporters have already declared foreign sales of 13.6 million tonnes.

While the measure was agreed with mills and exporters, the South American country’s farmers appear not to have been included and have opposed proposals for such a mechanism.

“Two days ago the President said that Argentina should export more,” Nicolás Pino, head of the major Argentine Rural Society, said on Twitter.

“This trust proposal goes against that objective and, two months after starting a new campaign of wheat, the only thing it generates is uncertainty.” (Reporting by Maximilian Heath; Editing by Adam Jourdan and Grant McCool)

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