May 24, 2018 / 7:45 PM / a year ago

Argentina may freeze soybean tax cut program, farmers balk

BUENOS AIRES (Reuters) - Argentina may halt the gradual lowering of soybean export taxes as the government speeds up its deficit-cutting effort, Treasury Minister Nicolas Dujovne said on Thursday, prompting push-back from farmers already hurting from a soy crop reduced by drought.

Soy beans are seen at a Grobocopatel Hermanos company storage plant in Carlos Casares, Argentina, April 16, 2018. Picture taken April 16, 2018. REUTERS/Agustin Marcarian

The tax started the year at 30 percent and was being cut by a half percentage point every month for two years. The levy currently stands at 27.5 percent. Soy growers and exporters have counted on its continued reduction through the end of 2019.

“All options are on the table,” Dujovne told reporters at a news conference when asked about local reports that the government has halted the soybean export tax cuts.

A spokeswoman for the agriculture ministry said officials would meet over the days ahead to discuss the tax. The country’s four main farm groups sent a letter to President Mauricio Macri asking for a meeting to lobby against freezing the tax cuts.

Soybean revenue has been hit this season by a four-month drought that gave way in April to torrential rains that postponed harvesting and damaged crop yields.

“We request a meeting to inform you about the serious situation that the agricultural sector is facing, including the severe drought and the subsequent floods suffered in recent months,” said a letter to Macri from the Argentina Rural Society and three other farm associations.

“We would also like to talk about the rumors of possible measures that would further aggravate the situation,” it said.

Tighter fiscal policies were imposed by Macri earlier this month when the local peso currency took the brunt of a global flight from emerging market assets. The peso has swooned 16.5 percent so far in May to 24.6 per U.S. dollar.

The drop forced Macri to ask the International Monetary Fund for a standby loan agreement that could offer affordable financing if the government runs out of cash.

His economic team cut Argentina’s 2018 fiscal deficit target to 2.7 percent of gross domestic product from 3.2 percent.

The moves are aimed at gaining investor confidence that wobbled last month when a rally in the U.S. dollar coincided with a general pullout from emerging markets. The dynamic focused attention on Argentina’s heavy load of dollar-denominated debt and 12-month inflation running at 25.5 percent.

When he won office on a pro-investment platform in 2015, the soybean export tax stood at 35 percent. While gradually lowering the levy he outright eliminated export taxes on corn and wheat soon after his inauguration - a boon for farmers but not for Argentina’s fiscal accounts.

Soy is Argentina’s main cash crop and the country is a major exporter of soybeans and the top supplier of soymeal, livestock feed and soyoil used for cooking and making biofuels.

Most of this season’s soybeans have already been harvested.

The Rosario grains exchange expects a crop of 35 million tonnes, down from its initial forecast of 55 million tonnes calculated before the country’s normally fertile Pampas grains belt was battered back and forth by drought and then unrelenting rainstorms that reduced the yields and quality of soy plants.

Additional reporting by Maximiliano Rizzi and Maximilian Heath; Editing by Jeffrey Benkoe and Chizu Nomiyama

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