Price boom proves mixed blessing in farming nations

from the Calgary Herald

Helen Popper

PERGAMINO, Argentina - Sometimes called "green gold" of the Pampas, soybeans have brought new prosperity to the Argentine countryside, but with that prosperity comes controversy over how to share the bounty of high global prices.

The town of Pergamino is nestled among some of the world's most fertile commercial farmland, and residents credit the current boom in soybean prices for new high-rise buildings, record car sales and a bustling main street filled with chain stores.

"The town's made a comeback," said real estate agent Luis Battaglino, adding that prime farmland prices have risen by 10 percent per year since 2002. It now sells for as much as $15,000 per hectare ($37,000 per acre) -- comparable to prices in the U.S. farm belt.

"They call this area the golden triangle of the Pampas," he added. "Even at these prices, there's nothing on sale because everyone thinks grain prices will keep on rising."

Strong demand for Argentina's farm exports has helped Latin America's No. 3 economy recover some of its former glory as a breadbasket for the world, fueling Chinese levels of growth and swelling state coffers through export taxes on grains.

In the famous Pampas plains, many credit farmers with lifting the country out of the doldrums after an acute crisis in 2001-02 that followed a long slump in the farming industry partly due to dollar-peso parity that made exports expensive.

"It was farming that brought the country back to life,," said Jorge Solmi, director of the Agrarian Federation (FAA), which led a recent three-week farm strike against a tax hike on soy exports. "When the country was in ruins, all the money for the social welfare plans came from the countryside."

POVERTY

However, the agricultural bonanza has yet to significantly ease poverty rates in the region's big food producers, even if it has improved state finances.

In neighboring Brazil, the world's top soybean supplier, trade revenues from farm exports have allowed the accumulation of towering foreign reserves that are serving as an insurance policy amid global financial jitters.

"Brazil has clearly benefited from strong commodities prices," said Yoshiaki Nakano, economics director at Sao Paulo's Getulio Vargas Foundation think-tank and university. "Only a few years ago, Brazil wouldn't have weathered the current global credit crisis so well."

High prices are encouraging farmers to return to land they abandoned from 2004 to 2006 when drought, crop diseases and the sharp rise of the Brazilian real against the dollar pushed many to the brink of bankruptcy.

But the race to expand the farming frontier has triggered environmental concern, especially in the Amazon. Recent satellite data showed a 13 percent jump in deforestation in the region, mostly in Brazil's No.1 soy state, Mato Grosso.

Grains-producing countries have also had to battle rising food costs for local shoppers, which have soared in tandem with greater export demand in nations where poverty rates run high.

Governments have sought to tame the price rises with a mixture of measures and success.

Some have banned exports of staple foods or imposed price caps. In Peru, potato flour is being promoted as an alternative to wheat while beef-loving Argentines were even encouraged to eat pork or chicken in the face of rising beef prices.

Brazil has restricted anti-inflation efforts to raising interest rates, but it has not been immune.

"It's just absurd," said Fernanda Prazeres, 52, a shopper out buying bread in Sao Paulo. "I may have to stop buying bread rolls at this rate."

Bread prices have risen more than 10 percent in Brazil this year, partly due to export restrictions imposed by Argentina.

CELEBRATING?

If shoppers have drawn the short straw of racing food prices, farmers should be the ones celebrating.

But Argentina's agricultural comeback has set off a bitter three-year conflict between farmers and the government, which raised export taxes on soybeans last month, a measure it says is vital to share the benefits among poor city dwellers.

President Cristina Fernandez branded the recent farm strike against the tax increase "protests of abundance," saying farmers were enjoying sky-high profits thanks to government policies such as keeping the peso weak.

She often compares the situation to that of Brazil, where soy farmers' profits are lower, largely because of the strength of the local currency against the dollar that raises their production costs and lowers earnings in local terms.