Against The Grain.(Business; Latin America)(tax on grain exports)

Byline: Brian Byrnes; With Mac Margolis In Rio De Janeiro

Amid a global commodities boom, Argentina should be one of the big winners, but it's not.

THERE'S AN OLD SAYING IN ARGENTINA: "Throw a seed anywhere, and a plant will grow." But lately, the prized grains cultivated on Argentina's fertile soil have been sitting and spoiling, victims not of disease or drought, but of foolishness. In March, President Cristina Fernandez de Kirchner imposed a tax on farm exports, just as global farm-commodity prices were peaking, shutting the Argentine breadbasket when it could have been most profitable.

Kirchner's plan led angry Argentine farmers to withhold exports in an effort to hit at the government's coffers. Protesting farmers have sporadically blocked roads, preventing food deliveries from reaching grocery stores and exports from getting to port. Soy, wheat and corn that would normally ship to Asia and Europe are now sealed in silos. Rotten milk has been dumped on rural routes. As the roadblocks have grown, so have the violent clashes between farmers and truckers, and the public's impatience over the three-month impasse. The government's inability to solve the stalemate has undermined Kirchner's popularity, which dropped to 26 percent in May, down 30 points since January.

The contrast with neighboring Brazil could not be more stark. There, a rich store of natural resources, cutting-edge agronomy and generous refinancing of farmers' debts have seen grain harvests almost double in a decade, from 77 million tons in 1998 to a projected 143 million tons this year. Brazil expects to export 23 tons of soybeans this year, a 17 percent rise over 2007. By all rights, Argentina should be in a similar position. It is the world's second largest corn exporter and third largest soybean supplier, and, like Brazil, it should have learned from years of hyperinflation how to deal with rising prices. Instead, economic growth is slowing from an average of 8 percent in the last five years to 5 percent, according to Vitoria Saddi, an economist at RGE Monitor in New York. Officially inflation is running high, at 9 percent. Economists say the real number is three times higher, largely because of the deliberately undervalued peso, low utility rates and subsidies. The current conflict will only make matters worse as domestic food supplies decrease because of roadblocks.

The lockout has created a new worldwide crisis of confidence in Argentina, which had only recently begun to recover from the damage its 2001 debt default did to its global reputation. In the last four months, Argentina has seen $4 billion pulled out ...