Civil Society, Development & Aid, Economy & Trade, Food and Agriculture, Headlines, Latin America & the Caribbean

ARGENTINA: Dairy Farmers Aggrieved, Despite High Prices

Sebastián Lacunza

BUENOS AIRES, Jan 10 2008 (IPS) - Dairy farmers in Argentina have led the latest in a long series of protests by agricultural associations, despite the record high prices for farm products.

The touchiness of the issue of dairy products and the nature of the dairy industry have sparked the first conflict faced by centre-left President Cristina Fernández, who took office on Dec. 10.

After a dispute marked by an incipient milk shortage, the picketing of dairy sector industrial plants and tensions within the government, the industry accepted a price at the farm gate of close to 82 cents of a peso (27 cents of a dollar) per litre in late December.

In the last months of the currency board period (1991-2002) when the Argentine peso was pegged to the dollar, the price of milk was about 10 cents a litre, driving dairy farmers to despair.

In pesos, the price today is eight times higher, although inflation since late 2001 totalled 100 percent, and production costs are partly paid in dollars, which stand at 3.15 pesos.

The retail price of milk is subsidised by the state, but its cost in supermarkets is at least double what it was seven years ago.


In general, however, with costs partly in depreciated pesos and unprecedented international demand for food, the overall picture for the farming sector is encouraging.

Of the country’s nearly 13,000 dairy farms, 10,600 are registered with the National Office for the Control of Agricultural Trade (ONCCA). In 2006, they produced 10.6 billion litres of milk from which the dairy industry manufactured 1.7 billion litres of milk, grossing 552 million dollars at wholesale prices, and 1.55 million tons of other dairy products worth 5.2 billion dollars.

Exports of 375,000 tons brought in revenues of 798 million dollars.

However, dairy production has fallen, partly because of the expansion of soybean plantations driven by huge demand from China, which is putting pressure on other crops and stock raising.

Rural associations calculate that livestock farming has lost 10 million hectares to crops since the mid-1990s.

The area under soy was 10.4 million hectares at the time of the 2001-2002 harvest, compared to 16.6 million hectares in the 2007-2008 growing season, according to the Secretariat for Agriculture and Livestock.

"A 200 hectare dairy farm employs five families year-round, while 200 hectares of soybeans employ one person for 10 days a year," Ulises Forte, vice president of the Argentine Agricultural Federation (FAA), which groups some 60,000 small rural producers, told IPS.

This is because of the mechanisation that has accompanied large-scale agriculture and the concentration of land necessary for the direct sowing methods used for genetically modified soybeans, the main type grown in Argentina.

"We are enemies of ‘soyification’: the seeding pools (consolidated land for planting soybeans, some of which is rented from adjacent small producers) have displaced dairy farmers and other producers," Forte said.

The hunger for land for soybean cultivation has driven up the price of the crop, so many dairy farmers on leased land found it impossible to keep up with their payments.

"It’s wrong to treat those who are unequal as if they were equal. It’s not the same thing to produce 1,000 litres of milk a day, as to sell 50,000," said Forte, alluding to the structure of the dairy industry, where many small farmers produce milk, which is then processed by a few large industrial plants.

Two of these, the SanCor cooperative (which is in crisis) and La Serenísima, which produces mainly for the domestic market, buy 35 percent of the milk produced by the country’s dairy farmers. Seventy percent of all processed dairy products such as yoghurt, powdered milk, butter and cheese, are made by just two or three companies.

The foreign firms Nestlé and Saputo, and the Argentine company Williner, are the chief beneficiaries of the rise in world demand and prices, as most of their production is for export.

Price increases received by producers have been gradual, but have accelerated over the last year due to the rise in international prices. In October 2006, dairy farmers were getting 49 cents of a peso (about 16 cents of a dollar) per litre of milk.

"People have greater purchasing power, and output has fallen. That combination drives prices up," said Forte.

Exports of dairy products fell by more than 30 percent in 2007, while the international price per ton of powdered milk climbed to over 4,500 dollars, three times what it was six years ago.

As part of its policy to curb the rise in milk prices, the government agreed a ceiling of 2,770 dollars per ton of exported powdered milk with the companies involved. The difference between this value and the international price of 4,500 dollars is used to subsidise dairy farmers and agribusiness companies to prevent domestic price hikes.

Dairy farmers also receive a subsidy from ONCCA to offset the higher prices of maize, used to feed their dairy cows.

During the administration of president Néstor Kirchner (2003-2007), the main tool to raise government revenue and at the same time regulate domestic food prices was taxes (retentions) on exports, which led to confrontation with part of the agricultural lobby, in spite of large profit margins in the sector.

For dairy exports, the taxes vary between five and 10 percent.

Kirchner and his successor Fernández (who is his wife) have also instituted price agreements, self-regulation pacts for exports, and over the past year, subsidies for food produced for local consumption, which are financed by the export taxes. In 2007 the food subsidies totalled 250 million dollars.

"We understand the government’s interest in holding down the price of the basic basket of foods, in order to protect the living standards of the poor, that’s why we’re looking for a balance so that we can have predictability. Dairy farming is a redistributive activity and helps populate the rural areas," farmer Roberto Socín, head of the Milk Producers’ Board in the northeastern province of Santa Fe, told IPS.

Socín acknowledged that the prices allow for a profit margin, but said "our struggle is to create conditions for dairy farmers to be able to develop and grow."

"Compared with the powerful industrial interests, and those of the national government, dairy farmers are relatively weak," he added.

The heart of the conflict in the rural areas "continues to be a problem of the relative profitability of different products, obviously at a time when there are major changes in international prices," Javier Rodríguez, a researcher at the University of Buenos Aires and a member of the Study Centre for Argentine Development (CENDA), told IPS.

"When you look at profits in comparison with previous years, it’s clear that the cost-revenue ratio has improved considerably, including in the dairy sector, and not just comparing it with the worst period at the end of the currency board period," the expert said.

"But when production is falling, as is happening in the case of milk, increasing taxes on exports is not a viable long-term measure. It works against production, because of the tussle for land between cattle farming and agricultural activity." However, Rodríguez defended the use of the taxes as an instrument of economic policy, "as long as the different types of production are taken into account."

"The most profitable crops still have a large profit margin that can be taxed, although the real solution lies in consolidating measures the government has already taken, such as the creation of a compensation fund for other products. In the case of dairy products, that fund isn’t big enough," he said.

The milk market is concentrated on the industrial side, and dispersed on the production side, making it a very difficult situation for farmers, Rodríguez concluded.

 
Republish | | Print |


react - the road to enterprise pdf