Think Like an Argentine

‘When dem cotton balls get rotten
‘You can’t pick very much cotton’

Lead Belly

‘You need to think like an Argentine. You see everything in black or white…legal or illegal; that doesn’t work down here. Everything here is a shade of gray.’

To our recent complaints against the simpleminded nuttiness of ‘us versus them’, good versus evil, we add the advice came from a local businessman. We had driven out to a large, flat valley in the eastern part of Salta province. Farmers there cultivate as many as 75,000 acres — huge, industrial-scale agriculture.

Farm products are the source of Argentina’s wealth, and more importantly of her foreign exchange. And farmers — or at least these farmers — seem prosperous. How do they do it?

Prices are doubling every year. Many parts and supplies are almost impossible to get. And to make it worse, the government hands out so much ‘welfare’ money, many people no longer want to do the hard work farms require.

A time to reap

‘The “planes” [various welfare programs] don’t give you a lot of money’, explained our retired foreman on Monday.

‘Some of the payments are only about $100 US per month. But a guy works full time on a farm; what does he get? Maybe only $350 for a month. I guess he figures the difference is just not worth it. And then, he forgets how to work. So, even if they want to get back on the job, they don’t have the habits they need. They’re no longer used to hard work…and can’t take it.’

Part of the secret to these large farms in the east is that they don’t need many people. Up at the ranch, we have eight full-time employees tending our grapes and herding our cattle. And when it is time to round up the cattle…or pick the grapes…we hire extras, when we can find them.

‘Out here’, our business informant continued, ‘we might have only one employee per 5,000 acres. Everything is mechanized. The tractors are huge. So, are the planters and the harvesters. A guy might pass through the field just three or four times per year. He sprays on a herbicide to kill the weeds. He then goes over it with a planter; we don’t plow or disc up the soil. If we did, it would blow away. And then, he harvests. The genetically modified plants don’t need as much attention as they used to’.

He was showing us a field planted with cotton:

The inflation tax

‘See these plants. We used to have to fumigate 4 or 5 times to kill the bugs. Now, these plants have been improved. They’re poison to most of the insects that used to eat them. The bugs just drop dead.’

But the technical advances, here in Argentina, have been offset by political setbacks. These crops are designed for the global market…and expected to sell at world market prices. So, the government — desperate for revenue — imposes ‘retentions’ on them. It’s a tax the gaucho feds collect even before any profit is made. That is, it’s a tax on the export of the commodities, whether you made any money producing them or not.

‘That’s nothing’, our expert continued.

‘Inflation is running about 100%…so the inflation tax is about 50%. A year from now, your money will only be worth half of what it is now.

‘What can we do? The seeds, machines, pesticides and other things we need are quoted in dollars. And we’ve got pesos. Every day, our costs go up. And we might have gotten our income — from selling a crop — a year ago.

‘Sometimes you can’t get anyone to take your crop for cash. All you can get is post-dated checks. And then, you just have to pray that the peso doesn’t lose too much value before you can cash your check.

‘That’s why you’ve got to think like an Argentine, not like a gringo.

‘Sometimes we can’t get a tractor part here in Argentina, so we go to Bolivia….and then smuggle it back across the border. Some guys even take the corn they’ve grown in Argentina, and sneak it across the border and sell it there. Of course, it’s illegal…but what are we supposed to do?

‘The government cheats us. We cheat the government. What a crazy society, but that’s the way it works. In Bolivia, you can sell your corn for dollars. And you pay no tax. That’s illegal too…but so what?’

BGT — A new dimension

The Argentine tax collectors use satellites to keep an eye on what farmers are growing. When harvest time comes, they expect to be paid.

‘Yes, of course they do that’, explained our inside source.

‘The trick is to keep a set of records for most of your crops that appears impeccable. They must look so tight that the tax agents don’t question them. And then, when asked what happened to the corn or beans or cotton. You simply explain that it was attacked by bugs, or even though the plants looked good from the air, they produced no fruit. Or they dried up and we got nothing from that field. There are so many things that can go wrong in farming, they can’t argue with it…if your other records are in order.

‘The foreigners [he looked at us gravely] never seem to get it. You think it’s either/or. Either it’s okay…or it’s not. Legal or illegal. Good or bad.’

Our interlocutor was adding a new dimension to our complaint about the bad guy theory.

‘You may think I’m a “bad guy,” as you put it, because I break the law. But I say, they’re the bad guys; they made laws we have to break. You say it’s dishonest. Or illegal. And, of course it is. But if farmers tried to comply with all the government’s laws, they’d go out of business. Who’d produce the food then?’

Regards,

Bill Bonner,
For The Daily Reckoning Australia