Economy Politics

Can the century-long farming conflict resurge in Argentina?

26th December 2019

By Amadeo Gandolfo

Can the century-long farming conflict resurge in Argentina?

One of Alberto Fernández’s first moves since taking office was raising export duties, the source of one of the biggest conflicts faced by the Kirchner administrations during their decade in power: the 2008 clash with farmers. Fernández has promised to make distinctions between large and small farmers and to keep negotiating channels open, in contrast to what took place in 2008. So far, only a tiny minority of farmers has talked about actively resisting the changes. But with the state in need of cash and a history of distrust between Peronist administrations and the traditionally anti-Peronist farmers from the fertile Pampa Húmeda, this truce has the potential to break down.

In fact, the conflict between the farming sector and more industrially-minded constituencies in the city is systematic in modern Argentine history, with both groups alternating control over economic policy but never fully finding the way out of Argentina’s systemic economic crises. To understand what’s likely to take place, here’s a look at the historic roots of the issue, from Argentina’s early days to the Kirchnerite-era conflicts, all inescapably linked to Fernández’s present and future approach.

The agro-export model

Argentina only really came together as a country with a robust state and territorial integrity in 1880. That year saw the definitive federalization of the City of Buenos Aires and its port, ending decades of armed conflicts. The secular and liberal politicians that took charge of the nascent state encouraged European immigration and investment, which came in the form of railways and cheap labor. This gave way to the so-called “agro-exporting model”, which boosted the country’s synergy with nations such as the United Kingdom, interested in buying Argentina’s primary goods, which their growing industries demanded. Wheat was the main crop until 1877, when the introduction of modern refrigeration techniques saw beef added to the menu.

As Pablo Gerchunoff and Lucas Llach mention in their economic history of Argentina, The Cycle of Illusion and Disenchantment: “Agriculture and cattle were the sustenance of an economic growth model based on the exploitation of natural resources, that only a few voices questioned and which seemed capable of being prolonged through time”.

This lack of critique can be explained by the very real achievements of the economic model. According to Colin Lewis, Argentinian GDP grew an average of 3.7% per year between 1875 and 1896. From 1896 to 1912, this growth decreased but was still impressive at 2.3% per year. Argentina’s elites became famous across the globe for their wealth and lavish spending style, only second to that of the European royalty.

But despite their successes, the country’s decision-makers were short-sighted. To start with, dependency on exporting raw materials to Europe becomes a dangerous affair when prices drop or geopolitics change. In addition, the wealth accrued from decades of growth only “tricked down” to a segment of society, while others lived in poverty and squalor, breeding silent discontent among large segments. Eventually, the thought of industrialization became inevitable.

Import substitution

The first big challenge to the model came with a world at war in 1914 as international markets closed down, transport became difficult and international commerce slowed. “The war inaugurates a phase in which the integrating forces of world economy – the international movement of capitals, immigration waves and commerce – lose the expansive impulse of the previous phase,” historian Juan Manuel Palacio said in Waiting for the worst: Argentine economy between 1914 and 1930. But the model proved resilient, survived the war and was followed by an expansive period.

What it couldn’t survive, shortly thereafter, was the 1929 Wall Street crash. Demand for exports plummeted, forcing the country had to build an alternative around an idea called import substitution. Currency controls, restrictions on imports and growing state intervention to channel funds from agricultural exports (which remained the main source of foreign currency) to domestic market production became the norm. With the economic crisis came unemployment, and industries were viewed as a potential source of jobs due to their intrinsic labor-intensive nature, although salaries were extremely low at first.

This path was intensified under Juan Domingo Perón’s administrations, after World War II. The post-war situation brought some strategic advantages: Argentina was not in debt, had substantial gold reserves and its agricultural exports were in high demand. Perón established the Instituto Argentino Para la Promoción del Intercambio (Argentinian Institute for Trade Promotion), or IAPI, which bought grains from farmers at a fixed price and then sold them in international markets at higher values. The difference was used by the state to stimulate light industrialization for domestic consumption and to uphold a policy of wealth redistribution, turning Perón into a historically popular figure. This also inaugurated an enduring tale of tension with the countryside over the proceeds of their produce.

The stop and go cycle: exports still needed

Up until 1976, Argenina’s economic policy held industrialization as its aim. But the country’s light industry was heavily dependent on inputs and machinery from abroad to function, and was never fully competitive in global markets. This translated into a situation in which attempts to modernize the country’s economy frequently crashed against the same obstacle: growth spurts were followed by bottlenecks in which the country’s trade balance went into the red, as the country spent more in imports than it could generate through farming exports.

This was known as the “stop and go” cycle. Industry grew with the aid of some wealth transfers (often from the farming sectors) and protection mechanisms, until seemingly unavoidably foreign currency became scarce and the economy fell back into recession. At that point, Argentine policymakers had to turn back to farmers, promoting agricultural exports again to amend trade imbalances, a move that usually came with a strong devaluation to make the country internationally competitive again and return to the “go” part of the cycle.

Despite that instability, Argentine GDP continued to grow overall, at around 2 percent per year between 1945 and 1975, slightly below the agro-exporting years but, crucially, with stronger income distribution and low unemployment, although the much-expected industrial lift-off with local development of “heavy” industries never truly came.

Back and forth since ‘76

The return to military leadership in 1976 came with a renewed alliance with the biggest farming groups, eliminating protectionist mechanisms and betting on what they saw as the most competitive Argentine sector. Economy Minister José Alfredo Martínez de Hoz cut taxes on exports, leading to a surge in agricultural production destined for abroad, while the large amounts of debt taken on by the administration made the Argentine peso artificially strong. This made imports cheaper and strongly damaging Argentine industries.

In the 1990s, under Carlos Menem’s pro-market Peronism, the strong peso policy continued, while internationally-competitive agriculture was strongly encouraged with the introduction of genetically modified crops. This also drove the expansion of the agricultural frontier into less fertile areas, with little taxes or regulations imposed on exporters.

But the 2001 crisis brought pro-industry Peronism back, with devaluation and the re-introduction of export duties in 2002 coming right in hand with the commodity boom of 2002-2010. This redirected money towards the reconstruction of the country’s ravaged industrial base. An economic growth pax lasted until 2008, when an increase in export duties brought farmers into the streets, turning the group into a perennial enemy of Kirchnerism until they were defeated by Macri in the 2015 presidential election.

With Mauricio Macri’s presidential win, some aspects of the old agro-exporting days and of Martínez de Hoz’s model came back: peaceful relations with the biggest farming lobbies, the elimination (or reduction, depending on budget needs) of export duties and a bet that Argentina could become the “supermarket of the world”, pointing to agricultural exports with a dash of added value.

What will Fernández do

Fernández and his economic advisers are closer to the pro-industry scheme of 2003-2015 than to anything’s seen since 1976. But his style has always been more careful, happy to avoid conflict with business leaders where possible. His exit from the cabinet chief position in 2008, in fact, came shortly after a failed attempt at keeping communication lines open between the Kirchnerite government and farming protestors.

Still, the swift decision to hike export duties as soon as he took office, opening talks only after the reform was announced, suggests that his difference in style will not mean that he’ll bow down to farming demands.

History shows that, be it with an agro-exporting or a pro-industry approach, Argentina has not managed to resolve its periodic economic crises. With Fernández taking office while the country struggles with another big downturn, his pragmatic approach means he might modify his strategy eventually, but for now he will be leaning on farming cash to plug the country’s damaged finances, as well as to bring some relief to worst-off among Argentines.

Amadeo Gandolfo

Amadeo Gandolfo is an historian, journalist and researcher. He has worked at the CONICET (National Council For Scientific and Technical Research), writes at the Revista Crisis magazine and teaches at the University of Buenos Aires.