Commodity price stabilization through the use of export taxes in Argentina: A political economy analysis

Jenna Nichole Flesher, Purdue University

Abstract

Argentina imposed steep export taxes on agricultural commodities during the 2006–2008 world food price crisis and in the following months. Protecting domestic consumers and agribusinesses from the transmission of high international prices to the domestic market was believed to be the motivation for trade restrictions in several grain-exporting countries. Argentine producer riots broke out in 2008 opposing the tax increases and claiming discrimination by the government against domestic producers. Governments may give preference to a particular political interest group by implementing policies to benefit the welfare of that group, especially in cases such as volatile world market prices. These policies may or may not be optimal for maximizing the overall welfare of the country. A political economy analysis is utilized to determine if the Argentine government imposed biased policies to protect domestic consumers and agribusinesses from high prices at the expense of domestic producer welfare. A basic partial equilibrium commodity market model is used as the framework to build supply-utilization relationships. These are then used to determine parameters necessary to the political economy analysis. Behavioral supply and demand equations are estimated based on the commodity market partial equilibrium model for maize, soybeans and wheat. From these estimation results, export demand elasticities help determine the extent of Argentina’s market power in the world market for each commodity. Optimal export taxes are estimated from these elasticities and utilized in the political economy model. The political economy analysis compares the optimal export tax results with actual export taxes imposed by Argentina for the years 1991–2009. Finally, a producer welfare weight relative to consumer welfare is estimated for each year for each commodity over the sample period, assuming actual export taxes are optimal for the biased objective function reflecting the policymaker’s preferences. These welfare weights will determine if the government favored one interest group over another and if so, how these preferences changed over time. The analysis suggests that the Argentine government placed a higher preference on consumer welfare during times of high international food commodity prices. The data confirm that as world commodity prices rise, so does the Argentine export tax. The weights placed on producer welfare only varied 3 to 6 percent over the sample period, however, even though export taxes increased 25 to 40 percent for maize, soybeans and wheat. A large downward shift in the producer welfare weights was evident in 2002 during the beginning of the Duhalde regime and the end of the Convertibility Plan. The devaluation of the peso would have resulted in higher producer incomes. Export taxes redistributed some of those potential gains to consumers, agribusinesses and the government. Furthermore, the export taxes of 2007/2008 were discriminatory against producers. In all cases, the actual export tax was imposed at a rate higher than the estimated optimal export tax for all commodities in 2007/2008. It is important to realize that the parameters needed to calculate an optimal export tax are difficult to obtain and alternative scenarios must be analyzed. Uncertainty persists in the market power Argentina holds for their commodities. Furthermore, additional factors, such as transaction costs, may be contributing to the relative change in the producer welfare weight from year to year.

Degree

M.S.

Advisors

Abbott, Purdue University.

Subject Area

Agricultural economics

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