War on inflation: the Government formalized the increase in withholdings and created the Stabilization Fund

In order to “mitigate the impact of the situation” in Ukraine and prevent the invasion of that country from affecting local food prices, the Government confirmed the increase in withholding for soybean flour and oil and created a Wheat Stabilization Fund, to control “the cost of a ton” of that product. Both measures were reported through Decrees 131/2022 and 132/2022, respectively, published this Saturday in the Official Gazette.

The first of these documents was signed by President Alberto Fernández, the Chief of Staff, Juan Manzur, and the Ministers of Agriculture, Livestock and Fisheries, Julián Domínguez, Economy, Martín Guzmán, and Productive Development Ministers, Matías Kulfas.

As expected, the text established that from now until 31 December, the rate of export duty paid by certain foods, including flour and soybean oil, was increased from 31 per cent to 33 per cent.

In the recitals, the national authorities held that “the Russian Federation's invasion of Ukraine has significantly affected the overall supply of agricultural products”.

In this regard, they noted that “both nations contribute to total world food security 28% of international trade in wheat, 19% of that of maize and 78% of that of sunflower oil, affecting, in particular, these markets, impacting their international prices and reaching historic increases”.

In this regard, they stressed that “as the Argentine Republic is a major global supplier of these products, it is necessary to encourage” local “producers to continue growing” in the sale abroad of these cereals and this oilseed “that the world demands”.

For this reason, and “in order to mitigate the impact of the detailed situation on the domestic market, it is necessary to issue a temporary and temporary measure” that increases the retention of other goods, such as flour and soybean oil, “in order that the surplus collected is used to guarantee policies aimed at avoiding additional food costs for the general population and, in particular, for the lower - income sectors”.

On the other hand, but along the same lines, through Decree 132/2022, the so-called “Argentine Wheat Stabilizing Fund” was created, an administrative and financial trust that will have the objective of “stabilizing the cost of a ton” of this cereal “purchased by mills” nationwide.

This will be financed with the additional money that will come from the increase in the withholding of soybean flour and oil, which, as already mentioned, increased from 31% to 33%, and thus the price of the 25-kilo bag of flour sold to bakeries will be subsidized.

In this way, it seeks to “guarantee a specific affected assets that contribute to mitigating the rise in the price of the tonne of wheat required by the Argentine milling chain, considering the pre-conflict (in Ukraine) values of the goods involved”.

Both policies come after the recorded message that Alberto Fernández issued on Friday, in which, without giving too much detail, he announced a series of measures that will be promoted by the Government in the framework of the “war against inflation”.

Criticism of the productive sector

From the productive sector, they specified that the price of wheat in the final value of bread, continues to have a low incidence, between 10% and 15%. The latest statistics from the Agricultural Foundation for the Development of Argentina (FADA), wheat accounts for 12.9% of the final value of bread, the mill 5.2%, the bakery 60.4% and taxes 21.5%. On the other hand, this price is composed of 67% of costs, 21.5% taxes and 11.5% profits. In addition, the price of wheat is multiplied by 7 from the field until the bread reaches the gondola.

To all this, the Government argues that the increase in withholdings on soy by-products will not cause harm to producers, but grain market analysts argue otherwise. They argue that the export industry, having less capacity to pay due to the increase in tax pressure, will transfer this to paying a lower price to the primary sector for grains.

That is why the situation generated alert in the producer bases. Faced with the permanent change in the rules of the game by the Government, different assemblies were held in recent hours in which they are asking the Liaison Table to initiate trade union actions against official policy. At the meetings, it was proposed to march to the Federal Capital, to immediately initiate a marketing stoppage, and to block access and exit from exporting ports.

Withholdings

After Alberto Fernández's speech on the new economic measures, after Congress approved the Agreement with the International Monetary Fund (IMF), the president of the Argentine Rural Society (SRA), Nicolás Pino, argued that “the war that the President of the Nation claims to have launched against the inflation, is more like a battle against production.”

The leader also said that “measures are announced that do not solve any of the existing problems, but continue to send terrible signals to the sector.” “Food inflation is fought with more supply and these measures do not go along that line,” he said.

From the Liaison Table, the head of Coninagro, Carlos Iannizzotto, who said about the presidential speech: “I hope that the 'war' against inflation will be with adequate measures. We continue from the productive sector to propose policies in favor of work and employment.”

As the productive interior progresses with the holding of assemblies and mobilizations, and pressures the national leadership for union action, the Liaison Table will focus on the next few days in the Congress of the Nation. They have already sent letters to all political forces with legislative representation demanding that they be responsible for legislating on detentions. This week the representatives of the producers released a statement in which they requested “institutional order” in this regard.

In addition, Pino recalled that the entity filed an amparo where they pointed out “the unconstitutionality and illegality” of the withholding. “We know that without delegated powers the Government cannot touch any aliquot without going against our National Constitution. Every tax has to have a legal basis in order to be collected, we need an institutional order,” added the leader.

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