“I thought this was a gas station,” huffed our Argentine friend with disgust. “I somehow forgot it was an Argentine gas station.”
Five gas trucks were parked out front of the YFP station just outside of Tucuman, where your editor and a group of friends were passing through last week on their way to Salta. Cars, vans and motorbikes of every description were queued up around the corner. The line wasn’t moving.
“No hay nafta,” said the station attendant. “No hay nafta hoy.”
Why would there be no gas at a gas station, we wondered? What kind of business was this? Clearly there was a demand. It stretched half way around the block. And since gas trucks aren’t usually in the habit of stopping at gas stations unless they have some supply to unload, we assumed the five trucks out front had the goods everyone had come for.
“This is just typical,” said our friend. “They won’t sell us any today because they know the price will go up tomorrow or the next day. They’re holding onto their stockpiles until they can get a better price for it.”
“How do they know the price will go up tomorrow, or the next day?” your editor inquired.
Our friend rolled his eyes. “They know people who know people who know people. That’s the way this place works. All these industries are the same. They’re run by crooks and mobsters. Tell me, why did you want to move here again?”
“Well, I like wine and steak…” we began.
“And there you have it again. Same problems. The beef industry here, for example, is heavily taxed and regulated. The government says it wants to keep the price of meat low for domestic consumption, so it taxes exports to discourage farmers selling their produce abroad. We Argentines like our bife de chorizo, as I’m sure you’ve noticed. [We have.] Anyway, these policies are all supposedly put in place to help the poor; the ‘little guy.’ Well, you know how that usually turns out…
“We have some of the best beef in the world here in Argentina. The industry should be growing, leading exports. There are plenty of skilled entrepreneurs who could be driving it. Instead, they are hampered by all these ridiculous rules. Needless to say, producers soon found that, with such heavy taxes on exports, they were unable to make the same profits as before. The government effectively cut their profit incentive. So, the farmers cut production. Land that had previously been used to raise cattle was converted to soya farming. Now Uruguay and even Paraguay are overtaking us.
“What’s more, now that supply is down, now that productive capacity has been reduced, the price of meat is going up locally again. As usual, the little guy, the one who the government supposedly set out to help, ends up paying more.”
Our friend is not exaggerating, not about the Argentine’s love for beef nor their government’s love for stupid rules and misguided regulations. At around 63kgs (almost 140 pounds) of consumption per person per year, Argentina is outranked only by Uruguay at the asado. Indeed, Argentines have been chowing down heartily ever since cattle was first introduced into the country way back in 1536 by the Spanish Conquistadors. Herds multiplied rapidly across the rolling, fertile pampas and the later introduction of the national train network – and, in particular, the invention of refrigerated carriages – helped feed the growing export market. Argentina’s cattle industry soared.
But before governments can turn bad situations worse, they must first work on spoiling the best of situations, i.e., the most productive, promising industries. In 2006, after unsuccessful attempts to contain the rising price of their best export (yes, you read that correctly), the Kirchner administration instituted a total ban on all beef exports for 180 days. This was followed by quotas, fixes and the standard sort of mischief and tomfoolery you’d expect from appointed representatives who think they know the price of a good – any good – better than those actually buying and selling it.
Beef exports subsequently collapsed and, from July 2010 to January 2011, actually fell 63% year-on-year. According to the meat industry chamber, CICCRA, government policies cost Argentina some 4,600 small producers and more than 3,500 jobs while simultaneously “condemning all consumers to pay nearly double for beef than the year before and to reduce per capita consumption to 2001-02 levels.”
Meanwhile, Paraguay, that tiny country to Argentina’s north with less than one-sixth of its southern neighbour’s population, is going gangbusters. After logging an incredible 14% GDP growth last year, Paraguay kicked off 2011 by overtaking, for the first time ever, Argentina’s total beef exports for the month of January. Although that growth rate is expected to slow this year, the outlook for the nation’s key farming sectors – including it’s top two exports: soya and beef – remains strong.
After waiting a few minutes longer, we decided to move on to another gas station down the road, one that was open and actually selling gas.
“There are a lot of problems here, Joel,” our mate continued. “This place is run by crooks. The beef industry is just one example.”
We couldn’t bring ourselves to ask about the wine.
The Unfortunate State of the Argentine Beef Industry originally appeared in the Daily Reckoning. The Daily Reckoning now provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas.