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Inflation leads Argentina to repeat measures that have already failed

(Bloomberg) – If previous interventions serve as a guide, the new veto on beef exports from Argentina will not be able to contain inflation.

The prices of red meat show an increase of 65% in the annual rate and far exceed inflation of 46%, which led the Argentine president, Alberto Fernández, to suspend shipments of beef from the fifth largest exporter in the world for 30 days.

Although the measure may reap rapid political benefits, the long-term consequences for the beef sector are well known in Argentina, which has implemented similar restrictions for a decade until 2015: ranchers go out of business, production falls and pressure on prices is resumed.

“It is not even clear to me whether this will have a genuine impact on the control of food inflation,” said María Castiglioni, director of the consultancy C&T Asesores, in Buenos Aires. “To lose market share when it takes so long to open new export markets and start losing jobs in a sector that is working well, this measure is really inexplicable.”

Fernández felt the impact of the first-hand export ban in 2006 when she served as chief of staff to President Néstor Kirchner, the late husband of the current vice president, Cristina Fernández de Kirchner, who also governed the country from 2007 to 2015. Thus as now, the idea at the time was to offer more beef in the local market and cool domestic prices.

But the shot backfired. When ranchers turned their backs on the sector after the ban, Argentina lost almost 20% of its cattle herd in 2011. Cattle prices increased more frequently in the years that followed, including the 126% annual increase at the end of 2010, and the country was overtaken by Uruguay and Paraguay in the international market.

So far, the official decree that would implement the new ban has not been published. Still, the announcement drew the industry’s ire: chambers of commerce suspended sales of beef for several days and ranchers called for protests.

Like the old ban, ranchers and associations fear that this veto could last much longer than originally announced.

“In 2006, the ban was to be for 180 days and ended up lasting 10 years,” said Miguel Schiariti, president of the Chamber of Meat and Meat Products and Derivatives (CICCRA), referring to the strict export controls since then. “They are blaming the sector for prices, but inflation is the fault of the government because of the fiscal deficit and the printing of money.”

Old manual

Fernández argued that he was forced to take these measures because global commodity prices have soared in recent months, causing beef prices in Argentina to “get out of control”.

International demand “has created distortions in domestic prices that can no longer be tolerated,” Fernández told a radio station on Tuesday. “We cannot continue to watch beef prices rise month by month without any justification.”

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