Like many developing economies, Argentina taxes its commodity exports, including soybeans and corn.

These taxes were first introduced in 1862 but were scrapped in 1991. Following the country's economic collapse in 2002, they were reintroduced to finance the budget deficit and fund social programs.

To encourage the processing industry, higher tax rates are levied on soybeans, which are taxed at 35% of their international price, whereas soybean meal and oil attracts a lower rate of 32%. Soy biodiesel is taxed at 17.5%.

“Export taxes are very effective because they are easy to collect, but the downside is they do not encourage investment,” says Ricardo Buryaile, a deputy in the lower house of Congress for the opposition Radical Civic Union.

MANY AGREE THAT the current tax system hampers the expansion of soybean production.

“Such taxes hinder continued growth in the sector,” says Fernando Bertello, the editor of the countryside supplement at La Nación newspaper. “For example, for every 100 acres that a producer plants with soybeans, 35% of the value is absorbed by export taxes. And when other taxes are added, the state takes back almost 50% of the total value.”

In March 2008, the government of President Fernández de Kirchner attempted to change the taxation system, which would have increased soybean export duties. This unleashed a bitter conflict between the government and farming sector for four months, until the measure was defeated in the Senate.

Since then, the farming sector has pressed for lower taxes, made more urgent by a severe drought last summer and the international financial crisis. With the government losing control of the Congress in recent mid-term elections, there is a glimmer of hope that taxes may be reduced during the next year. However, the president may veto laws emanating from Congress.

Many experts doubt there will be a change in policy before the end of the president's tenure in 2011. “Export taxes are a fundamental element of the conflict between the government and the agricultural sector,” says Guillermo MacLoughlin, a tax advisor to the Argentine Rural Society (SRA) and independent consultant to local and foreign companies.

“For the remainder of the government's term, it's difficult to see tax reductions,” he says. “They consider the subject from an ideological point of view, as well as a source of funding for state expenditure. With a new government likely to take office in 2011, a progressive reduction in export taxes could be expected.

“In the meantime, one cannot discount a possible slight rise in soybean taxes in the medium term, particularly if there is a significant increase in commodity prices or there is a desperate need for finance, especially as we approach the next election,” adds MacLoughlin.

This is part of a series on agriculture in Argentina by John Kennedy, a writer and economic consultant. You can contact him at [email protected].