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LatinNews Daily Report - 26 June 2013

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Argentina, eyeing up neighbouring Brazil, freezes bread prices

Development: On 25 June Argentina’s federal government led by President Cristina Fernández said it would enforce a freeze on the price of bread and demanded that agricultural exporters divert their shipments of wheat and flour back onto the domestic market.

Significance: The price of bread has increased sharply across the country in recent weeks on a shortage of wheat, prompting the government to take drastic action. Politically, rising bread prices are never a good thing, particularly a few months before mid-term congressional elections (in October). The Fernández government will also be aware that a relatively ‘small issue’ – a few extra cents on the cost of public bus fares – triggered spiralling public protests in neighbouring Brazil. All this suggests that her government will need to move sharply to resolve this problem.

Key points:

  • The cost of bread has almost doubled in the past 30 days to reach approximately US$4.00 per kilogramme. High bread prices and supply problems seem to be emerging not only in the capital Buenos Aires, but in provincial cities too. Gerardo di Cosco, head of the bakers’ association of Rosario, says bread consumption there has fallen by around 30%.  Behind this lies the fact that wheat production in the 2012/13-crop year fell by 36% to a record low of 9m tonnes, down from 14m tonnes in 2011/12.
  • Leading farmers’ organisations blame the Fernández government for the fall in wheat production, arguing that its policy of taxing exports and controlling prices is primarily responsible for the decline in output. A number of the country’s main farming lobbies organised protests last week. “When there was no market intervention or export taxes we produced between 16m and 18m tonnes a year. If we are now short of wheat in Argentina, it is the government’s fault”, Luis Miguel Etchevehere, the president of the Sociedad Rural Argentina (SRA), said.
  • The government is trying to get to grips with the problem. The domestic trade minister, Guillerno Moreno, says he has reached an agreement with bakeries to freeze the price of ‘pan felipe’ bread rolls at Ar$10 and is asking exporters to divert some 370,000 tonnes back to the local market. Days before this announcement, bread prices had reached as much as Ar$16-20 a kilo. Argentina exports most of its wheat to Brazil. Sources say the government may also ban flour exports. Moreno could not resist a political interpretation of the problem. He claimed, without much explanation, that the rise in bread and flour prices was caused by Héctor Magnetto, the chief executive of the Clarín media group, one of the government’s main critics. “This is a story set running by Magnetto to cause trouble”, he declared.