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Argentina Soybeans Smuggled to Avoid Taxes
Long recognized internationally as a very competitive country to produce soybeans, Argentina lost a little bit of its prominence because of a policy enacted in 2003.
At that time, when tax exports (known as retentions) were applied at a rate of 35% on the oilseed, it devalued Argentinian soybeans.
Another factor that slowly started to diminish the gains of soybean growers in Argentina was the fact that the local currency, the Argentinean Peso, devalued over the years against the U.S. dollar. But the government had a delayed update of the official currency - causing farmers to earn less than they could on those exports.
So, how are less productive farmers able to survive? In northern provinces of Argentina, the answer is smuggling to Paraguay and, to a lesser extent, to Brazil. In Paraguay or Brazil, these soybeans are declared as locally produced.
Soybeans are smuggled out of the blue-color Argentine states in this map to Paraguay and Brazil, then are returned to that nation's market in order to avoid paying up to 35% in export taxes paid on Argentine domestic grain.
The soybeans return to Argentina, paid to local players with parallel dollar value, and then exported without the tax retentions from there, according to Argentina's Federal Administration of Public Revenue (their version of the IRS). As of today, a dollar buys AR$ 7.96 officially, while in the black market it buys AR$ 10.35, but this gap was wider in the past.
The administration has made a few seizures monthly with insignificant volumes. However, they think a lot more smuggling is done. Especially in Argentinean provinces close to Paraguay such as Chaco, Santiago del Estero, Formosa, and Misiones: This is very easy to do due to the lack of government personnel to supervise it, some local farmers unwilling to be identified told Agriculture.com. Local website Misiones Online reported that almost the entirety of the oilseed produced in that province is smuggled into the borders.
Some farmers even speculate that the Paraguayan soybean production, in the last season at nearly 9.08 million tons, is fake, and most of it is originated from Argentina.
That speculation about production is unlikely to be proven. Paraguay's minister of agriculture, Jorge Gattini, spoke to Agriculture.com and explained that the total production number is based on the planted area of 7.6 million acres, interpretation of photos, and productivity by the Paraguayan Chamber of Oilseed and Seed Exporter. Asked if the smuggling affected Paraguay's total number of soybean exports of 5 million tons, Mr. Gattini denied that this would be a major factor. "If this really exists, I don't believe it is very relevant (volume). It would be resolved locally," he affirms.
A number as big as 2 million tons is heard through the grapevine as the volume of soybeans smuggled into either Paraguay or Brazil.
Gustavo López, director of Buenos Aires-based consultancy Agritrend, says this is very attractive to some farmers, and the issue is a hot topic of discussion. López believes the number of soybeans smuggled is relatively high, but he's skeptical. "If we consider 1 million tons, we are talking about 33,000 trucks to do the smuggling. It would be hard to handle it," Lopez explains.
López thinks the soybean production in Argentina, registered at 49 million tons in the last season, is suspicious because it does not offer "a balance of supply and demand. Either the number is smaller, the stocks are too high, or a volume 'disappears' from the commercial circuit," questioned the specialist.
Pablo Fraga, a market analyst from BLD, a brokerage based in Rosario, says these talks are not very surprising when talking about the provinces of Santiago del Estero and Chaco. "There, everything is informal. A big amount of the soybeans is moved through the black market," tells Fraga.
There is no estimate on the potential number of soybeans produced for smuggling in Argentina and transported to Paraguay or Brazil.