BOLIVIA: A PRODUCTIVE SECTOR SQUEEZE IN SANTA CRUZ

C O N F I D E N T I A L SECTION 01 OF 03 LA PAZ 000589

SIPDIS

SIPDIS

E.O. 12958: DECL: 03/15/2018
TAGS: ECON PGOV PREL FAS AGR FAO IFAD BL
SUBJECT: BOLIVIA: A PRODUCTIVE SECTOR SQUEEZE IN SANTA CRUZ

REF: LA PAZ 3259

Classified By: EcoPol Chief Mike Hammer for reasons 1.4 (b) and (d).

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Summary
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1. (C) The Department of Santa Cruz is the commercial
agricultural center of Bolivia. It has suffered two
consecutive years of flooding, but Morales Administration
political actions, neglect, and mismanagement have combined
to exacerbate the problems. The agricultural sector has
faced diesel shortages, anti-inflationary measures which have
undercut progress in establishing export markets, doubts
about land tenure created by a new land management law, and
the looming vote on the MAS proposed constitution. Local
officials are wondering aloud if the central government is
truly trying to destroy the productive sector in order to
reform it following Marxist dogma. In the meantime, the
country will suffer from higher priced agricultural goods,
market distortions (and the corruption they generate),and
the increasing unrest that accompanies popular discontent in
Bolivia. End summary.

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The Floods
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2. (SBU) The flooding which occurred around the new year
has cost the Santa Cruz agricultural sector dearly.
According to the Association of Wheat and Seed Oil Producers
(ANAPO) about 25% of its principal crop, soya, has been lost
and an additional 20% of the harvest is threatened by the wet
conditions. Moreover, the department's infrastructure (roads
and bridges) was heavily damaged. The flooding hit
particularly hard in the north, where farmers were cut off
for long periods of time. According to Reinaldo Diaz,
President of ANAPO, the central government has yet to help
with any of the repairs. Karen Balcazar, Director for
International Relations for the Santa Cruz Prefect, says that
the central government originally budgeted $600,000 for roads
in Santa Cruz, but has reduced that amount to only $200,000
because of budget concerns. Moreover, they are considering a
month delay in delivering the funds, which could impact the
transport of the rice harvest.

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Diesel Shortages
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3. (C) In November and December, before the rains hit,
Santa Cruz faced severe shortages of diesel fuel (Reftel).
Diaz reported that about one third of the diesel required
during the critical harvest/seeding cycle could not be
delivered. While the state hydrocarbon company (YPFB) claims
that shortages were caused by a lack of trucks and difficult
shipping conditions for barges on the Paraguay-Parana river,
the general manager of the Chamber of Eastern Agriculture
(CAO),Edilberto Osinaga, points out that YPFB was well aware
of the yearly consumption patterns of diesel use in the
department. Osinaga found it very suspicious that no
planning was made for the seasonal upturns in consumption.


4. (C) The results were dramatic. In the north, where
shortages were most acute, only half of the proposed soya
acreage was planted. Overall, around 27% of the planned soya
planting took place and, combined with the flooding, harvest
may well only be half of what was expected (Note: These
numbers were provided by ANAPO. Valmor Schaffer, General
Manager of ADM in Santa Cruz, said that ANAPO figures should
be taken with a "tear factor" or about a 10 percent
exaggeration rate. End note.)


5. (U) The economy of northern Santa Cruz would be near

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collapse if not for the dramatic worldwide rise in
agricultural commodity prices. Prices from soya have risen
from between $190-220 per ton a year ago, to $350 currently.
With farmers in Bolivia spending between $300-$400 per
hectare and each hectare producing between 2 to 3 tons of
soya, profits will be excellent for farmers able to harvest
(for example, a 1000 hectare farm could expect upwards of
$600,000 in profits). However, even as the prices for their
products rise, production will continue to decline just as it
did last year when the volume of seed oil exports fell 6.6
percent.

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The Law of the Land
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6. (SBU) The new land law (3545),whose regulations were
approved in August 2007, is further limiting growth in the
agricultural sector. The law threatens expropriation as its
primary tool for punitive action for violations of often
opaque regulations. For example, the law dictates that the
"social/economic function" of the land must always be
completed with a government review taking place every two
years. As part of this "social/economic function" lands must
comply with an overall soil use plan. However, there are
many overlapping regulations that address soil use and
farmers fear arbitrary application of the law. Moreover,
there is no provision for leaving land fallow or for
considering improvements to a farm (i.e. wells, roads, or
irrigation systems) as complying with a social/economic
function. Additionally, while the government has temporarily
suspended inspections because of the flooding, the "process
of regularizing" agricultural holdings will begin after the
natural disaster is declared over. Farmers worry that
previously flooded and unplanted land will be declared as not
fulfilling its social/economic function.


7. (SBU) Land can also be expropriated for violations of
labor or environmental law. Considering that only the
largest farming operations have the administrative staff to
adequately comply with Bolivian labor laws, this may enable
the Bolivian government to arbitrarily seize farms.
Moreover, the constant threat of expropriation is limiting
the ability of farmers to use land as collateral when seeking
loans. The CAO general manager Edilberto said that only
foreigners are currently making investments in agriculture
and that a steady 10-15% increase in land under cultivation
over the last decade has come to a halt since Morales was
elected.


8. (SBU) In addition to the land law, a referendum on
whether to limit farms to 10,000 or 5,000 hectares in the new
constitutions looms over the industry as well. Edilberto
estimates that a 5,000 hectare limit would affect around 500
farms.

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Export Bans to Curb Inflation
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9. (SBU) At the beginning of March, the Morales
Administration announced that it was prohibiting the
exportation of seven agricultural products: cattle, beef,
chicken, wheat, corn, rice, and wheat flour. (Note:
Initially sugar was included in the decree, but Abelardo
Suarz, vice-president of Guabira Sugar said that the ministry
called the day after the decree to apologize and say that
they could continue to export. End Note) While none of the
banned export products generate the bulk of their earnings
through exports, investment plans and the credibility of the
sector has been damaged. Over the past four years, poultry
producers have worked to meet Japanese import requirements.
Exports had just begun, only to be arbitrarily cut-off by
government action. It is unclear if credibility can be
reestablished.

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Comment
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10. (C) The people of Santa Cruz are convinced that the
Morales Administration is putting the squeeze on the
productive sector in order to harm the opposition and/or
justify land expropriations. In the meantime, however, it is
difficult to understand how the administration expects to
weather the inflationary storm that such actions accentuate.
Over the first two months of the year, inflation has risen to
3.7 percent, nearly half of the government projected 8
percent for the year. Moreover, food prices are leading the
charge with the price of lunch having risen an estimated 6
percent this year alone. IMF representatives recently told
the Embassy that they expect inflation to top 20% for 2008.
People are increasingly frustrated and the government
increasingly sensitive. When IMF representatives mentioned
their forecast to the minister of finance, he said that a
public pronouncement of such a high prediction would amount
to "economic terrorism." It is ironic that the government's
actions against Santa Cruz producers are exacerbating
economic problems and in turn complicating the entire MAS
agenda and, indeed, the Morales presidency.
GOLDBERG