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). -------------- Summary -------------- ¶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. -------------- The Floods -------------- ¶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. -------------- Diesel Shortages -------------- ¶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 LA PAZ 00000589 002 OF 003 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. -------------- The Law of the Land -------------- ¶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. -------------- Export Bans to Curb Inflation -------------- ¶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. LA PAZ 00000589 003 OF 003 -------------- Comment -------------- ¶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