Argentine investment in Uruguay is continuing to skyrocket as agricultural producers flee constraining Argentine tax structures in favor of investing in Uruguayan soy production, Uruguayan newspaper El Pais reported Sept. 2. Increased Argentine investment in Uruguay underlines one of the ominous implications of Argentine agricultural policies: the flight of domestic capital. Argentina’s agricultural industry is suffering under the burden of government tax and price cap policies. The nationwide protests that began in March forced the government to rescind major export taxes on soybeans that would have raised the tax on soybeans to around 45 percent. But problems remain. Not only are export earnings taxes still high, at about 35 percent, but the entire domestic market for agricultural goods is regulated by a series of price caps. The price caps keep the profit margins extremely low, perhaps even negative, for food producers, and have engendered a shift in how Argentine farmers plant their crops. With little money to be made on locally consumed goods such as wheat, milk and meat, farmers have shifted to growing products for export, namely soybeans. According to a report released recently by Openagro, an Argentine agribusiness consulting company, the margin of profit on soybeans has dropped well below profitability. In addition to the 35 percent gross export earnings tax, farmers must also pay a 1 percent tax on gross revenue and another 1.8 percent on financial transactions. With these taxes combined, the margin of error is very small; even with an average yield, many farmers are operating at a loss. Thus, a shift toward investing in neighboring Uruguay has taken place. Growing soybeans in Uruguay is not as efficient as in Argentina, but the smaller country boasts a similar climate and cheaper land — with the price of a hectare (about 2.5 acres) of land ranging from one-fifth to one-half as expensive as in Argentina. Furthermore, taxes in Uruguay are 2.5 times less than taxes in Argentina. This differential has spurred massive investment in Uruguay, with foreign investments in Uruguayan land multiplying 16-fold between 2001 and 2008. Though the increased investments coupled with the high price of soybeans in recent months is good news for Uruguay, the flight of domestic capital from Argentina spells trouble. Domestic investment is much harder to scare into going abroad than foreign investment, which tends to leave at the first sign of trouble. This will undermine domestic food production in Argentina, for both export and local consumption. For the Argentine government, revenue from agricultural taxes makes up about 30 percent of an ever-expanding government budget. The industry has already seen declining production as a result of lowered profits. As investment continues to flee, Argentina’s golden goose will be less and less capable of maintaining itself — something with heavy implications for the stability of the country.