July 20 (Bloomberg) -- Argentina’s farmers will press the government to cut taxes and export restrictions on grains and oilseeds, saying the reductions would lead to a record harvest within two years.

Output may reach 98 million metric tons in the 2010-2011 season with such policy changes, Ricardo Buryaile, vice president of the Argentine Rural Confederation, said. That would beat the record 95 million tons set two years ago.

President Cristina Fernandez de Kirchner said she would review agriculture policies in consultation with opposition parties and farmers after her coalition lost its majority in June 28 congressional elections. Farmers, who have blocked roads and shipments over taxes, will have 12 representatives in the 257-member lower house from December, and are due to meet government officials this week.

“The agriculture sector could recover in six months if the government agrees to impose normal and clear rules,” Buryaile said in a telephone interview.

Congress is scheduled to debate farm export taxes by the end of this month.

An accord between farmers and the government would help restore Argentina as a reliable and consistent supplier to world markets, said David Smoldt, a vice president of Kansas City- based commodities broker FCStone LLC in an interview from West Des Moines, Iowa.

As the third largest exporter of corn and soybeans, and the fourth largest exporter of wheat, “Argentina plays a crucial role in the balance of the global export trade,” said Smoldt.

Drought Damage

Argentina’s current harvest, now drawing to a close, slumped 28 percent to 68 million tons, in part because of the most severe drought in 70 years, according to the Argentine Rural Society, the country’s largest farm group.

Taxing soybean exports at 35 percent and restricting exports of other commodities were another reason for the drop, according to Buryaile, one of the successful candidates in the June ballot. Fernandez’s husband and predecessor Nestor Kirchner started restricting beef, corn and wheat shipments in 2006 to ensure supplies of cheap food to the domestic market.

“The world is demanding corn and we can produce more,” said Santiago del Solar, vice president of the Argentine Corn Association, in a July 14 interview. “But the producer needs a gesture of confidence now because we have the planting season starting in 40 days.”

Debate in Congress

Fernandez called the consultations after her ruling coalition lost its majorities in both houses of Congress in the mid-term elections. On July 15, Agustin Rossi, president of Fernandez’s Victory Front alliance in the lower house, said lawmakers will debate agricultural export taxes by the end of the month.

“The government realizes that it went too far taxing farmers and will try to fix this given the election results,” Boris Segura, senior economist for Latin America at RBS Securities Inc. in Greenwich, Connecticut, said in a telephone interview.

Argentina’s agriculture secretariat and presidential palace didn’t respond to messages by Bloomberg News seeking comment on the talks with farmers.

Last year, an attempt by Fernandez to increase soybean export tariffs provoked a four-month protest by farmers that blocked highways, created food shortages and prompted nationwide anti-government demonstrations. The proposed tax increases were rejected by a single vote in the Senate.

Wheat Harvest

The drought will also reduce output from the coming 2009- 2010 harvest. The area now being sown to wheat will be the lowest on record, the Buenos Aires Cereals Exchange said on July 15, meaning Argentina may only produce enough of the grain to meet domestic demand and will withdraw from world markets for the first time in at least a century.

Fernandez’s post-election cabinet reshuffle, in which she appointed officials already within her government to key posts such as economy minister, indicates she has no plans to make changes in policies, said Daniel Kerner, a political analyst at the Eurasia Group in New York.

In addition, the government would have to cut spending to compensate for a reduction in income from export taxes, said Enrique Alvarez, head of Latin America fixed-income research at IDEAglobal Inc. in New York.

“I’m skeptical about these meetings,” said Kerner. “The government tries to give a sign of dialogue but at the same time doubles the bet and moves on the same way.”

Markets Last Week

Last week, the yield on Argentina’s benchmark 8.28 percent dollar bonds due in 2033 slid 19 basis points, or 0.19 percentage point, to 15.57 percent, according to Bloomberg data. The bond’s price rose 0.75 cents to 52.25 cents on the dollar.

The Buenos Aires benchmark Merval stock index rose 9.8 percent to 1,622.67 points with all 11 members advancing. Tenaris SA (TS AF), the world’s biggest maker of seamless steel tubes for pipelines, gained the most, rising 12 percent to 53.75 pesos. Empresa Distribuidora y Comercializadora Norte SA (EDN AF), the nation’s biggest power distributor, gained the least, advancing 1.8 percent to 1.11 pesos.

The following is a list of events in Argentina this week:

Event                                   Date
Budget Balance                          July 20 - July 24
Inflationary expectations               July 20
Industrial Production                   July 24

To contact the reporter on this story: Eliana Raszewski in Buenos Aires at eraszewski@bloomberg.net; Matthew Craze in Santiago at mcraze@bloomberg.net

Last Updated: July 19, 2009 23:01 EDT