Drought, policies hit wheat crop

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Alexandre Malisani

Drought, policies hit wheat crop

In Buenos Aires, wheat export taxes where increased because of the dry conditions in 2006/2007. One year before, a similar problem appeared, when very few rain hurt the wheat crop and slashed the seeded area by 18% from the previous season. That year, production sank to 12.5 million tons from a record 16 million tons recolected one season earlier. To avoid a possible government ban in exports, wheat exporters accepted in lowering their own sales abroad. After encouraging wheat exports in 2006/2007, the government finally rised taxes in wheat exports, which discouraged wheat cultivation.

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As the weather didn’t helped the farmers, their output (the produced good) was reduced. The graph shows a shift right in supply (the amount of goods available to sell), which explains why the producers of wheat had to increse their prices since the drought really damaged the whole wheat plantation. As a result of the drought, the output was lowered and the price incresed from P to P1. The increase of taxes in exports of wheat, discouraged many farmers which lead to a dicrease in wheat output, Q to Q1. This process lead to inflation (which is a rise in ...

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