April 15, 2013

A temporary tariff change in Brazil may allow US wheat farmers to regain competiveness in South America's largest wheat importing market, according to the US Wheat Associates (USW).

Brazil recently announced that it is waiving the 10% common external tariff (CET) for up to one million tonnes of wheat from April 1 through July 31, 2013. Brazil introduced the new duty-free wheat quota due to a shortage of wheat from countries included in the Mercosur Agreement.

"We are happy to see Brazil lower the tariff for non-Mercosur countries and provide a market opportunity for US wheat in addition to providing an affordable and high quality food supply to its citizens," said US Wheat Associates' Vice President of Policy, Shannon Schlecht.

Brazil is one of the top three wheat-importing countries in the world but trades the commodity mostly with Mercosur members (Argentina, Paraguay and Uruguay) due to the free trade provisions in the agreement. Argentina has the vast majority of the market share, averaging around 80% according to the USDA. However, the government has previously lifted the CET when these countries had a shortage of wheat. US commercial sales to Brazil were about 907,000 tonnes between January 1 and August 31, 2008 when the CET was waived. Sales reached 25,000 tonnes in the entire, more average, marketing year of 2006-07, with the CET in effect.

Due to a good relationship between Brazilian millers and bakers and USW, this duty free wheat quota should encourage a similar pattern of increased US wheat imports into Brazil.

"It is important to stay engaged with Brazil's buyers, keeping them informed about our crops and supporting them with technical information," USW President Alan Tracy said. "Experience shows that with that knowledge, they quickly turn to the dependable US wheat store when the need is there."

Aside from the fiscal advantage of the duty free wheat quota, many of Brazil's buyers are also in a good location to import US wheat.

Commercial sales of hard red winter and soft red winter to Brazil as of March 28 for 2012-13 are more than 400,000 tonnes compared to commercial sales at the same time in 2011-12 of only about 112,000 tonnes.

Although Brazil's duty free wheat quota is only temporary, it provides an opportunity for the US wheat industry to gain new market access — critical for US wheat farmers who rely on export markets to consume nearly half of their total annual production.

Currently, USW is working closely with the USDA's Foreign Agricultural Services and the Office of the US Trade Representative to ensure favourable terms for wheat exports in all negotiations.