May 29, 2008

 

Brazil cuts tax on wheat to expand imports

   

  

Brazil's government made official an executive order to exempt imported wheat from the local social contribution tax, on Wednesday (May 28, 2008), adding to two other tariff cuts put in place earlier this year.

 

The measure was taken to facilitate the shipment of wheat, currently in low supply in Brazil, from abroad.

 

The government is taking these measures to decrease the impact on food inflation, said Elcio Bento, an analyst at consultancy Safras & Mercado.

 

Early on in the year, the government had already extended to other countries exemption from a 10-percent tariff which was previously applicable only to imports from the Mercosur countries. The extension to countries outside of Mercosur is applicable until Aug. 31 of this year or until Brazil's imports reaches 2 million tonnes, whichever comes first.

 

Argentina is Brazil's main wheat supplier, but has since stopped exporting wheat to deal with its own supply and inflationary worries.

 

This month, the government also cut a Merchant Marine renovation tariff of 25 percent over freight prices. This measure will last until the end of 2008.

 

Lifting the PIS/COFINS social security tax means the additional 9.25 percent charge over wheat shipment entry prices is suspended until the end of the year.

 

According to Safras & Mercado, these measures significantly reduce import prices from countries such as the US and Canada, from where Brazil is currently importing wheat.

 

Wheat grain originating in the US, costing US$530 per ton with all of the applicable tariffs, will now be priced at around US$463, a 12.6-percent drop.

 

Brazil's wheat imports between Aug 2007 and July 2008 should total 6.2 million tonnes, 1.75 million of which come from the Northern hemisphere. Argentina will account for roughly 4 million tonnes to Brazil between Aug 07 and July 08, according to Safras. An ongoing farmer strike in Argentina, however, is forcing Brazilian importers to seek the product elsewhere.

  

Brazilian farmers are facing a significant increase in production costs, due mostly to a rise in fertilizer and agrochemical costs. With the local wheat harvest coming up in September, the market will have more purchasing options and prices will be lower.

 

"Farmers may think twice before spending so much money on inputs such as fertilizers and pesticides," Bento speculated. This could mean a lower quality of grain in the harvest, which would hurt the segment in the long run.

 

At a forum for the Brazilian Agribusiness Association, or ABAG, Adelmor Gheler, a tax specialist from Louis Dreyfus Commodities, defended the idea that foods must have full or partial tax exemption.

 

Farmers in Brazil, previously the worlds lowest-cost food producer, are seeing their profit margins narrow with rising production costs, a low dollar-real exchange rate and soaring commodity prices.