South America Calling

Brazil may surpass the U.S. to become the world's No. 1 soybean producer in 2012-13 but it is only the No. 4 soybean crusher.

Of last season's 66.6 million metric ton crop, nearly half -- 31.5 million -- will be exported in bean form.

Obviously, by exporting the raw material instead of processing here and then shipping meal and oil, Brazil is limiting the revenues, jobs and trade dollars gained from this massive industry.

So why does this happen?

There are a couple of structural reasons: First, China, Brazil's main soy client, has over the last 10 years sought to import beans to supply its own crushing industry, rather than import meal and oil. Second, the geographical spread of soybean production and crushing puts Brazil at a disadvantage to its main competitor Argentina, which concentrates crushing at huge port facilities.

But the third reason is exclusively of the Brazilian's making. Rather bizarrely, Brazilian soymeal and soyoil exports have a tax burden, while soybeans can be shipped tariff-free.

Soymeal and soyoil production is saddled by various levies, including ICMS sales tax and Funrural and PIS/Cofins social security contributions, explains the Brazilian Vegetable Oil Industry Association (ABIOVE). Crushers in theory can get most of these taxes back when they export but, in practice, the rebates can take years to come through or are offered in the form of tax credits that exporters find difficult to use.

"Brazil is the only country in the world that promotes the export of primary products to the detriment of value-added products," said ABIOVE in a statement.

As a result, trading companies choose to export, leaving plants underutilized.

Brazil only used 67% of its installed crushing capacity in 2012.

In Argentina, more logically meal and oil shipments are taxed at a lower rate than beans.

As a result, investment in Argentine soybean processing has considerably outstripped that in Brazil in recent years.

Back in 1996, Argentine crushing capacity was half that of Brazil but now it outstrips its neighbor. In 2011, Argentina could crush 175,000 metric tons of soybeans per day against 169,000 in Brazil.

© Copyright 2012 DTN/The Progressive Farmer, A Telvent Brand. All rights reserved.