South America Calling

Brazil Considers Lifting Taxes on Corn Imports

Brazil's Agriculture Minister Katia Abreu has proposed suspending import taxes on corn and will sell government stocks to alleviate the pressure of high prices on local poultry and pork producers.

Brazil has aggressively exported corn over the last year, resulting in a scarcity on the local market, which has meant meatpackers such as BRF and JBS are operating with negative margins.

Brazil has closed a string of import deals and those will likely continue until second-crop corn starts hitting the market in May. Overall, it is expected to import 500,000 metric tons (mt) from neighboring Paraguay and Argentina over the next eight weeks.

Brazil's complicated tax system means that the effective PIS and Cofins tax rate on imports varies, but the saving from the proposed six-month suspension could reach 10% in some cases.

The agriculture minister's proposal will be assessed by the Finance Ministry. However, given the current parlous state of Brazil's public finances, it may be a tough sell.

In the meantime, the government will sell a total of 160,000 mt of corn from government stocks to small livestock producers.

The devaluation of the real in 2015 allowed Brazil to be very competitive on the export market and local consumers have had to pay more to keep product in the country.

As a result, average corn prices have risen by more than 35% in 2016 to hit the highest levels in eight years, according to the Esalq/BM&FBovespa index, while poultry and beef prices have fallen nearly 10% as the economy slumps.

"The export price for corn, allied to the difficulty that the meat industry has in passing on increased costs to the consumer, exacerbates the situation," said Abreu in the request sent to the Finance Ministry.

Brazil exported in excess of 30 million metric tons (mmt) in 2015-16 (Feb-Jan) and will likely export a similar volume in 2016-17, despite the recent strengthening in the real that has made Brazil a little less competitive.

Prices have exploded higher because consumers are quickly ploughing through first-crop production and a large portion of the second crop has been forward sold. Something in the region of 60% to 70% of the Mato Grosso second crop has already been committed.



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