OMAHA (DTN) -- The U.S. ethanol industry is exploring its options following Brazil's decision on Wednesday to impose a 20% tariff on ethanol imports from the U.S.
About 8% of ethanol produced in the United States is exported, with Brazil accounting for about 25% of those exports. So Brazil's decision to levy a 20% tariff on those imports will undoubtedly have some effect on U.S. producers, as it will be that much more expensive to export to Brazil.
Brazil Minister of Agriculture, Livestock and Supply Blairo Maggi announced the tariff will take effect after a 600-million-liter tariff rate quota, or about 158.5 million gallons. The action was taken by CAMEX, Brazil's Chamber of Foreign Trade.
Bob Dinneen, president and chief executive officer of the Renewable Fuels Association, told DTN on Thursday his group is still looking at the potential options for a response.
The tariff probably doesn't mean U.S. producers will stop exporting to Brazil.
"In terms of what it means, that is yet to be ascertained," Dinneen said. "Brazil is going to need liquid transportation fuels, and it can't produce everything. We will continue to ship to Brazil, but consumers will pay more for it. Brazil doesn't have enough (ethanol). I don't know how the marketplace will respond yet. I don't think we'll take this lying down. I don't think this is the final chapter."
More broadly, Dinneen said the U.S. ethanol industry is more concerned about an international trend toward adopting "protectionist" policies when it comes to biofuels. U.S. producers have faced similar situations with the likes of the European Union and Peru.
"It's purely protectionist," Dinneen said. "They can't protect their producers to get a better price. The domestic industry will benefit, but consumers lose."
With concerns about the future of the Renewable Fuel Standard and whether higher ethanol blends will become more commonplace in the market, the U.S. ethanol industry has embarked in recent years on expanding into more export markets.
"It certainly encourages the industry to seek other export opportunities more urgently," Dinneen said. "We have been doing that anyway, but this certainly puts more pressure on marketers to identify and open new markets."
Dinneen called Brazil's action "short-sighted" in an era where biofuels industries around the world are working to strengthen their foothold in the market.
"If the goal is to build biofuels markets across the world, which is what everyone wants to do, then it doesn't make sense," he said.
As part of the action, Brazil set a tariff rate quota of about 158.5 million gallons. An import quota is a limit on the quantity of ethanol that can be produced abroad and sold domestically. Dinneen said the quota is meaningless to U.S. ethanol producers, who already have exported about 1 billion gallons this year to Brazil.
Along with Dinneen, U.S. Grains Council President and Chief Executive Officer Tom Sleight and Growth Energy Chief Executive Officer Emily Skor issued a statement on Wednesday evening following Brazil's announcement.
The tariff rate set to be in place for the next two years would be "stymying" access to a "large and growing market" for U.S. ethanol exports, the statement said.
"We are disappointed and discouraged to see the ruling out of Brazil today imposing a tariff on U.S. ethanol," the statement said. "Given the tremendous volume of information we provided to Brazil that demonstrated how misguided a tariff would be, it seemed politics prevailed today and Brazilian consumers lost. Imposing tariffs on U.S. ethanol imports will hurt Brazilian consumers by driving up their costs at the pump. Additionally, this action goes against Brazil's longstanding view that ethanol tariffs are inappropriate and will effectively close off an open and bilateral trading relationship that benefits all sides.
"We strongly urge this recommendation to be reversed as soon as possible and will work to that end through all available pathways," the statement said.
As of March, Brazil was the top export target for U.S. ethanol producers who shipped 36.7 million gallons that month, according to government trade data compiled by the Renewable Fuels Association. The March numbers, however, represent a 28% drop from February's record exports to Brazil.
The Brazilian Sugarcane Industry Association, or UNICA, had been pressing Brazil's government to place a 16% tariff on imported ethanol, while other groups were calling for a tariff as high as 20%.
Dinneen said he has had discussions with officials at UNICA leading up to the Brazil's decision.
"My conversations with UNICA have been less than constructive," he told DTN. "Their explanation in this is lacking clarity. It just doesn't make any sense. The frustration for me is that, for years and years and years, UNICA would lecture the U.S. about why we had an offsetting tariff."
A U.S. tariff on ethanol imports ended in 2011. Dinneen said the U.S. tariff was designed to "protect" U.S. taxpayers by not allowing Brazilian ethanol producers to take advantage of the now-dead blender's tax credit.
"Our incentive was far different than a quota and a tariff," he said. "The repeated admonition with UNICA on the virtues of free trade with biofuels -- the hypocrisy, I find frustrating."
Todd Neeley can be reached at firstname.lastname@example.org
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