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A Brazil Tax Could Boost U.S. Soybean Exports
The slash of export taxes of grains in Argentina has generated a positive response for those products in the international markets recently. What nobody expected was that Brazil would create new export taxes without any previous announcement. The unfolding of that situation could impact positively the grain market, and open the door for more U.S. soybean exports, some analysts say.
The Center-Western state of Goiás, which is the fourth-largest producer of soybeans in the country with an output of about 9 million metric tons yearly, has created through a decree at the end of January a limit of an exemption for exports of corn and soybeans purchased in the state. So, 30% of soybeans produced in the state and sold abroad will be taxed with a rate of 17%, based upon the Tax of Commercialization of Goods and Services (ICMS in Portuguese), a state tax applied to products. In the case of the processing industry, 40% of what they buy and export will be taxed.
The issue generated a very strong reaction from farm associations all around the country. They say that the decree is unconstitutional, that they will appeal to the courts, and that they are very worried that a lot of taxes changed overnight. Brazil is in an economic depression with a decline of 4% of the economy registered in 2015 and governments in the three levels (municipals, states, and federal) are in a dire fiscal crisis. The Brazilian federal government also considers an export tax rate of 2.8% to finance the country's social security, which some deem to be a ticking bomb.
"Inside the farm gates, Brazil is very competitive. Taxing our exports would take out competitiveness, and our big worry is that other states will do the same thing as Goiás," said João Martins, president of the Confederation of Agriculture and Livestock of Brazil.
The economy secretary of Goiás, Ana Carla Abraão Costa, explains that the new tax is not an export, but an export quota that the state always has had. "We have always worked with export quotas. We just strengthened the penalties. There was a lack of soybeans in the state, and the industry purchased from Mato Grosso and other regions. So, we suffered a lot with loss of revenue," she told local agency Estado.
Consulted by Agriculture.com, market analyst Carlos Cogo from Porto Alegre said that the government of Goiás tries to say there was a misunderstanding, but this is indeed an export tax. And the results will be that tradings will leave Goiás as it happened with Mato Grosso do Sul.
"With a similar measure in Mato Grosso do Sul, the result was that exporting companies left the state and went to Mato Grosso. Now this is at the center of the worries of the sector because more states can impose such taxes and increase costs and obstacles like precarious roads, railways, and ports," affirmed Cogo.
Guillermo Rossi, director of information and economic studies at the Rosario Board of Trade, evaluates that so far there will be no big impact on markets outside of the state of Goiás and the Center-West of Brazil, but as with export taxes in Argentina, it would reduce profitability. "The average profit will reduce in the next years (in Goiás). At a midterm perspective, it is hard to know what would happen. It will generate distortions, and purchasers will seek soybeans from other places such as the U.S. These distortions are not welcome in the grain markets because they generate inefficiencies," Rossi told Agriculture.com.
Another possible domestic consequence was pointed out by Curitiba-based analyst Luiz Pacheco, owner of consultancy Trigo & Farinhas. The state of Rio Grande do Sul, which is not self-sufficient on corn, would have to bring a more expensive feed into the state for poultry and swine.
"These sectors can become not viable in Rio Grande do Sul. The only solution would be that southern states produce forage wheat to replace the expensive corn from Goiás," forecasts Pacheco.