Jan 22, 2019

Minimum Freight Rates Increased in Brazil

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

Even though the constitutionally of the law establishing minimum freight rates in Brazil has yet to be decided by the Brazilian Supreme Court, the Brazilian National Land Transportation Agency (ANTT) last Friday announced new freight rates valid for the next six months. The agency was authorized to adjust the freight rates every six months if the price of diesel fuel in Brazil changed by 10% or more.

The new freight rates were increased by 1.54% and they will be valid from January 20, 2019 to July 20, 2019. The increase was not linear because the rate depends on the size of the truck, the type of cargo, and the distance traveled.

Multiple organizations have joined together to oppose the law authorizing the minimum freight rates. They contend that the new rates are invalid because the underlying legislation authorizing the minimum rates is unconstitutional.

The new association opposing the freight rates is called the "Freight Without Table" (Frete Sem Tabela) and they maintain that their membership represents 21% of Brazil's GDP, they employ 20 million Brazilians, and they are responsible for more than 40% of Brazil's exports. They maintain that the minimum freight rates distorts the freight market, slows growth, and makes Brazil less efficient compared to its principal competitors.

The new organization's membership include: the Brazilian Vegetable Oil Processors Association (Abiove), the Brazilian Soybean Producers Association (Aprosoja BR), the Brazilian Animal Protein Association (ABPA), the National Association of Citrus Juice Exporters (CitrusBR), the Union of Sugarcane Industries (Unica), the Meat Exporters Association of Brazil (Abiec), the Brazilian Food Industry Association (Abia), and the National Industry Confederation (CNI).

This unresolved issue has slowed the forward contracting of the 2018/19 Brazilian soybean crop. Both the producers and the grain companies would prefer to wait for a decision by the Brazilian Supreme Court before they commit to freight contracts. Data published by Datagro indicate that Brazilian farmers have forward contracted 30.3% of their 2018/19 soybean crop compared to 31.6% that had been sold last year at this time.

The new Bolsonaro administration had indicated that they would address everyone's concerns surrounding the freight issue during the first month of their administration through a series of public hearing. The new administration took office on January 1st. They certainly want to avoid another nationwide truck strike similar to the one in May of 2018 that costs the Brazilian economy R$ 15.9 billion according the Brazilian Treasury Department.