Jul 03, 2014

Brazil Defends Decision to Temporarily Drop Wheat Import Tariff

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

The Brazilian Minister of Agriculture has countered criticism from farm organizations concerning the government's decision to temporarily eliminate the 10% import tariff imposed on wheat imported from outside the Merosur trading block by insisting it was done to allow cheaper wheat to be imported into northeastern Brazil. The elimination of the 10% tariff is expected to allow an additional one million tons of wheat to be imported into Brazil by mid-August.

The Minister contends that the wheat would have been imported regardless of the elimination of the import tariff, so why make wheat more expensive in northeastern Brazil for no valid reason. The fact is even if the 10% import tariff remained in place, it would still be cheaper to import wheat from the U.S. or Canada into northeastern Brazil than it is to transport wheat by truck from the production areas of southern Brazil into northeastern Brazil.

Critics of the decision, such as the National Agriculture Confederation (CAN), contend that the reduction will result in lower wheat prices for Brazilian producers. In fact, since the reduction was announced, domestic wheat prices in Brazil have declined and are approaching the lowest levels of the year. They contend that it was unfair to push down prices for producers just to make wheat a little more affordable for consumers in northeastern Brazil.

Producers in Rio Grande do Sul have also complained that they were still in the midst of planting their wheat when the tariff elimination was announced, in other words, they changed the rules in the middle of the game. If wheat prices fall to below the guaranteed minimum price, they contend that the government will have to spend precious resources to purchase the wheat, so why not let the market determine the price of wheat instead of government action?

Many suspect that the government eliminated the tariff as away counter rising inflation. By lowering wheat prices, it helps to hold down food inflation which could be a contentious issue as presidential campaigning gets underway for the October presidential elections.

Brazilian farmers are expected to produce a record wheat crop in 2014 and Conab is estimating that Brazil will produce 7.3 million tons of wheat compared to 5.5 million tons produced in 2013.