Apr 21, 2014

"Brazil Cost" was Main Theme of Seminar in Brazilian Congress

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

As Brazil continues to solidify its position as one of the largest commodity and food producers in the world, one of the biggest obstacles to continued growth is what’s termed the "Brazil Cost". This refers to a number of things that increases the cost of doing business in Brazil including: inadequate infrastructure, burdensome bureaucracy, high taxes, onerous labor laws, and the seemingly inability of the Brazil Congress to make significant improvements in this area.

The "Brazil Cost" was one of the main themes of the Fourteenth Brazilian Cargo Transport Seminar held on April 16th in the Brazilian Congress. The goal of the seminar was to educate Brazilian lawmakers and to illustrate the problems and potential solutions to this structural problem in Brazil. The seminar went beyond just rehashing the same old complaints of not having enough roads or railroads, but to illustrate the deeper structural problems in Brazil.

One of the panelists at the seminar was an economist from Austin Rating, Alex Agostini, and he illustrated how some of these structural problems lead to the high cost of doing business in Brazil. At the international airport at Rio de Janeiro he indicated that it can take up to nine days to get all the paperwork cleared through the bureaucrat maze compared to four hours at airports in China. Another example of the inefficiencies is the lines of trucks waiting to load or unload at grain terminals or ports. All the time waiting reduces margins and the efficient use of the truck and the driver.

This inefficient bureaucracy leads to many types of inflated costs. Agostini indicated that businesses in Brazil spend an average of 2,600 hours annually preparing, registering, and paying their taxes. In many of the more developed countries, the time spent on this endeavor falls to 180 hours annually. In addition to the time involved, is the additional cost of hiring qualified personnel to perform this task.

One of burdensome taxes in Brazil is the circulation tax on merchandise (ICMS) which is a tax that must be paid any time merchandise moves between states. Each state can have a different level of ICMS tax, which makes moving merchandise around the country expensive and inefficient.

As another example of the "Brazil Cost", he indicated that a simple tire in Brazil can cost 130% more than in the United States. Combining all these various costs, a transportation company in the United States can equip a fleet of 20 vehicles for the same cost that it takes to equip a fleet of 10 vehicles in Brazil. These increased costs reduce competition and are passed on to the consumer in the form of higher prices.

Sponsors of the seminar, included various organizations involved in the transportation sector, hope that the information presented at the seminar will serve as a bases for further action by the Brazilian Congress to address this structural problem in the Brazilian economy.