August 18, 2014

Brazil Reinstates 10% Tariff on non-Mercosul Wheat Imports

Due to an anticipated record large 2014 wheat crop in Brazil, the Brazilian Foreign Trade Assembly (Camex) last Friday decided to reinstate the 10% import tariff on wheat imported from outside of the Mercosul trading block. The 10% import tariff had been suspended in 2013 and the first half of 2014 due to a lack of wheat supplies from southern Brazil and Argentina.

The biggest beneficiary of the suspension has been the United States who exported 3.47 million tons of wheat to Brazil in 2013. According to Camex, the U.S. exports accounted for 48% of the 7.2 million tons of wheat that Brazil imported in 2013. During the month of July that just ended, Brazil imported 581,000 tons of wheat with 63% (367,000 tons) coming from the United States.

Brazilian farmers will start harvesting their wheat crop this month and Conab is expecting a record crop of 7.5 million tons. The two major producing state are Parana with an estimated 4 million tons of wheat and Rio Grande do Sul with an estimated 3 million tons. The wheat crop in Parana will be harvested primarily during August, September, and October while the wheat in Rio Grande do Sul will be harvested primarily in October, November, and December.

The suspension of the tariff has been a point of contention for wheat producers in southern Brazil. Even now with the reinstatement of the tariff, wheat producers say it came too late because many wheat millers already have adequate supplies of imported wheat on hand and they will be in no hurry to purchase new crop wheat from Brazilian producers.

The tariff was supposed to have been reinstated in June of this year, but Camex extended the suspension until August 15th in order to allow another one million tons of wheat imports. Brazilian wheat producers complained that millers should purchase Brazilian wheat first, but the government defended its action citing the fact that it was cheaper to import wheat from the United States into northeastern Brazil than it was to truck wheat from southern Brazil to northeastern Brazil.

When the extension was announced in June, domestic wheat prices in Parana fell immediately by 20% to R$ 33.64 per sack of 60 kilograms (approximately US$ 6.95 per bushel), which is very close to the minimum price guaranteed by the government which is R$ 33.45 per sack (approximately US$ 6.91 per bushel).

Wheat prices are expected to fall to below the minimum set by the government when the harvest gets into full swing. In southwestern Parana for example, wheat prices that had been in the range of R$ 42 per sack are now R$ 32 per sack, which is below the minimum set by the government. The Assembly of Winter Crop Producers estimates that the federal government will now have to subsidize the sale of 3 million tons of wheat in order for producers to receive the minimum price guaranteed by the government.