August 6, 2013

Domestic Producers Want Higher Taxes on Imported Fertilizers

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

Brazil imports 70% to 75% of the fertilizers needed to produce the country's ever increasing grain production, but there are not as many taxes levied on the imported fertilizers as compared to domestically produced fertilizers and that has led to proposals from the domestic fertilizer industry to level the playing field as far as taxes are concerned.

The Brazilian Chemical Industry Association (Abiquim) and the National Syndicate of Fertilizer Raw Materials (Sinprifert) joined together to present a proposal to the Minister of Commerce to change the way imported fertilizers are taxed. They want the imported fertilizers to no longer be exempt from the 4% to 6% import tariffs imposed on other products.

They feel such a move would help stimulate the production of domestic fertilizers within the country. There is scheduled to be R$ 13 billion invested in domestic fertilizer production by the year 2017, but until then, domestic producers have thin margins and they are actually losing ground to increased levels of imported fertilizers.

One of the biggest complaints of domestic fertilizer producers is the fact that they are forced to pay as much as 40% ICMS taxes, which are taxes levied on products that cross state lines in Brazil. Imported fertilizers do not pay these ICMS taxes.

As you would expect, not everyone agrees with this proposal. The Brazilian Association of Fertilizer Mixers (AMA) counters that imported fertilizers already pay a heavy penalty due to the long distance the product must travel before reaching Brazil, the inefficiencies of the Brazilian ports, and the 25% merchant marine tax. Most of Brazil'Ss imported fertilizers come from Russia, India, and China and last year at this time, there were very long queues of vessels waiting to unload fertilizer at the main point of entry which is the Port of Paranagua.

The director of AMA, Carlos Florenca, feels that a 6% tax increase on imported fertilizers would simply be passed on to end consumer in the form of higher food prices and higher inflation and it would do little to stimulate more domestic production. He states that farmers would also be penalized by increasing their cost of production thus making them less competitive compared to producers in other countries such as the U.S.

Fertilizers are a very important component of cost of producing crops in Brazil. According to the Brazilian Agriculture and Livestock Federation (CAN), fertilizers and limestone account for 38% of the cost of producing soybeans in Sorriso, Mato Grosso, which is the largest soybean producing municipality in Brazil. The same fertilizers account for 34% of the cost of producing corn in Castro, Parana.