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February 29, 2016

Governor of Goias Reverses Course - No Taxes on Grain Exports

After intense criticism from the agricultural sector, the Governor of the state of Goias in central Brazil has now reversed course on the imposition of ICMS taxes on soybeans and corn exported from the state. After meeting with members of the Agriculture and Livestock Federation of Goias and the Soybean and Corn Producers Association of Goias last Friday afternoon, the governor suspended the decree to impose the new taxes.

One of the questions often asked is what percentage of the crop is exported from the state. According to the Minister of Development, Industry and Exports (MDIC), in 2015, 37.4% of the soybeans and 41.3% of the corn produced in the state of Goias was exported.

When the news broke that exported grain would face additional taxes, farmers feared that grain companies would source their grain from neighboring states and that the prices paid to the farmers in Goias would decline, and that is exactly what happened. An analysis of pricing data from February 10-22, which is shortly after the announcement of the new taxes, the price for a sack of soybeans in the city of Rio Verde, Goias declined 4.4% or R$ 3.00 per sack, while at the same time, the price of soybeans increased 1.9% on the Chicago Board of Trade.

A lot of factors can go into determining the price of soybeans, but during the same twelve day period when prices for soybeans declined in Goias, the price of soybeans increased in other important soybean producing states as well as at the major ports in Brazil. We can't say for sure that the proposed new taxes were the cause of the price decline, but it seems like a reasonable assumption.

The governor and revenue director for the state of Goias maintained that the new taxes were needed so that exporters would purchase less grain in the state thus insuring that enough grain remained in the state for the processing industry. Farm groups in the state flatly rejected that "twisted" explanation. They contended that the new taxes were imposed solely because the state wanted the additional revenue and it appears that they were correct.

Other states in Brazil had contemplated imposing the same tax on exported grain, but the decision of the governor of Goias to suspend any consideration of new taxes probably means that other Brazilian states will not move forward with new taxes on grain exports.