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July 4, 2019

Soy Prices could decline 23% if Brazil's Kandir Law Revoked

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

Brazilian farmers are once again worried as some Brazilian politicians continue to push to revoke a law known as the Kandir Law. The Kandir Law, which was established in 1996, exempted any product that is exported from the ICMS tax. The ICMS tax is a circulation tax that is charged on all products that are produced in one state but used in another state. The ICMS tax is set by individual states and it can vary from approximately 9-12%.

The goal of the Kandir Law was to stimulate exports and it worked wonderfully, especially for agricultural products. In compensation, the federal government was supposed to reimburse the states for part of their lost revenue.

A study conducted by the National Agriculture Confederation (CNA) concluded that a repeal of the Kandir Law could lower the price of soybeans paid to the farmer in western Parana by 23%. For farmers in northern Mato Grosso, soybean prices could decline 25% if the law is repealed. Farmers are concerned that exporters would be forced to lower what they pay for soybeans in order to stay competitive in the world market. The percentage of losses were calculated in conjunction with the Center for Advanced Studies in Applied Economics (CEPEA)

Many states, including Mato Grosso, are now complaining that the compensation plan is inadequate and they want it revised. In big export states such as Mato Grosso, the state coffers are losing very significant amounts of money due to the law. In April of 2018, the state treasurer of Mato Grosso calculated that the state failed to collect R$ 37 billion of ICMS taxes over the past 20 years due to the Kandir Law and that the federal government compensated the state only R$ 5 billion during the same period, for a net loss of R$ 32 billion.

Many states in Brazil are in serious financial trouble and they are desperate for additional revenue. The states want to either change the formula for determining the amount of compensation for each state or have the Kandir Law revoked. The state of Para took their case to the Brazilian Supreme Court in 2016 and the court gave the Brazilian Congress until August of 2019 to resolve this issue.