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October 17, 2019

Brazilian Farmers Concerned about Possible Changes to Kandir Law

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

Brazilian farmers are worried about potentially higher taxes on commodity exports as the Brazilian Congress discusses changes to what is called the Kandir Law. The law was passed in 1996 as a way to stimulate agricultural exports and it has worked extremely well. Today, Brazil is one of the largest exporters of agricultural products in the world.

The Kandir Law exempted agricultural exports from the ICMS tax in Brazil, which is a form of circulation tax charged on products produced in one state but consumed in another state. Each state can set its own ICMS tax rate, which is usually in the range of 9-13%. The reason why the Brazilian Congress is discussing changes to the law is because states are complaining that they have had to forgo billions in tax revenues while the federal government's promises to reimburse them for their losses were not carried through.

As a way to forestall any changes to the law, the Soybean and Corn Producers Association of Brazil commissioned a study by MBAgro to determine the impact on Brazilian soybean production if the law is altered or repealed. The study concluded that without this law in place, Brazilian soybean production would be 34% lower than it was in 2017/18.

The author of the study relied heavily on how export taxes in neighboring Argentine negatively impacted the soybean production in that country. The heavy export tax in Argentina led to disinvestment in the agricultural sector. At the time that Argentina started to levy export taxes on commodities, Brazil and Argentina produced about the same amount of soybeans. Today, Brazil produced more than double the amount of soybeans compared to Argentina.

If the Kandir Law is eliminated, the study concluded that farmer's incomes would decline, investment in technology would decline, land values would decline, and investments in the agricultural sector would decline.

The results of the study were presented to the Agricultural Commission of the Brazilian Congress and the Ministry of Agriculture in an effort to ward off any changes to the law.