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September 23, 2014

Taxes on Wheat Reduced in Rio Grande do Sul to Stimulate Sales

The state of Rio Grande do Sul is one of the two major wheat producing states in Brazil and farmers in the state are still holding a significant quantity of last year's wheat production in the hope of better prices. The problem is that the 2014 wheat harvest has already begun in the neighboring state of Parana and government officials are worried that farmers in Rio Grande do Sul may not be able to sell their old-crop wheat with the new-crop wheat already coming onto the market.

As a result, the Brazilian government has decided to reduce the ICMS tax on old-crop wheat from 8% to 2% in Rio Grande do Sul for a 45 day period ending on October 31st. The ICMS tax is a tax levied on merchandise or commodities that are produced in one state but sold in another state. It is sometimes referred to as a "circulation tax." The hope is that this reduction in tax will help to stimulate the sale of old-crop wheat in the state.

This is the second time this year that the ICMS tax on wheat has been reduced. The first time was in June when the federal government eliminated a 10% tariff on wheat imported from countries outside the Mercosul trading block. In response, the ICMS tax was lowered in order to help keep wheat from Rio Grande do Sul competitive with lower priced imported wheat from primarily the United States. The 10% tariff in wheat from countries outside of Mercosul was reinstated on August 15th.

State officials in Rio Grande do Sul have also asked the federal government to conduct Pepro Program auctions in the state in an effort to subsidize the price of at least 250,000 tons of wheat in the state.