Farm minister says Brazil may revoke 20% ethanol import tariff

Brazil may revoke a 20% import tariff on ethanol that went into effect in September as local fuel prices soar to record territory, Agriculture Minister Blairo Maggi said.

While speaking at an event in Sao Paulo about Brazil’s 2017 farm exports, Maggi said his ministry is studying the potential impact of rescinding the current ethanol import tariff, that he himself helped implement on September 1.

Maggi’s initial support of the 20% tariff, which kicks in once ethanol imports exceed 150 million litres in each quarter, came after ethanol mill owners in Brazil’s northeast lobbied the government to do something about the wave of imported ethanol flooding the local market and driving down prices.

Even after the tariff was implemented in September, Brazilian imports of ethanol reached a record 2.5 billion litres last year, nearly five times the imports of the biofuel in 2016, according to Trade Ministry data.

Nearly all ethanol imported into Brazil comes from the United States.

“The price of gasoline has risen substantially in Brazil… and since ethanol prices have benefited from the link with gasoline, the protection that we have imposed doesn’t make much sense to me,” Maggi told reporters.

Hydrous ethanol competes directly with gasoline at the pump in Brazil, and local mills benefit from improved margins when gasoline prices rise.

In July 2017, the state-run oil company Petrobras began more actively pricing local gasoline in line with international benchmarks.

The company raised gasoline prices by almost 26% in the second half of 2017.

Renato Cunha, the president of Sindacucar, the northeastern cane milling association, was quick to shoot back at the minister’s statements, saying that local mills would go bust if fuel distributors were simply allowed to secure supplies from abroad with the flood of cheap US corn ethanol being dumped on to the market.

“The US is coming off a bumper corn harvest… and if local distributors are allowed to supply themselves with cheaper, inferior ethanol from abroad, there may not be a local ethanol industry in the future,” said Cunha, who lobbied heavily to impose the tariff.

US production has reached epic levels in recent months, regularly breaching the 1 million barrels a day level and establishing a new production record of 1.1 million barrels a day in the week ending December 1.

Sources in the US market have acknowledged that, with production at that level and the US running into a quiet, winter period as far as driving demand is concerned, exports will be essential if production levels are to be maintained. 

Maggi said that he would submit the findings of his ministry’s study on removing the tariff to the country’s trade policy chamber Camex, which is responsible for deciding on and implementing Brazil’s tariff system.