Reducing Brazilian taxes on imports of ethanol, sugar and soybean oil will have little impact – analysts

Brazil’s recently announced tax cut for imports of ethanol, sugar and soybean oil is expected to have little impact on near-term trade deals and has been driven more by politics than business. , analysts said.

The move comes as the government attempts to rein in double-digit annual inflation, with import duties on ethanol and six food items – ground coffee, margarine, cheese, pasta, sugar and soybean oil – being reduced to zero until the end of 2022.

President Jair Bolsonaro says reducing taxes on ethanol imports to zero by 18% should lower gasoline prices at the pump by up to 0.20 reals ($0.0406) per liter – local laws require biofuel to be blended with gasoline. Analysts, however, saw the move as having little impact at this time.

Even in the absence of taxes, imported ethanol would enter Brazil at prices 8-10% higher than local prices, which are expected to fall further from April, when sugarcane crushing begins in Brazil.

“We are on the cusp of the new sugarcane crop, when prices will drop, so we expect the arbitrage window to remain closed even with zero tax,” the Datagro analyst said. , Plinio Nastari.

“Brazilian ethanol tends to become more competitive in the coming weeks with lower producer prices, and this should be passed on to consumers,” he added.

Nastari also said lowering taxes on sugar imports should have no practical effect because Brazil – the world’s top exporter – has the lowest cost of sugar in the world.

The move is also unlikely to attract soybean oil imports, according to Safras & Mercado analyst Luiz Fernando Roque.

“There is already less demand for soybean oil in Brazil and we could even reduce exports if necessary. I don’t believe this move will boost soybean oil imports,” he said, noting that Brazil already buys the product from fellow Mercosur member Argentina – the world’s largest exporter of soybean oil. soybean oil – tax free.

“I think it was more of a political decision, because soybean oil prices are going up a lot. … A tax cut on soybean meal would be more attractive,” Roque said.
Source: Reuters (Reporting by Roberto Samora; Writing by Gabriel Araujo; Editing by Jonathan Oatis)

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