The reinstatement of Brazil's ethanol import tariff should be voted on Wednesday at the Brazilian Chamber of Commerce, industry association Sindacucar Pernambuco said Tuesday.
A technical report from the Ministry of Agriculture suggests the return of the import tax at a 17% rate.
However, backstage talks are that the international sector within the Ministry of Finance is working to extend the import tax exemption currently in place.
"It looks like the Ministry of Finance is in defense of exporters abroad and not of Northeast producers that generate over 250,000 direct jobs," said Renato Cunha, president of Sindacucar Pernambuco.
Cunha, along with producers in the Northeast and some lawmakers, has been pressing for the tariff.
Cunha questions the work of the Ministry of Finances with the Brazilian Chamber of Commerce on the import tax, calling the focus of the discussions distorted and affirming that the Ministry of Agriculture should decide on the subject instead.
IMPORTS SURGE
The import tax was suspended in October 2011 because Brazil was undergoing an ethanol shortage due to crop problems. The tariff is currently suspended until 2019.
Brazilian imports of ethanol surged in 2016, totaling 834.6 million liters, a 63% year-on-year rise. Roughly 90% of the imports entered the country through North-Northeast ports.
Estimates from Kingsman, the agricultural unit of S&P Global Platts, show that in 2017 imports from the US could make up 37% of the ethanol consumed in the North-Northeast, up from 15% in 2016.
Brazilian ethanol imports in March totaled a record 291 million liters, up 13% month on month and more than three times the 81 million liters imported in the same period a year ago, according to the latest data from the Secretariat of Foreign Trade.
Of this total, 72% entered the country through North-Northeast ports, or 209 million liters. The balance, 82.5 million liters, entered through the key Center-South region, up 8% month on month and the highest monthly volume since February 2012.
The country's January-March imports totaled 721 million liters, compared with 143 million liters a year earlier. In the last five months, which covers the Center-South intercrop period, Brazil has imported 1 billion liters of ethanol, a record for the period.
US MARKET REACTION
The discussions for the return of an import tariff in Brazil have caught the attention of US exporters, who have eyed the increase in shipments to Brazil as an outlet that would have allowed them to switch the destination of volumes that would have gone to China before it re-imposed a 30% import tariff.
Kingsman estimates that Brazil should account for 39% of US exports in 2017, compared with 27% in 2016.
Despite the reinstatement of the tariff, market sources expect US exports to continue to flow to Brazil, given the current supply-and-demand picture in the South American country.
"If there was an export tax, the arb would be open at times depending on geographic considerations but closed in other parts of the country," Green Plains CEO Todd Becker said during the company's earnings call Tuesday.
"So that export tax would have some impact. We believe they're structurally short and internal prices would react anyway," Becker said.
The reinstatement of the tariff could trigger a reaction from the US concerning the free access of Brazilian ethanol entering into the country.
"But I do think it sparks other trade issues if Brazil moves to [raise the tariff]. When they need to export to our market, I think that would raise red flags," Becker said.
