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Brazil cut import tariffs to fight inflation—USDA

by Business News Report

Government of Brazil (GOB) has cut import tariffs for several categories of goods, focusing on food staples to reduce consumer inflation. The decision was made by the Executive Management Committee (GECEX) of the Brazilian Chamber of Foreign Trade (CAMEX). The temporary import tariff reduction is in force from May 12 through the end of the year. Note that although the GOB zeroed out or reduced import tariffs for most food items, the import tariff on mozzarella cheese (HS: 0406.10) was raised back to its original tariff of 28 percent (due to pressure from the dairy sector). The reductions were as follows: Boneless and frozen beef (HS: 0202.30.00) – from 10.8% to 0%; Edible parts of chickens, minced, offal and frozen (HS: 0207.14) – from 9% to 0%; Wheat flour (HS: 1101.000) – from 10.8% to 0%; Other wheats and mixtures of wheat and rye (HS: 1001.99) – from 9% to 0%; Cookies and cookies (HS: 1905.31) – from 16.2% to 0%; Bakery, pastry and biscuit insurance (HS: 1905.90) – from 16.2% to 0%; Corn (grain) (HS: 1005.90) – from 7.2% to 0%

According to the report GECEX/CAMEX also authorised reduction of import tariffs on iron rods and bars from 10.8% to 4%, and on agricultural fungicide technical mancozeb from 12.6% to 4%, as well as on sulfuric acid – from 3.6% to 0% – which is used for making fertilizers. Brazil has been battling persistent consumer inflation ever since the onset of the COVID-19 pandemic. In 2021, the country’s annual consumer price inflation index (IPCA) hit a six-year high of 10.06 percent. By April 2022, the 12-month IPCA hit above 12 percent. Last month saw the largest monthly jump in inflation in 26 years. According to the government statistics body IBGE, inflation is mostly driven by food and fuel prices. In April, food and beverage prices rose over two percent, while increase in transport costs was just below two percent. The inflationary pressures have been reinforced by the disruption in commodity trade and supply chains on the account of the Russian invasion of Ukraine.

The Brazilian government has adopted a wholesale approach to fighting inflation. In May 2022, the Brazilian Central Bank (BC) has increased the Brazilian federal funds rate to 12.75 percent, the highest rate since February 2017. Meanwhile, the May import tariff cut is the second such temporary reduction this year. On March 22, Brazil temporarily eliminated the import tariff on ethanol as well as five other agricultural products (coffee, margarine, cheese, spaghetti, sugar, and soybean oil). At the time, the GOB noted that the rising costs of these items have been exerting pressure on inflation in Brazil. At the time, economists calculate the impact from the first tranche of reductions to cost the Brazilian government around R$ 1 billion (~$200 million) in revenues. This latest round of tariff cuts is estimated to further cut into the government revenues by R$ 750 million (~$150 million). Post anticipates that the lower import tariffs are unlikely to significantly alter Brazil’s agricultural trade dynamics. Brazil’s agricultural exports surpassed $100 billion in 2021, while its agricultural imports were just over $13 billion. Brazil’s agricultural imports are relatively low in part because Brazil’s simple average WTO bound tariff rate for agricultural products is over 35 percent. However, Brazil is also an agricultural powerhouse producer, and is able to supply its domestic demand for nearly every major agricultural commodity with domestic production.

Over the last two years, imports into Brazil have faced two significant challenges. Since the onset of the COVID-19 pandemic, the Brazilian real lost over 70 percent of its value, depreciating from below R$4 to the U.S. dollar, to well above R$5.5 to the U.S. dollar by mid-February 2022. The steep depreciation of the domestic currency fueled an agricultural commodity export boom, while also making imports an expensive proposition. In addition, the COVID-19 pandemic has disrupted global shipping logistics. As a result, Brazil has struggled to secure shipping vessels and container ships in adequate volumes. Both factors are expected to continue to be challenges going forward. In addition, the current increase in global demand for agricultural commodities means that Brazil will face stiff competition from other markets for agricultural commodities. Brazil is a relatively minor importer of poultry and beef as it meets the vast majority of its consumption needs with domestic production. For poultry, Brazil is the global leader in exports, estimated at 14.86 million metric tons (MMT). Meanwhile Brazil imports just 5,000 metric tons (MT) of chicken meat, with 80 percent coming from Mercosur member Argentina and the remaining 20 percent being shipped from Chile. Both Argentina and Chile have a free trade agreement with Brazil allowing for duty free trade. Note that U.S. chicken meat does not have sanitary authorisation (i.e., a bilateral agreement) to enter the Brazilian market.

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