A temporary tariff change in Brazil is signaling an opportunity for U.S. wheat farmers to regain competiveness in South America’s largest wheat importing market.
The Government of Brazil recently announced that it is waiving the 10 percent common external tariff (CET) for up to 1.0 million metric tons (MMT) of wheat from April 1 through July 31, 2013. Brazil introduced the new duty free wheat quota due to a shortage of wheat from countries included in the Mercosur Agreement.
“We are happy to see Brazil lower the tariff for non-Mercosur countries and provide a market opportunity for U.S. wheat in addition to providing an affordable and high quality food supply to its citizens,” said U.S. Wheat Associates (USW) Vice President of Policy Shannon Schlecht.
Brazil is one of the top three wheat-importing countries in the world but trades the commodity mostly with Mercosur members (Argentina, Paraguay and Uruguay) thanks to the free trade provisions in the agreement. Argentina has the vast majority of the market share, averaging around 80 percent according to the U.S. Department of Agriculture (USDA). However, the government has lifted the CET before in years when these countries had a shortage of wheat and Brazil chose to import a noticeable amount from the United States. For example, supported by frequent contact with USW, U.S. commercial sales to Brazil were about 907,000 metric tons (MT) between Jan. 1 and Aug. 31, 2008, while the CET was waived, yet sales only reached 25,000 MT in the entire, more average, marketing year of 2006/07 with the CET in effect.
Thanks to a good relationship between Brazilian millers and bakers and USW, this duty free wheat quota should encourage a similar pattern of increased U.S. wheat imports into Brazil.
“It is important to stay engaged with Brazil’s buyers, keeping them informed about our crops and supporting them with technical information,” USW President Alan Tracy said. “Experience shows that with that knowledge, they quickly turn to the dependable U.S. wheat store when the need is there.”
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Aside from the fiscal advantage of the duty free wheat quota, many of Brazil’s buyers are also in a good location to import U.S. wheat. Several important flour mills are located in northeast Brazil and its northeastern port is the same distance away from southern U.S. ports as it is from Argentina’s ports. This leaves U.S. wheat at no disadvantage when it comes to shipping costs and Brazil’s buyers are responding again. Commercial sales of hard red winter and soft red winter to Brazil as of March 28 for 2012/13 are more than 400,000 MT compared to commercial sales at the same time in 2011/12 of only about 112,000 MT.
Though Brazil’s duty free wheat quota is only temporary, it provides an opportunity for the U.S. wheat industry to gain new market access — important for U.S. wheat farmers who rely on export markets to consume nearly half of their total annual production. In addition, expanding markets has a positive effect on the overall U.S. economy with each additional billion dollars in agricultural export creating 8,000 to 9,000 jobs, according to USDA.
A more permanent elimination or reduction of Brazil’s CET would greatly benefit the U.S. wheat industry. USW works closely with the USDA’s Foreign Agricultural Services (FAS) and the Office of the U.S. Trade Representative to ensure favorable terms for wheat exports in all negotiations.
USW is the industry’s market development organization working in more than 100 countries. Its mission is to “develop, maintain, and expand international markets to enhance the profitability of U.S. wheat producers and their customers.” USW activities are made possible through producer checkoff dollars managed by 19 state wheat commissions and cost-share funding provided by FAS. USW maintains 17 offices strategically located around the world to help wheat buyers, millers, bakers, wheat food processors and government officials understand the quality, value and reliability of all six classes of U.S. wheat.