Brazil slaps US with ethanol quota, 20 percent tariff

August 23, 2017 |

In Brazil, the Brazilian Chamber of Foreign Trade has approved a recommendation to impose a 20 percent tariff on U.S. ethanol imports after a 600 million liter tariff rate quota, according to postings from the Brazilian Minister of Agriculture, Livestock and Supply Blairo Maggi.

Local media are reporting this TRQ would be in place for the following two years, stymying access to a large and growing market for U.S. ethanol exports.

The move comes despite a pessimistic report from Australian analysts Green Pool on prospects for increased Brazilian ethanol production. Green Pool wrote that global sugar prices must fall much further from where they are now to have any sort of real impact on Brazilian mills to make them shift towards more ethanol production. Current sugar prices are around 13.41 cents per pound, below Sucden Financial’s estimate of the 14 cent ethanol parity line, but Green Pool still raised its estimate of Brazilian sugar production during 2017/18 by another 900,000 metric tons to 36.4 million tons.

The backstory

We reported last month that the country’s foreign trade chamber has delayed yet again the decision whether to rescind the waiver on import taxes lobbed against ethanol, this time for 30 days. The chamber’s representatives from eight ministries may decide on an potential 500,000 metric ton annual import quota with out of quota imports fetching 20% duty instead of reverting to import duties on their own because they could not come to a decision. The Brazilian ethanol industry is seeking a 17% duty to stem the huge increase in imports seen this year.

We reported in May that the Brazilian energy minister spoke against tariffs on ethanol imports that could potentially trigger retaliation from the US. He said the country is instead looking to tighten up rules so that imports are on an even playing field with domestic producers that may help to stem the flood of corn-based fuel from the US. Ethanol importers will be required to hold stocks equal to 8% of total sales during the prior year just as mills do to ensure sufficient availability during the interharvest season.

Earlier in May we reported that the country’s agriculture minister was seeking up to a 20% import tariff on US ethanol following a surge in imports of 720 million liters during the first quarter of the year, five times higher than the same period last year. Sugar mills have favored sugar over ethanol during the past season as world sugar prices remained high, opening a supply gap during the interharvest season that ended April 1. Ethanol production has begun for the season but is still ramping up. Some are concerned about US retaliation if the import tariff is approved with the export import council meets on Wednesday.

In April, we reported that UNICA was seeking a 16% import tariff on ethanol but the plea appears to be falling on deaf ears. It claims that continuing to import corn-based ethanol with its associated greenhouse gas performance will jeopardize the country’s environmental commitments under COP21. Producers in the North-Northeast of the country are seeking a 20% import duty, the same as the one suspended until 2019.

China imposes tariffs in January

In January, we reported that the Chinese national government slapped the US ethanol industry with heavy tariffs that went into effect last Thursday. U.S. farmers say the tariffs will cost U.S. agriculture at least $2B per year. Preliminary tariffs on U.S. DDG, totaling more than 40 percent, were imposed by China several months ago, causing the price of DDG to drop by about 30 percent, or about $60 per ton, affecting the 36 million tons of DDG produced annually in the U.S. The combined tariffs, now totaling more than 80 percent, will effectively close the Chinese animal feed market to U.S. DDG.

Earlier in January, China also stated its intention to raise its 5 percent tariff on U.S. fuel ethanol to 30 percent. The ethanol industry, largely owned by corn growers across the U.S., is a significant contributor to the balance of trade between the U.S. and China.

US response

The following is a joint statement on this action from U.S. Grains Council President and CEO Tom Sleight, Renewable Fuels Association President and CEO Bob Dinneen and Growth Energy CEO Emily Skor:

“We are disappointed and discouraged to see the ruling out of Brazil today imposing a tariff on U.S. ethanol. Given the tremendous volume of information we provided to Brazil that demonstrated how misguided a tariff would be, it seemed politics prevailed today and Brazilian consumers lost. Imposing tariffs on U.S. ethanol imports will hurt Brazilian consumers by driving up their costs at the pump. Additionally, this action goes against Brazil’s longstanding view that ethanol tariffs are inappropriate and will effectively close off an open and bilateral trading relationship that benefits all sides. We strongly urge this recommendation to be reversed as soon as possible and will work to that end through all available pathways.”

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