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Brazilian ethanol producers oppose government studies to withdraw import tariff

Brazilian ethanol producers oppose talks in the federal government to withdraw a recently created 20% tariff on ethanol imports, as it would increase competition in the domestic market, industry representatives said Tuesday.

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"The situation has improved a lot for us since the tariff was created. Fuel distributors are more careful to import ethanol," said the head of a large sugarcane mill in the Northeast region. "I doubt the agriculture minister has the guts to go back to the previous situation," he added.

Earlier on Tuesday, agriculture minister Blairo Maggi said his ministry ordered studies to withdraw the tariff, given that market conditions have improved for the ethanol industry since the tariff was implemented in September.

The 20% tariff is currently applied to ethanol in excess of 150 million liters/quarter and was a long-time request by local producers given a strong competition with cheap imported ethanol, mostly sourced in the US.



"Gasoline prices increased a lot in Brazil in recent months... I believe that deficit in ethanol prices that we had back then is not so important anymore," said Maggi during a press conference in Brasilia, according to notes shared by the ministry press office.

Changes like cutting the tariff back to zero depend on the approval of a group of ministers, but Maggi said he could put the proposal forward if technical analysts at the agriculture ministry conclude there will be little impact to the ethanol market.

Renato Cunha, head of Pernambuco state sugarcane mills association Sindacucar said "the agriculture ministry cannot pick one product and its market to use as currency to bargain with other countries, at the expense of local jobs, causing economic and social inequality."

Brazilian ethanol traders have said it is too early to measure any change in the market if Maggi's proposition goes forward.

"The local market has not moved yet after the news, and that's also because most of the imported ethanol is arriving within the zero percent quota," said a source at a major sugarcane group in the Center-South.

Another source, involved in imports for a large Brazilian fuel distributor, said "there was no time to evaluate, and we don't make decisions based just on rumors."

Despite the import tariff, Brazil has imported volumes over the 150 million liters/quarter since it was enacted. In the first three months of the new tariff, from September to November, 251 million liters were imported.

A new quarter started in December and Brazil's ethanol import reached almost 85 million liters last month, according to official customs data.

Roughly 90% of the Brazilian ethanol imports in 2017 entered the country through North-Northeast ports, mainly in Paraiba and Maranhao states, where no local tax applies to imported ethanol.

Maggi said cutting the ethanol tariff could be used to leverage discussions with US authorities to reopen the US market to Brazilian beef imports, which have been recently barred on the back of a scandal related to slaughter house inspections.

"Every time we negotiate something with another country, we get something and expect to give something in return," Maggi said.

US ethanol sources, meanwhile, were quick to react positively on the Maggi's comments.

"We agree with minister Maggi that the import tariff on US ethanol doesn't make sense and if the reports are accurate, we are pleased to hear the Brazilian government is considering withdrawing the tariff," said Bob Dinneen, CEO of the US Renewable Fuels Association (RFA), in an emailed statement.

The tariff is equivalent to extra 38-40 cents/gal for US ethanol, one US trade source said, adding an eventual cut in the tariff "definitely redirects volume there [Brazil]."

"I'm not sure on the impact, but it would likely be for February and March loaders. January is already pretty full slate and the month half over," said the source.

--Gustavo Bonato, gustavo.bonato@spglobal.com
--Beatriz Pupo, beatriz.pupo@spglobal.com
--Edited by Richard Rubin, richard.rubin@spglobal.com