By Roberto Samora
SAO PAULO – Brazil’s recently announced tax cut for ethanol, sugar and soy oil imports should have little impact on trade deals in the short term and was driven more by politics than business, analysts said on Tuesday.
The move came as the government tries to tame double-digit annual inflation, with import tariffs for ethanol and six food products – ground coffee, margarine, cheese, pasta, sugar and soy oil – being zeroed until the end of 2022.
President Jair Bolsonaro said that cutting taxes on ethanol imports to zero from 18% should lower gasoline prices at the pump by up to 0.20 real ($0.0406) per liter – local laws require the biofuel to be blended into gasoline. Analysts, however, saw the move as having little impact for now.
Even with no taxes levied on it, imported ethanol would enter Brazil with prices 8% to 10% higher than local ones, which are set to further decline beginning in April, when sugarcane crushing begins in Brazil.
“We are on the cusp of the new sugarcane crop, when the prices will drop, so we expect the arbitrage window to remain closed even with zero tax,” Datagro’s analyst Plinio Nastari said.
“Brazilian ethanol tends to get more competitive in the coming weeks with producer prices falling, and that should be passed on to consumers,” he added.
Nastari also said that lower taxes on sugar imports should have no practical effect, as Brazil – the world’s No. 1 exporter – has the lowest sugar cost around the globe.
The move is also unlikely to draw soy oil imports, according to Safras & Mercado’s analyst Luiz Fernando Roque.
“There is already less demand for soy oil in Brazil and we could even reduce exports if needed. I do not believe that this move will boost soy oil imports,” he said, noting that Brazil already buys the product from fellow Mercosur member Argentina – the world’s largest soy oil exporter – with no taxes.
“I think it was more of a political move, because soy oil prices are rising a lot. … A tax cut for soymeal would be more interesting,” Roque said.
($1 = 4.9302 reais)
(Reporting by Roberto Samora; writing by Gabriel Araujo; editing by Jonathan Oatis)
