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USDA study: Brazil's soybean surge due mostly to currency devaluation, export tax policy (Monday, Sept. 8, 2003 -- CropChoice news) -- Inside U.S. Trade: A U.S. Agriculture Department study requested by the chairman of the Senate Finance Committee says the dramatic expansion of Brazilian soybean production has been primarily driven by the devaluation of Brazil's currency and a change in its export tax system, not by government subsidies that may run afoul of international trade agreements.
The study delivered to Senate Finance Committee Chairman Charles Grassley (R-IA) on Aug. 22, said that over the past five years, Brazil has increased by 43 percent the amount of land under soybean cultivation, and has increased total soybean production by 66 percent.
"Given the current rate of expansion in Brazil, it will take 5 years or less for them to equal U.S. production levels," the USDA study said. "This unusually strong expansion can be largely attributed to a massive devaluation in the Brazilian currency relative to the U.S. dollar during 2001 and 2002, when the Brazilian real declined nearly 95 percent," the report concluded.
This devaluation acted to radically increase the relative returns from exported soybeans which traded in the international market at U.S. dollar parity prices, the report said. USDA indicated that Brazil is not relying on government subsidies to reduce the cost of soybean exports in the world market. "Brazil no longer subsidizes fuel production or distribution," USDA reported, and "We are not aware of government policies that influence prices on inputs purchased by Brazilian farmers."
Private sector investors, including major U.S. agricultural companies doing business in Brazil, are the primary source of infrastructure financing, the report said, and the private sector is also the primary source of credit for large soybean farms. In a May 20 letter to the U.S. Department of Agriculture, Grassley asked the Administration to assess the potential impact of competition from Brazil on U.S. soybean producers. He asked USDA to assess whether Brazil reports to the WTO all of the tax breaks, reduced credit rates, energy subsidies, foreign direct investment and government-financed improvements in highways that could benefit soybean production (Inside U.S. Trade, May 23, p.11).
"I wanted to know then and want to know now about any government policies that might be driving the rapid increase in soybean planting in Brazil," Grassley said in a Sept. 2 teleconference with Iowa farm broadcasters.
The USDA report did point out that Brazil has used its tax structure to drive exports. Soybean meal and oil destined for export have long been exempted from Brazil's "interstate movement tax," and in 1996 the government extended that exemption to raw beans, "resulting in a dramatic rise of soybean exports," USDA found. In addition, Brazil has a restrictive tax system that penalizes landowners for keeping land that is not forested or in production. "This discourages the use of land as an investment and encourages the expansion of production," the report found.
USDA also confirmed Grassley's complaint that Brazilian farmers are using large amounts of pirated soybean seed that has been bioengineered by Monsanto to be resistant to herbicides, despite a Brazilian law banning the planting of biotech crops. "Actual use of Roundup Ready soybean varieties will represent from ten to twenty percent of this year's crop even though these varieties are not legally authorized," USDA reported. The department alleges that the seeds are being smuggled in from Argentina.
Grassley pointed out that while the majority of American soybeans are Roundup Ready, U.S. farmers pay a licensing fee to Monsanto every year to plant the crop. Brazilian farmers using smuggled seed do not pay the licensing fee, allowing them to sell their soybeans more cheaply. A U.S. soybean industry source said Brazil is experiencing dramatic growth in soybean production largely because of the devaluation of the currency and the simple fact that "land is dirt cheap down there." A second industry source agreed. "There is nothing we can do about it," this source said. "I support the effort and concerns of Mr. Grassley and others to keep an eye on what Brazil is doing," but "They aren't doing anything, at least nothing that's actionable under the WTO."
But a third soybean industry source said the report does raise some questions about Brazilian production subsidies that require further investigation. For instance, this source said, the tax policy that produces a tax benefit for cultivating land might be considered a trade-distorting subsidy meant to reward production. The USDA report also considered only national tax policies, and did not explore whether there are also state or local tax policies that serve as agricultural subsidies. This source said industry groups may ask Grassley to press USDA for additional information on Brazil, and pointed out that Grassley suggested to reporters this week that the report is only a preliminary response from USDA to his questions.
A copy of the complete USDA study is available to subscribers of World Trade Online, at http://www.insidetrade.com . | |
