Posted June 26, 2014
The Brazilian government announced on June 24 that it was suspending the 10 percent applied tariff again this year through August 15 for up to one million metric tons (MMT) of wheat from non-Mercosur sources “to ensure supply in the Brazilian market.”
The measure was adopted because Mercosur member countries, which are Brazil’s main suppliers of wheat, suffered from reduced production over the past couple years and are currently off-season.
Before the early 1990s, Brazil originated most of its wheat from the United States. However, the Mercosur free trade agreement allowed millers to import Argentine wheat duty free and established a 10 percent tariff on wheat from non-Mercosur countries like the United States.
Brazil imports on average around 260 million bushels (7.1 MMT) of wheat, putting Brazil in the list of the world’s top wheat buyers. Their neighbor, Argentina, typically exports that amount or more. Argentina’s production has decreased in recent years because of internal price controls and poor weather conditions. This has led the Brazilian millers to request the government to open quotas.
Mercosur members, including Brazil, Argentina, Uruguay, Paraguay, and Venezuela have a customs agreement where grain trade among them is tariff-free. Imports of wheat outside of Mercosur have been mainly hard red winter wheat from the United States.
In past years, the government has periodically expanded the quota and the window for imports as needed. In 2013, Brazil allowed a 3 MMT duty free quota of non-Mercosur wheat, most of which was sourced from the United States.
The announcement comes only weeks after a group of five executives representing the largest flour mills in Brazil was in Kansas on June 5-6 to learn more about the condition of the U.S. hard red winter wheat crop as well as the wheat supply system. The team was well timed, as Brazilian millers, including the companies represented on this team, are the second largest importers of U.S. wheat this past marketing year, purchasing nearly 155 million bushels (4.2 MMT).
“We were very pleased to bring these millers to the United States because we have a unique window of opportunity to build demand for U.S. wheat in this market,” said Osvaldo Seco, USW Assistant Regional Director for South America, who traveled with the team.
While Argentina normally supplies most of Brazil’s imported wheat, it could not supply enough to Brazil in 2012 and 2013. These millers have now had success milling U.S. wheat, so this trade team visit demonstrated why they should continue importing more U.S. wheat in the future.
When Argentina severely restricted wheat export licenses in 2013, USW helped Brazilian millers successfully petition their government to temporarily suspend that tariff. That opened a big opportunity for USW to promote the value of U.S. wheat. USW has also been pushing hard for a permanent duty free wheat quota in Brazil.
The group visited Gavilon Grain in Haysville, Kansas, and toured Kansas Wheat Commissioner Scott Van Allen’s farm near Clearwater. By visiting farms in Kansas, meeting with commercial elevator managers and seeing the USDA grain inspection system, these executives were able go back to their mills with a greater knowledge of how to specify for the best quality and value from the U.S. HRW supply, Seco said. In turn, he added, they will have the confidence to consider buying more U.S. wheat even when more Argentine wheat is available, in part because the demand for higher quality wheat foods, including whole wheat products, is growing in Brazil.