ARLINGTON, Virginia — A temporary tariff change in Brazil is signaling an opportunity for U.S. wheat farmers to regain competiveness in South America’s largest wheat importing market, U.S. Wheat Associates (USW) said on April 11.
The government of Brazil recently announced that it is waiving the 10% common external tariff (CET) for up to 1 million tonnes of wheat from April 1-July 31. Brazil introduced the new duty free wheat quota due to a shortage of wheat from countries included in the Mercosur Agreement.
“We are happy to see Brazil lower the tariff for non-Mercosur countries and provide a market opportunity for U.S. wheat in addition to providing an affordable and high quality food supply to its citizens,” said USW Vice-President of Policy Shannon Schlecht.
Brazil is one of the top three wheat-importing countries in the world but trades the commodity mostly with Mercosur members (Argentina, Paraguay and Uruguay) thanks to the free trade provisions in the agreement. Argentina has the vast majority of the market share, averaging around 80% according to the U.S. Department of Agriculture (USDA). However, the government has lifted the CET before in years when these countries had a shortage of wheat and Brazil chose to import a noticeable amount from the U.S. For example, supported by frequent contact with USW, U.S. commercial sales to Brazil were about 907,000 tonnes between Jan. 1 and Aug. 31, 2008, while the CET was waived, yet sales only reached 25,000 tonnes in the entire, more average, marketing year of 2006-07 with the CET in effect.
Thanks to a good relationship between Brazilian millers and bakers and USW, this duty free wheat quota should encourage a similar pattern of increased U.S. wheat imports into Brazil.
“It is important to stay engaged with Brazil’s buyers, keeping them informed about our crops and supporting them with technical information,” USW President Alan Tracy said. “Experience shows that with that knowledge, they quickly turn to the dependable U.S. wheat store when the need is there.”
Wheat buyers from a grain company in Brazil were in Kansas April 8-9, just as a temporary tariff change took place.
Knowing that Argentina would fail to produce enough wheat to fill the country's needs, wheat end-users Edson Csipai, Rudolf Reiter and Valdemer Ferreira from Bunge Brazil visited several stops in Kansas during a tour intended to educate about the status of the Kansas wheat crop. U.S. Hard Red Winter wheat provides a good fit for the Brazilian end-use market.
The tour was sponsored by Bunge, a global grain company. Bunge's Brazil operations mill 1.4 million tonnes of wheat each year.
"The three participants wanted to see Kansas wheat," said Aaron Harries, director of marketing for Kansas Wheat in Manhattan, Kansas, U.S. "They were really interested in the 2012 crop quality, but also the prospects for 2013."
One tour stop was at Ohlde Seed Farms near Palmer, where Shane Ohlde showcased the farm's demonstration plots and commercial fields, where lush, green plants will produce high-quality Kansas wheat. Ohlde also showed the visitors seed conditioning equipment at the seed farm, illustrating the importance of providing quality seed to ensure that farmers get the wheat crop off to a good start.
Aside from the fiscal advantage of the duty free wheat quota, many of Brazil’s buyers are also in a good location to import U.S. wheat. Several important flour mills are located in northeast Brazil and its northeastern port is the same distance away from southern U.S. ports as it is from Argentina’s ports. This leaves U.S. wheat at no disadvantage when it comes to shipping costs and Brazil’s buyers are responding again. Commercial sales of hard red winter and soft red winter to Brazil as of March 28 for 2012-13 are more than 400,000 tonnes compared to commercial sales at the same time in 2011-12 of only about 112,000 tonnes.
Though Brazil’s duty free wheat quota is only temporary, it provides an opportunity for the U.S. wheat industry to gain new market access — important for U.S. wheat farmers who rely on export markets to consume nearly half of their total annual production. In addition, expanding markets has a positive effect on the overall U.S. economy with each additional billion dollars in agricultural export creating 8,000 to 9,000 jobs, according to USDA.
A more permanent elimination or reduction of Brazil’s CET would greatly benefit the U.S. wheat industry. USW works closely with the USDA’s Foreign Agricultural Services (FAS) and the Office of the U.S. Trade Representative to ensure favorable terms for wheat exports in all negotiations.
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