PT bench proposes tax that could “break up Brazilian agriculture”

A bill presented by parliamentarians from the Workers’ Party (PT) proposes the creation of a tax to curb what would be an “export compulsion” of food from Brazil in relation to items such as soy, corn, rice and meats. In the justification, the deputies allege a systemic situation of price volatility and insufficiency of the internal supply of these products, and that the current policy of the Ministry of Agriculture would be serving only the exporting agribusiness, “with its back to the public interest”.

Under the proposal, taxation of grain and meat shipments would take place whenever there was a risk of shortages in the domestic market. This risk would be configured when public cereal stocks were less than 10% of the forecast for national consumption or, in the case of meat, in situations of “threats to the regularity of domestic supply”. O PL 1586/2022signed by 14 PT deputies, amends a 1977 decree law which deals with possible taxation of exports in the country. While the decree in force does not mention any food, the bill elects soy, rice, corn and meat (beef, chicken and pork) as items destined for taxation.

Project talks about “abuse in food exports”

Invoking “the growing hunger and food insecurity that affects most Brazilians”, the parliamentarians talk about correcting what they classify as “abusive volumes of food exported by the country”.

“It’s working out in Argentina, right? They’ll want the same philosophy around here. We’ll all go hungry, then”, jokes the agronomist and agricultural market consultant Vlamir Brandalizze, referring to the export taxation policy that for two consecutive decades has depressed the neighboring country’s agribusiness.

Currently, the Argentine soy producer, for example, pays as a withholding an export tax of 33%. In the animal protein sector, to “stimulate” production and supposedly guarantee domestic supply, the government of Alberto Fernandez banned exports of seven types of meat cuts until the end of 2023. A study by the Agricultural Foundation for Development of Argentina (Fada), from March this year, points out that for every 100 pesos of revenue generated in the countryside, the Buenos Aires government already pockets 65 pesos in taxes. In some regions, the heavy tax burden created a scenario of idle land. In Argentina, more than 70% of the fields are cultivated under lease agreements – that is, the entrepreneur has to deduct the tax, production cost and lease value before recording any profit. After all, many prefer not to plant.

withholding never managed to lower food prices

Restrictions on exports, on the grounds of putting more food on the table for local consumers, are part of an Argentine populist policy that dates back to 1862, under the government of Bartolomé Miter. In the last century, in the first term of Juan Domingo Perón, state interventionism took on more protectionist and paternalist contours. During the Peronism period, despite the effects of a drought, from 1944 to 1952, Argentina’s wheat production shrank from 6.8 million tons to 2.1 million tons, while world production expanded by almost 40% in the same period.

For the agronomist and commodity analyst from the Argentine city of Rosário Paulina Lescana, Brazil would do well to stay away from this model. “The government’s stated objective was to avoid rising food prices, but the truth is that so far this has never happened. In Argentina we have an inflation of almost 60%. What was achieved was to lower the price paid to the producer. And the government has found a barbaric way of collecting tax. It’s easy to charge, it’s automatic. Sold abroad, the tax is already charged”, explains Lescana. She points out that the dependence of the Argentine state on withholding it got to the point that, today, 11% of all federal revenue comes from export taxes. But that has its price.

“No segment of the economy supports a partner who arrives and takes 33% of the revenue. Argentina once planted 22 million hectares of soybeans, but today it has 16 million. It is left only with the areas of greater productivity and where there is no lease. In the past, Brazil produced the equivalent in grains of one and a half Argentina. Today we already produce three times as much. If we do it around here (withholding), in two harvests you break the segment. In five years we would go from an export giant to an importer of food to satisfy the people’s hunger”, argues Vlamir Brandalizze.

The analyst points out that it is misleading to say that the agricultural sector does not pay taxes. Just look at the percentage destined to the Tax Authorities in the inputs purchased by the producers, such as diesel, chemical pesticides and fertilizers. “In Mato Grosso, the average profit margin does not reach 10%. The producer gains in scale, because he plants larger areas. work below cost”.

Natural and logistical advantages give Argentines resilience

If the effect can be so pronounced in the Brazilian economy, how to explain that the Argentines have supported it for so long? “Because they are close to the ports, the logistics cost is lower than ours and the soils are much better. The Argentine government manages to break down more slowly than Brazil”, points out Brandalizze. In meat production, the market was depressed to such an extent that the neighboring country went from exporting to importing. “Thousands of producers ended up selling their matrices, because there comes a time when there is no profit. Nobody will produce without earning anything”, points out the analyst.

In justifying the bill, PT deputies cite the turmoil of the war between Russia and Ukraine and suggest that Brazil follow the example of India, and 23 other countries, “which have determined restrictions or bans on food exports in defense of their people”. “According to the FAO, from 1990 to 2020, Brazil’s share in world agricultural trade jumped from 3.3% to 10%, which made the country an important protagonist of food security, notably for the population of China, to the detriment of its own internal food security”, they argue.

FPA points out error in PT statistics

As soon as the project was filed in the Chamber, the Parliamentary Agricultural Front issued a note pointing out mistakes in the premises adopted by the parliamentarians and statistical errors in the numbers presented. PT deputies claim that Brazil exports 55% of the corn it produces and 35% of its meat, while in the US, for example, the proportion would be 18% and 11%, respectively. The data is wrong, says a note from the FPA. “Most of the production has always been destined for the domestic market. For example, in 2019, 77.3% of beef production was destined for the domestic market and only 22.3% was exported. Regarding the poultry market, in 2021, 68% of production was destined for the domestic market and in the same year, as for pigs, 76% of production was marketed within the country”, clarified the FPA, citing a study by SCOT Consultoria/Department of Agriculture in the United States.

“The problem pointed out”, according to the Agricultural Parliamentary Front, “does not stem from export levels, but from multiple factors, such as the post-pandemic scenario, the increase in the dollar, the shortage of inputs and increases in production costs and losses of crops resulting from climatic factors. According to information from the Ministry of Economy, as a rule, Brazil avoids the use of the Export Tax, due to its negative effects on economic efficiency, incentive structure, resource allocation and export performance”.

In the case of Brazil, one of the main players of world food production, adopting populist measures against the laws of the market is compared to scoring goals against one’s own goals. Not to mention all the bureaucracy that would be created to organize stocks, harvest monitoring and interventions. “A law like that doesn’t help at all. If you have 10% of stock concentrated in Mato Grosso, for example, and the demand goes to Chapecó, in Santa Catarina, regardless of taxation, it may be cheaper to import corn because of the cost of freight. And if you adopt a tax to export, you will also have to tax the American corn that enters here. From there it ends up becoming a fight in the World Trade Organization. It doesn’t benefit anyone, it’s a stupid law proposal”, evaluates Glauber Silveira, director of the Brazilian Association of Corn Producers (Abramilho).

Kandir Law exempts exports for 26 years

Since 1996, the Kandir Law has exempted the taxation of taxes on export products in Brazil. At the beginning of last year, according to legal provisions, the Union and the states reached an agreement to transfer R$ 58 billion until 2037 as compensation for state losses from the exemption of exports. Paulina Lescana, who was the first woman to trade on the Rosario Stock Exchange, gives a piece of advice to Brazilians. “Brazil has been growing impressively in terms of area and income. And we are stagnating or reducing the planted area, in addition to reducing crop technology, because of costs. Brazil should continue with the policy it has today, which allows you to grow everywhere”.

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