Brazil considers reinstating ethanol import tariff

Brazil's agriculture ministry is seeking to eliminate a quota for tariff-free ethanol imports when it expires on 31 August, potentially pricing imports from the US out of the domestic market.

The ministry told Argus that its interpretation of a 2017 resolution which established an annual quote of 600mn liters (3.77mn bl) of imports exempt from a 20pc tariff would lapse on 31 August 2019, unless otherwise extended.

Once the exemption expires, the 20pc tariff would apply to all ethanol imports from outside the Mercosur trade bloc, which includes Argentina, Paraguay and Uruguay, as well as Brazil.

The government's import and export council known as Camex will have the final say over the tariff exemption. Camex did not respond to a request for clarification about the date of a hearing on the matter.

The US is the largest source of imported ethanol in Brazil. The decision over whether to re-impose the tariff coincides with a Brazilian government campaign to persuade the US to open up its market to more Brazilian sugar.

For its part, the US government has been pressuring Brazil, which is one of its most important ethanol markets, to eliminate the ethanol tariff altogether.

In June, Brazil imported 85.97mn l of ethanol, the lowest level since October 2018, according to the trade ministry's Comexstat data base. Last month's imports increased 30pc from the 59.5mn l imported in June 2018. But June imports fell sharply from the 182.5mn l imported in May.

In the first half of 2019, Brazil imported 895.3mn l of ethanol, down from 1.74mn l in the same six-month period of 2018. Imports in the six-month period fell to their lowest level since 2016, when the country imported 783.3mn l of ethanol.

The US remained Brazil's largest ethanol supplier in the first half of 2019, providing 846.4mn l.

Neighboring Paraguay exported 48.77mn l to Brazil in the period, making it the second most important supplier.

Roughly half of the ethanol imported by Brazil in the first half of the year went to northeastern Maranhao state, which is a distribution hub for the northern region of the country. Sao Paulo state, the country's largest ethanol producer, imported 251.3mn l in the period.

In June alone, nearly all ethanol imports went to the northeastern region. Maranhao imported 52mn l, and Pernambuco imported 23.6mn l. Imports to Sao Paulo state fell to just 5,564 l in June as the center-south sugar cane harvest progressed, boosting domestic ethanol supplies.

While imports continue to slow, Brazil exported 169.4mn l of ethanol in June, up by 29pc from the same period of 2018, according to the trade ministry's monthly commodities export report.

In the first six months of 2019, Brazil exported 703.5mn l, up 29pc from the 545.1mn l exported a year earlier, the ministry said. Brazil continued to post a trade deficit in the biofuel in the first six months of the year.

But the outlook is for increased exports in the medium term. In late June, Mercosur struck a trade deal with the EU that lays out an increase in Brazil's tariff-free export quotas for sugar shipments to the EU of 180,000 metric tons and up to 562mn liters (3.5mn bl) of ethanol for industrial use. Another 250mn l of the biofuel will be permitted with a differentiated tariff of €0.064/liter ($0.072/l ) for non-denatured ethanol and €0.03/l for denatured ethanol not for use in food, beverage or pharmaceutical products.