Brazil deals tariff blow to US ethanol exports

Brazil has dealt a blow to US ethanol producers by allowing a tariff-free quota for ethanol imports to lapse yesterday, but there are signs that the government could reinstate the quota if the US eases a sugar tariff that affects Brazil.

Now that the 750mn liter/year (12,924 b/d) quota has expired, all US ethanol shipments are subject to a 20pc common import tariff in Brazil.

Brazil's deliberative body on trade issues (Gecex) is scheduled to meet next on 16 September, but it could hold an extraordinary meeting sooner to discuss the tariff, a government source told Argus.

Without some concession from the US on its sugar tariff, Brazilian sugar and ethanol mills would unlikely sign off on reinstating the quota. Brazil's powerful milling industry heavily lobbied the government to let the quota expire. And without any US concessions on the sugar tariff, any reinstatement would likely provoke a backlash from Brazilian lawmakers, especially those from the northeast which draws most of the ethanol imports from the US.

Last year, the legislature forced the government to modify the terms of the tariff-free quota, after lawmakers threatened to pass a bill that would have overturned the quota.

In August, an official from the agriculture ministry affirmed Brazil would only be willing to eliminate its ethanol tariff if the US lifted its tariff on Brazilian sugar.

The trade row has created some bilateral friction, despite Brazilian president Jair Bolsonaro's efforts to strengthen ties with US president Donald Trump's administration.

The decision coincides with sinking Brazilian appetite for ethanol as a result of Covid-19 pandemic restrictions and an economic slump. Ethanol sales fell by 21pc year on year since the 2020-21 center-south harvest officially kicked off on 1 April.

During the first seven months of the year, Brazil imported 746.9mn l of US supply, down from 928.5mn l in the same period of 2019, according to the trade secretariat's import-export database Comexstat.