U.S. producers not happy after Brazil adds 20 percent tariff to ethanol imports
Source: By Russell Hubbard, Omaha World Herald • Posted: Monday, September 18, 2017
One of the biggest overseas buyers of Nebraska ethanol — Brazil — is rewriting the rules by which U.S. producers sell to the South American nation.
Brazil this month tacked a 20 percent tariff on U.S. ethanol imports, breaking what the industry calls a working agreement to abstain from such border taxes that make imported goods more expensive than domestic ones.
U.S. producers aren’t happy, calling for an end to the tariff.
“We are encouraging our leadership to take action that will get us working together again,” said U.S. Grains Council President Tom Sleight, whose lobbying group works to develop overseas markets for U.S. farm goods. “I look forward to the day we are back to working together on global markets rather than putting in place protectionist measures.”
The tariff on U.S. ethanol — a motor fuel mostly made from corn — will kick in after imports from the United States surpass 158 million gallons in a year.
The number is largely symbolic. Already this year Brazil has bought more than 300 million gallons from U.S. producers, led by those in Nebraska and Iowa, the No. 2 and No. 1 ethanol producing states, respectively.
Brazil’s thirst is because it is the most ethanol-intensive motor-fuel market in the world, with a new-car passenger vehicle fleet that in recent years has been dominated by sales of cars that can run on any blend of ethanol, up to 100 percent.
(The country in many years is self-sufficient in ethanol, producing billions of gallons from its sugar cane crop. But sometimes that crop suffers from ag-related woes such as weather problems, and other times the sugar crop is diverted to make sweeteners.)
“Their domestic market is just enormous,” said Brian Cahill, chief executive of Council Bluffs ethanol producer Southwest Iowa Renewable Energy. “Brazil has been a huge market for the past few years.”
The tariff was supported by Brazil’s Ministry of Foreign Trade and its sugar cane growers.
The prospect of crimped sales to Brazil comes as U.S. farmers look to harvest what is setting up to be another record corn crop. The U.S. Department of Agriculture estimates farmers will harvest about 14 billion bushels this fall, with almost 2 billion coming from Nebraska, which would also be a record. The loss of a key market might mean lower corn prices for farmers because of less demand and more supply.
Jan tenBensel, a grain farmer near Cambridge, Nebraska, and a director of the Nebraska Ethanol Board, said Brazil has been ranked second in annual purchases of state ethanol, behind leader Canada.
He also said internal Brazilian economics play a part, with sugar cane production shifted to sweetener manufacturing based upon market trends. Such a switch can raise the price Brazilian motorists pay for fuel, a price hike that in the past was partially ameliorated by abundant U.S. imports — sans tariff.
“The U.S. has always been a reliable trading partner with Brazil to help the South American country maintain a steady supply of clean-burning fuel, and reduce price spikes in fuel for Brazilians,” tenBensel said. “Unfortunately, these tariffs make it more difficult to have an open trade relationship.”
Industry groups say it is unlikely that Brazil’s decision violates any existing treaties or legal agreements, but it is troubling nonetheless. The U.S. doesn’t apply tariffs to Brazilian ethanol.
Cahill, of the Council Bluffs ethanol producers, said the nations have been working together on ethanol trade for more than a decade with no trouble until now.
“I am sure there are negotiations ongoing,” Cahill said. “Over time, trade disputes tend to even themselves out.”