Brazil’s crop traders surprised by new tax regulations — Bloomberg

In a sudden move that has sent shockwaves through the agricultural sector, Brazil has implemented a tax change that is causing significant disruptions for major global crop traders, including Cargill and Bunge Global. Following the announcement, companies like Archer-Daniels-Midland (ADM) and Amaggi Importacao e Exportacao halted new commodity offers, particularly in soybeans and corn. Industry insiders, requesting anonymity, highlighted the need for a clearer understanding of the new rules, which restrict certain companies from utilizing tax credits effectively.

This provisional measure, signed by President Luiz Inacio Lula da Silva, threatens to increase operational costs for commodity exporters and processors in Brazil, which is a leading global supplier of commodities ranging from soybeans to sugar and beef. The measure’s approval by Congress could further strain President Lula’s already tenuous relationship with the agribusiness sector amid declining approval rates.

Industry groups have reacted strongly to the tax change. Abiove, representing major crop merchants such as ADM, Bunge, Cargill, and Louis Dreyfus, labeled the decision “disrespectful” and projected a potential reduction in soybean processors’ profits. To maintain current profit margins, soy prices paid to crushers might need to decrease by $12 per metric ton, explained Andre Nassar, head of the Sao Paulo-based organization.

Moreover, the sugar and ethanol sector, represented by Unica, and meat industry groups like ABPA and Abiec, which include giants such as JBS SA and BRF SA, have criticized the measure as detrimental to cash flow and potentially violating World Trade Organization rules by effectively taxing exports.

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The tax change is part of Finance Minister Fernando Haddad’s broader initiative to bolster Brazil’s budget. However, it disproportionately affects the agribusiness sector, which already faces challenges in utilizing tax credits due to existing regulations. The Brazilian National Confederation of Industry forecasts that the financial impact could reach 29.2 billion reais ($5.6 billion) this year alone, with the potential to double in 2025.

As resistance mounted, nearly two dozen industry caucuses urged Lower House Speaker Arthur Lira and Senate President Rodrigo Pacheco to overturn the rule, which took immediate effect but will expire after 120 days unless ratified by Congress.

Source: Bloomberg