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, Bloomberg reported.
The provisional measure, signed by President Luiz Inacio Lula da Silva, threatens to increase operational costs for commodity exporters and processors in Brazil. The measure’s approval by Congress could further strain President Lula’s already tenuous relationship with the agribusiness sector amid declining approval rates, according to Bloomberg.
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.
Industry groups have reacted strongly to the tax change. The Brazilian Association of Vegetable Oil Industries (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.
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.
The tax change is part of Finance Minister Fernando Haddad’s broader initiative to bolster Brazil’s budget. It disproportionately affects the agribusiness sector, however, 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 mounts, nearly two dozen industry caucuses have 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, according to Bloomberg.