August 19, 2016

Governor of Goias voids Proposed Tax on Grain Exports

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

In January of 2016, the legislature of the state of Goias, which is located in central Brazil, passed legislation that would have for the first time imposed a tax on the exports of grain from the state. Since 1996, grain exported from Brazil has been exempt from the ICMS Circulation Tax of 12%. The new legislation, which came to be known as the 70/30 Tax, would have imposed a tax of 12% on 30% of the grain exported from the state. Approximately 70% of the grain produced in the state makes its way into export channels.

On Wednesday of this week (August 16), the Governor of Goias, Marconi Perillo, rescinded the legislation through official decree number 8,727. The governor came under pressure from nearly unanimous opposition from farm organizations in the state. The farm organizations stressed that during a time of falling international soybean prices and a strengthening Brazilian currency, which makes exports less competitive, an added tax on grain would make the situation even worse. When the legislature passed the proposed tax, forward contracting of grain in the state lowed to a halt because exporters sought out grain from neighboring states instead.

As soon as the legislation passed in January, soybean prices in the state fell immediately as exporters lowered their offers for grain to compensate for the proposed tax hike. In February 2016 for example, the price of soybeans in Goias was R$ 3.00 lower than in neighboring states (approximately $0.50 per bushel). With the governor's recent decision, soybean prices in the state are expected to move higher and once again be on par with neighboring states.

Producers in the state were very upset that the proposed tax was coming at a time when the roads in the state are in poor condition, the rural electrical grid is deficient, and rural crime is increasing,

Proponents of the original legislation cited the need to insure that enough grain remained in the state for local processors and livestock producers. Farm organizations categorized that rational as just a "smoke screen" and said the real reason was to increase revenues for the state at a time when resources from the federal government were declining.

The legislature in the state of Mato Grosso is proposing similar legislation, but the future of the legislation is unknown. The only state in Brazil that taxes exported grain is the state of Mato Grosso do Sul.