Brazil's powerful sugar cane milling lobby is making a final push to ditch a tariff-free import quota for ethanol that expires today, potentially exposing US shipments of the biofuel to the full brunt of a 20pc import tariff.
"The final decision will be made by President Bolsonaro," Renato Cunha, the head of the sugar and ethanol producers' association Novabio, told Argus, adding that he expects the tariff-free quota to expire at midnight.
"In the future, can reopen negotiations that include US sugar tariffs," said Cunha, who also heads the cane association of the northeast region (Sindacucar).
The push to allow the quota to lapse has been led by cane producers in the northeastern region, the primary destination of imported ethanol. Mills there say they are struggling to stay afloat against imports derived from surplus US supply.
Over the first seven months of 2020, Brazil imported 746.9mn l of US ethanol, down from 928.5mn l in the same period of 2019, according to the trade secretariat's import-export database Comexstat.
One year ago today, Jair Bolsonaro – then in his first year in office – extended the quota that was about to expire for one year in an unexpected eleventh-hour presidential decision, and expanded the quota to 750mn l/yr (12,924 b/d), from a previous 600mn l/y. The decision provoked industry outrage and the government was later forced to amend the rules to limit the tariff-free import quota to non-harvest months.
Brasilia is under even more pressure now. The US Renewable Fuels Association said that if Brazil fails to extend the tariff-free quota, the US will have little choice but to raise a reciprocal tariff on Brazilian ethanol.
Since taking office in January 2019, Bolsonaro's administration has attempted to strengthen Brazil's ties with the US Trump administration, a strategy that has borne little fruit and sparked criticism at home.
US president Donald Trump's 29 August decision to reduce the quota for Brazilian semi-finished steel products entering the US for the remainder of 2020 could sour any goodwill in Brasilia for extending the ethanol import quota.
"Bolsonaro can opt to side with the Americans or with Brazilians," said Evandro Gussi, head of Brazil's powerful sugar and ethanol industry group Unica, adding that he believes the president will side with his compatriots.
At a time of rising political pressure at home, Bolsonaro appears to have no good options. But allowing the quota to lapse would help Bolsonaro to shore up political support in the northeast as he looks ahead to the 2022 presidential election, especially as criminal probes involving himself and his family advance.
