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Brazil cuts its import obligations of sugar to sardines to groceries to control rapidly rising prices, opposes Donald Trump’s onslaught of protectionists and the trade war exile it called for.
Latin America’s largest economy said supermarket bills would eliminate border taxation on nine “essential” items to increase the popularity of left-wing Luis Inacio Lula da Silva.
Also, Vice President Gerald Alcumin, Minister of Industry and Trade, said the change would take effect within days. “The government is exempt from taxes in favour of price cuts,” he added Thursday evening. “It doesn’t harm producers, but it does benefit consumers.”
Meat duties will be reduced to zero. Meat is currently subject to a 10.8% border tax. Currently 9% coffee. Sugar, now 14%. Corn is currently 7.2%. 9% sunflower oil. Olive oil from 9%. Sardines, starting from 32%. Biscuits from pasta, starting from 16.2%. Palm oil import quotas are more than doubled.
Economists were skeptical of the impact of Brazil’s position as a top global producer and exporter of agricultural commodities such as coffee, beef and sugar, as well as extreme weather events have affected domestic production.
“Most of these items are produced and supplied nationwide, saving some exceptions like olives and palm oil,” says Felipeca Margo, an economist at Oxford Economics. “(It’s) a political trick that convinces voters that the government is trying to deal with rising grocery prices.”
William Jackson, chief emerging market economist at Capital Economics, said a surge in imports is unlikely.
“As a result, food inflation may be reduced slightly. But there are more basic drivers for this price, especially beef and coffee (like droughts and fires),” he added.
The move forms part of the wider package by Brasília, aiming to make food cheaper for a population of 213mn. It highlights the pressure on Lula, a former union member who governed mid-4-year term between 2003 and 2011.
Despite strong GDP growth and declining unemployment rates, polls say the 79-year-old’s rating is suffering from stubborn inflation. Food and drink prices rose by 7.12% over the year ending February.
Jackson said there are indications that grocery trips could become even more expensive in Brazil. “Looking at the prices of agricultural commodities and considering normal delays, we’re pointing to 15% food inflation over the next six months or so.”
The loosening of certain import barriers by Brazil, a traditionally closed protectionist economy, sparks President Trump’s border obligations on imports from China, the threat of widespread tariffs on goods from Mexico and Canada, and the fear of a global war that China and Canada imposed.
As Trump specifically mentioned this week as a country charging tariffs on US goods, some analysts argued that Brasilia’s collection cuts could help negotiate in the future with the Trump administration.
“The issue of food inflation is global and, in our opinion, Trump’s trade policy and tariffs in the coming months will make it more relevant in some emerging markets and in the US,” said Cristiano Oliveira, chief economist at Banco Pine.
Additional Reports by Beatriz Langella
