Author: Antonio Guerrero

Brazil Ups Taxes On Sugar To Boost Ethanol Output

By Antonio Guerrero

The US Export-Import Bank announced a $3 billion credit line for Brazil to purchase goods and services from US providers.

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Sweet deal: Brazil’s sugar mills urged to raise ethanol output

The US Export-Import Bank announced a $3 billion credit line for Brazil to purchase goods and services from US providers. The announcement came shortly after President Barack Obama’s visit to Brazil in March, during which bilateral trade was a key topic of discussion. Brazil maintains an $11 billion trade gap with the US. Two-thirds of the new credit line will be used by Petrobras, Brazil’s state-controlled oil company.The remainder is earmarked for infrastructure projects surrounding Brazil’s hosting ofthe 2014 FIFA soccer World Cup and 2016 Summer Olympic Games.

As Brazil’s economy continues to boom, the government is imposing capital controls to curb inflation and ease the currency’s 39% two-year rally. In April authorities introduced measures to restrict credit and cool capital flows, after the annual inflation rate rose to 6.3% in March, putting it near the upper end of the official inflation target range’s 6.5% ceiling. Inflation last approached that ceiling in November 2008, when it hit 6.39%. The government increased the consumer credit tax by 1.5 percentage points to lower annual credit growth to 12%, from a current 20%. It also extended a 6% tax on short-term international loans and bond sales, initially applicable to deals with average maturities of 360 days, to those with maturities of up to two years.

The government is proposing to restrict state lending to sugar mills that produce more sugar than ethanol, in the hopes of increasing biofuel production and reducing domestic ethanol prices. The plan would also tax sugar exports at a rate of up to 5%. Meanwhile, Tereos Internacional, a subsidiary of French cooperative Tereos Group, is investing $476 million over the next four years in Guarani, a sugar-and-ethanol joint venture with Petrobras, to expand ethanol output and burn bagasse—a pulpy byproduct of sugar processing—to generate electricity for sale to the national grid. The BNDES state development bank will finance the investment.