Mercosur trade deal limits wheat board exports to Brazil

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Brazil might be the world’s largest importer of wheat this year, but its tight relationship with neighbor Argentina precludes large purchases from other exporters.

However, the Canadian Wheat Board expects its exports to the South American country will better the unusually low level set last crop year.

Brian White, CWB vice-president of market analysis, said the board forecasts it will sell more to Brazil than the 140,000 tonnes of wheat it sold last year, but less than the amounts sold in the early 1990s.

Between 1990-91 and 1995-96, Canadian wheat sales ranged from 926,000 to 1.93 million tonnes.

But in 1995, Brazil eliminated its 13 percent import tariff on wheat from members of Mercosur, the South American free trade zone including Argentina, Brazil, Paraguay and Uruguay and associate members Bolivia and Chile. There is also a merchant marine renewal tax on product shipped into Brazil’s southern ports.

These moves gave Argentina a significant advantage and since then it has been Brazil’s dominant wheat supplier, White said.

“Last year, for instance, Argentina exported 6.5 million tonnes to Brazil and Brazil only imported, in total, 6.8 million tonnes. So you can see they took the lion’s share of the market.”

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White said Argentina has a good wheat crop this year so it should export large volumes to Brazil.

However, Brazil’s wheat crop was severely damaged by frost and the CWB expects it will need to import a whopping 7-7.5 million tonnes, making it the world’s largest wheat importer, ahead of Egypt and Iran. This gives the wheat board hope it can sell more to Brazil.

But a return to the days of million-tonne sales will require Brazil’s wheat trade barriers to fall.

And there is a possibility of that.

Canada and Brazil are negotiating a solution to their differences over trade in subsidized aircraft.

The parties took their differences to the World Trade Organization, which ruled both countries should stop subsidizing their aerospace industries.

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Canada did, but Brazil has balked.

The WTO has given Canada the right to impose $2.1 billion in trade sanctions against Brazil, but Ottawa does not want to destroy the Canada-Brazil trade relationship, so it is trying to get Brazil to agree to a compromise that will see it reduce barriers to trade in other areas.

“We have made representations to the federal government not to forget us,” when negotiating the compromise, said White.

But he expects a deal will not be reached in time to affect the 2000-2001 crop.

If the import tariff and port tax is eliminated, Canada has a shot at rebuilding sales.

“Argentina has a freight advantage over us, we have a quality advantage over them. In the absence of any tariff, we would probably get our exports back up around the levels seen a few years back, before Mercosur came into effect. They were roughly, on average, a million tonnes.”

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