Pre Engineered Building Manufacturers Hyderabad.pptx
IFPRI-Coordinated Research Project "Improving WTO Transparency: Shadow Domestic Support Notifications"
1. IFPRI-Coordinated Research Project
“Improving WTO Transparency: Shadow
Domestic Support Notifications”
CHAPTER ON BRAZIL
(preliminary version)
Andre M. Nassar
Diego Ures
Washington, D.C. - USA
March 14, 2008
2. Outline
1. Methodology
2. Notification Structure
3. Overview of Brazilian Agricultural Policy
• Working Capital and Investment Credit Subsidies;
• Income support programs;
• Rural Development and Family Farming Support;
• Debt rescheduling.
4. Assessment and Updated Notifications
• Analyze of policies in the context of WTO notifications;
• Current notifications: 1995 to 2004;
• Shadow notifications: 2005, 2006, 2007 and 2008;
• Product specific analysis (cotton, maize, rice, wheat, soybeans,
coffee, sugar cane, and beans);
• Investment;
• Debt rescheduling.
4. National Ethanol Policies
• Ethanol and Sugarcane (Policy history and timeline).
3. Methodology
Period covered
Brazilian notifications: 1995 to 2004;
Estimative made from 2005 to 2007;
Forecast for 2008.
Credit subsidies
(market based interest rate – preferential rate) * borrowed amount
Market base interest rate: short term reference interest rate (SELIC);
Preferential interest rate: depends on the program (family and
commercial farming).
Income support programs
Information gathered from Government reports.
Value of production
Up to 2006 data was collected from Government reports (IBGE,
Brazilian Institute of Geography and Statistics);
2007 and 2008, estimates were made using production and market
prices trends.
4. Brazil’s Notification: How it is structured
Where is How is calculated the amount of
Policy Objective Program/Policy instrument
notified subsidy
Production & Marketing Credit DS 7 Interest rates differential (market cost versus
I. Working Capital and (product specific) controlled interest rate)
Investment Credit Subsidies Production & Marketing Credit (non DS 9 Interest rates differential (market cost versus
(for commercial farmers) product specific) controlled interest rate)
Investment credit DS 2 Interest rates differential
Contract option acquisition and DS 5 Government expenditures with purchases
Federal Government Acquisition with minimum prices
II. Income support programs Minimum support program DS 5 MPS (price differential)
Equalization Premium Programs DS 7 Government covering price differential
(PEP/PEPRO/PROP) between reference price and market price
PRODUCTION and INVESTMENT DS 2 Interest rates differential
CREDIT to family farmers
III. Rural Development and Debt rescheduling programs (family DS 2 Interest rate differential (debit market cost
Family Farming Support farmers) versus cost supported by the
government)
Agrarian reform programs DS 1 Government expenditures
Debt rescheduling programs DS 9 Interest rate differential (debit market cost
IV. Debt rescheduling and
(commercial farmers) versus cost supported by the
management
government)
Old insurance program DS 1 Government expenditures
V. Rural Insurance New insurance program (from DS 7 Government expenditures to equalize
2005) premium costs
5. Working Capital and Investment
Programs (Commercial Farming)
Production and Marketing Credit
Production and marketing credit in Brazil are possible since the federal government
requires that banks keep a total of 25% bank deposits available for farming credit.
Moreover, rural savings, the BNDES and the Workers Support Fund (FAT)
complement the remaining source of funding for agricultural credit. In addition, these
funding channels provide preferential loan rates to commercial and family farming
which in turn receive the support of the federal government.
Investment Credit
MODERFROTA – Modernization Programme aimed at updating tractors and other
agricultural machinery.
MODERINFRA - Incentives Programme for Irrigation and Storage
PRODECOOP - Cooperative Development Programme for the Enhancement of
Agricultural Value Added
MODERAGRO - Programme for the Modernization of Agriculture and the
Conservation of Natural Resources PRODEAGRO - Agri-business Development
Programme
PRODEFRUTA - Fruit Industry Development Programme
PROLEITE - Milk Production Mechanization and Transportation Incentive Programme
PROPFLORA -The Programme of Commercial Planting and Recovery Forest
8. Planted Area and Balance of Credit
(million ha and billion US$)
Beginning of debit
rescheduling program
Note: Planted area of the top 10 crops (cotton, rice, coffee, sugar cane, dry beans, orange, cassava, maize, wheat and
soybean). Balance of credit on December 31 of each year.
Source: IBGE and Brazilian Central Bank.
9. Income Support Programs
Minimum Price Guarantee Policy
Government purchase based on guaranteed prices
• Prices could or not be higher than world prices.
Stocks for food aid distribution
• Federal Government Acquisitions
Direct income support for farmers through marketing instruments
• Contract option acquisition
• Stocks are sold by market prices in the future
Instruments to facilitated distribution through market channels (how it
works)
Based on a price equalization premium.
PEP
• Subsidy (price equalization premium) granted to the wholesale buyer as long as he
pays for the producer a reference price (guaranteed price or higher);
• Subsidy is obtained in an public auction and the maximum value is fixed by the
government.
PROP
• Same structure of PEP but the producer only deliver the product in the future once
it is harvested.
PEPRO
• Subsidy is granted to the producer through public auction of price equalization
premium;
• Producer receives the premium for the government plus the market price.
• Premium is based on a reference price.
10. Income Support Program as a Share of Total
Production (million tones)
COTTON MAIZE
Production
RICE WHEAT
Note: FGA (Federal Government Acquisition). COA (Contract Option Acquisition).
11. Income Support Program as a Share of Total
Production (million tones)
COFFEE SOYBEAN
Production
EDIBLE BEANS CASSAVA
Note: FGA (Federal Government Acquisition). COA (Contract Option Acquisition).
12. Rural Development: PRONAF
(Family Farming Program)
Two important trends
The amount of available credit is up and growing;
The share of funds available to family farmers is increasing as the per cent
share of credit to commercial farmers is shrinking.
PRONAF is offers both production and investment credit to family
farmers, and it is divided into FIVE groups to better assist each particular
class
Group A: agrarian reform settlers (investment and working capital);
Group B: small subsistence farmer who are eligible to micro credit (income
support program);
Group C: increasing degree of commercial production, however, intensive
use of family labor (60% of income has to come from agriculture);
Group D: also signs of commercial production with use of family labor plus
some additions contracted help (70% of income has to come from
agriculture);
Group E: same as for Group D, however, at least 80% of income has to
come from agriculture.
13. Debt Rescheduling Program
Programs covered
Securitization: debts bellow R$ 200.000;
PESA (Financial Assets Rehabilitation Program): debts above R$ 200.000;
Rehabilitation of Cooperatives (Recoop);
Family farming programs (Pronaf, Prodecer, Procera);
Coffee and cocoa producers.
Debts are rescheduled in a longer period of time subjected to subsidized
interest rates
Interest rates lower than the original rates when the loan was given.
Subsidy is either the foregone interest rates and the current market rate or
the renegotiated interest rate and the original rate.
Brazilian government calculate the equivalent subsidy using the current
market rate.
14. Overview of Brazilian Notifications and
Updated Notifications
GENERAL SUMMARY OF DOMESTIC SUPPORT
Notified Period: 1999-2004 Estimated Period: 2005-2008
Monetary value of the measure (US$ 1,000)
Measure type
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
PRODUCT-SPECIFIC AMS 409,064 230,446 235,768 211,831 249,548 278,689 551,749 989,378 977,914 n.a.
1) Market Price Support 0 0 0 0 9,863 16,040 14,333 12,120 83,509
2) Non-exempt Direct payments 15,517 45,108 45,221 47,460 0 0 0 0 0
3) Other Non-exempt Product Specific
393,546 185,338 190,547 164,371 239,685 262,649 537,415 977,258 894,405 to be
Support
estimated
- Production and Marketing Credit 378,063 146,205 138,321 155,335 239,685 217,286 316,300 206,986 154,275
- Equalization Premium 4,282 31,240 52,226 9,036 0 45,363 222,200 771,000 740,700
- Contract Option Reacquisition 11,201.8 7,893.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0
NON-PRODUCT-SPECIFIC
837,926 822,554 739,896 803,487 1,069,079 850,661 1,139,632 1,206,769 1,289,477 1,563,215
AMS
S & D (Art. 6.2) 155,985 309,668 331,546 392,763 494,511 394,312 462,303 442,234 428,066 428,600
AMS + S & D 1,402,975 1,362,669 1,307,210 1,408,081 1,813,138 1,523,662 2,153,683 2,638,382 2,695,457 1,991,815
TOTAL (AMS + S&D) 2,649,964 2,415,669 2,282,873 2,423,399 3,131,765 2,653,011 3,845,064 4,834,530 4,962,849 3,555,030
Total Production Value 39,724,830 42,909,741 38,409,231 37,276,617 44,940,270 54,419,430 59,350,698 65,361,282 86,997,051 99,697,070
TOTAL (AMS + S&D)/TPV 7% 6% 6% 7% 7% 5% 6% 7% 6% 4%
20. Pronaf and Investment Credit Subsidies
Pronaf Investment
Family
farming
Commercial
farming
21. NPS Subsidies Including Article 6.2
Subsidies and the “De Minimis”
De Minimis 10%
De Minimis 6%
22. Total Trade-Distorting Domestic Support by Product
(million US$ and percentage VOP)
COTTON: AMS COTTON: AMS/VOP
RICE: AMS RICE: AMS/VOP
Note: 2008 data include only production and marketing credit subsidies.
23. Total Trade-Distorting Domestic Support by Product
(million US$ and percentage VOP)
MAIZE: AMS MAIZE: AMS/VOP
WHEAT: AMS
WHEAT: AMS/VOP
Note: 2008 data include only production and marketing credit subsidies.
24. Total Trade-Distorting Domestic Support by Product
(million US$ and percentage VOP)
SOYBEANS: AMS SOYBEANS: AMS/VOP
SUGAR CANE: AMS
SUGAR CANE: AMS/VOP
Note: 2008 data does not include subsidies in income support programs.
25. Total Trade-Distorting Domestic Support by Product
(million US$ and percentage VOP)
COFFEE: AMS COFFEE: AMS/VOP
EDIBLE BEANS: AMS EDIBLE BEANS: AMS/VOP
Note: 2008 data does not include subsidies in income support programs.
26. OTDS, AMS and De Minimis
OTDS
(AMS + 20% De Minimis + 5% BB)
Note: DR Final Commitment (higher): 40% cut in AMS and de minimis reduced to 6% VOP. DR Final Commitment (lower): 30%
cut in AMS and de minimis reduced to 6.7%)
27. CONCLUSIONS
Subsidies on investment credit for commercial farmers: why Article 6.2?
“De minimis” is binding Brazilian agricultural policy;
Debt rescheduling program, although non-specific, is capable to
influence farmers decision in medium-long run: risk aversion reduction
effect
Transparency issues? Data are not public because level of indebtedness is
measured in the household level.
2006 Agricultural Census, recently released, will help us to measure that
hypothesis.
Is or is not included on the notifications the Government direct
expenditures with preferential credit programs?
Resources transferred to the banks to cover operational costs;
Interest rate equalization when the resources are funded by the government.
Projections and economic implications: two concerns
Income support programs;
Debt rescheduling program.
28. Brazilian Fuel Ethanol History
Incentives, mandatory Deregulation, Flex Global
blends, new technologies Sugar Exports Fuel Market?
ETHANOL CRISIS at the end of the 80s
Oil prices down. Brazilian government cuts support.
Higher sugar prices affect ethanol production and
sales of E-100 cars went down rapidly
1975 Hydrous
PROÁLCOOL
FIRST PHASE
Mandatory blend
and subsidies.
Anhydrous
1978-1979 PROÁLCOOL – SECOND PHASE
Fiscal incentives and tax exemptions for ethanol 2003 FLEX FUEL
1973 Flex fuel vehicles
Oil crisis & low production and E-100 fueled cars. All gas stations
must obligatorily sell ethanol. Low ethanol prices begin to be sold.
sugar prices.
(65% of gasoline’s) guaranteed at the pump.
Source: Datagro, 2006 (dados). Elaboration: ICONE.
29. Ethanol Current Policies in Brazil
20-25% mandatory blend of anhydrous ethanol in
gasoline A (pure gasoline), making the gasoline C;
Tax exemption of CIDE (0,28 R$/liter ~0.165
U$/liter): only hydrous;
Differential levy on the State Tax (ICMS).
Subsidized credit for ethanol storage (preferential
rates).
Vehicles: partial exemption of the IPI (tax on
industrialized products) on flex-fuel cars
1 liter cars: 7% gas/hydrous/flex;
>1-2 liter cars: 13% gas and 11% hydrous/flex
>2 liter cars: 25% gas and 18% hydrous/flex
30. Ethanol Current Policies in Brazil
Hydrous Anhydrous Gasoline
PIS/Cofins 3.65% (sales) 3.65% (sales) n.a.
Mills
CIDE zero zero n.a.
Federal tax
PIS/Cofins 8.2% (sales) 8.2% (sales) 8.2% (sales)
Blender/
Distributor
CIDE n.a. 0.28 R$/liter 0.28 R$/liter
State tax ICMS 12%-30% (at the pump) 25% (at the pump) 25% (at the pump)
Tax value
assuming the
Absolute value of the
(R$/liter) Price Taxes (A) Taxes/price same proportion
tax exemption (B-A)
of tax charged
(45,3%) (B)
Gasoline C 2,391 1,083 45,3% 1,083 -
Hydrous
1,196 0,263 22,0% 0,542 0,279
ethanol
34. Total Trade-Distorting Domestic Support by Product
(AMS, million US$)
COTTON MAIZE
AMS/ AMS/
VP VP
(%) 8,5 2,9 2,3 11,5 7,1 7,9 6,6 5,0 2,1 1,6 4,6 10,314,4 0,8 (%) 11,3 1,9 2,5 1,0 3,3 1,1 2,1 1,3 1,5 1,9 3,4 5,7 2,1 0,9
RICE WHEAT
AMS/
VP AMS/
(%) VP
18,1 2,6 1,2 1,0 2,9 1,2 1,0 1,1 1,0 0,8 2,5 3,5 1,2 1,0 66,8 8,2 8,3 10,1 1,5 1,1 2,8 2,8 4,1 7,6 25,5 8,7 1,3 2,2
(%)
Note: 2008 data does not include subsidies in income support programs.
35. Total Trade-Distorting Domestic Support by Product
as a Share of Value of Production
COTTON MAIZE
RICE
WHEAT
Note: 2008 data include only production and marketing credit subsidies.
36. Total Trade-Distorting Domestic Support by Product
as a Share of Value of Production
SOYBEANS COFFEE
CASSAVA EDIBLE BEANS
Note: 2008 data include only production and marketing credit subsidies.
37. Total Trade-Distorting Domestic Support by Product
(AMS, million US$)
SOYBEANS COFFEE
AMS/ AMS/
VP VP
(%) 5,3 1,3 0,6 1,1 3,3 0,8 0,5 0,8 0,8 0,6 1,2 5,5 2,2 0,6 (%) 0,1 0,4 0,3 0,7 1,3 0,6 1,0 0,5 0,8 0,3 0,8 0,5 2,8 0,4
CASSAVA EDIBLE BEANS
AMS AMS/
/VP VP
(%) (%)
0,0 0,1 0,1 0,1 0,3 0,1 0,2 0,1 0,1 0,2 0,5 0,3 0,1 0,2 0,2 0,7 0,3 0,3 1,3 0,4 0,3 0,3 0,4 0,4 0,6 0,4 0,9 0,3
Note: 2008 data does not include subsidies in income support programs.