The U.S. and Brazil have not yet reached a deal on U.S. demands to be able to sell the country more ethanol, but the Brazilian government is making clear what it is demanding in return, according to sources in both countries. Brazil wants more access to the lucrative and tightly guarded U.S. sugar market.

The Trump administration, prodded by U.S. lawmakers and lobbyists for America’s corn farmers and ethanol producers, is intent on convincing Brazil to drop its tariff on U.S. ethanol. Meanwhile, Brazil’s Bolsonaro administration is under pressure from the country’s sugar sector to protect farmers’ interests.

The two sides reached an impasse in the weeks leading up to the Aug. 31 expiration date for the Brazilian quota that allowed 198 million gallons of U.S. ethanol to enter Brazil duty-free. Brazilian sugar farmers were lobbying for an end to the quota, subjecting all U.S. ethanol to a 20% tariff; the U.S. was demanding that Brazil end the tariff, or at least reach an agreement on parity.

Negotiators remained deadlocked after the quota expired, allowing Brazil to tax all imports of U.S. ethanol, but that only lasted a little more than a week. On Sept. 11, Brazil agreed to revive the TRQ for 90 days, giving the countries more time to talk while allowing some U.S. ethanol to flow to the South American country duty free.

President Donald Trump recently suggested that he might be open to increasing the U.S. tariff on Brazilian ethanol, and Gregg Doud, the U.S. Trade Representative’s top agriculture negotiator, said Monday that could be an option.

“I’d like to have more access to the Brazilian market than we have,” Doud said during the Ag Outlook Forum hosted in Kansas City Monday by Agri-Pulse and The Agricultural Business Council of Kansas City. “I’d like to develop a relationship with Brazil where our trade in ethanol has the same tariff going in both directions. … That’s kind of basic.”

Gregg Doud

Gregg Doud, USTR

But very low or no tariffs — the situation in 2017 before Brazil implemented the 20% tax and tariff rate quota for U.S. ethanol — is still a goal.

While Brazilian sugar farmers don’t appreciate American corn-based ethanol flowing into their country, they do want an even bigger slice of the annual U.S. tariff rate quota that allows a variety of foreign countries to sell sugar into the U.S. at traditionally higher prices than they could get elsewhere.

The U.S. Trade Representative hasn’t agreed yet, but that hasn’t stopped Brazilian President Jair Bolsonaro from claiming some initial success.

On Sept. 10, the USDA decided to increase the U.S. tariff rate quota in fiscal year 2020 by about 90,718 metric tons to allow in more imports. Twelve days later, the USTR announced that 80,000 tons of that increase would go to Brazil and the remaining 10,718 tons to Australia.

U.S. officials tell Agri-Pulse the allocation for that increase was not tied to the ethanol negotiations, but Bolsonaro saw it differently.

“The U.S. Trade Representative today communicated … that Brazil will receive an additional quota of 80 thousand tons of sugar in the American market,” Bolsonaro said in a series of tweets. “This is the first result of the recently opened Brazil-USA negotiations for the sugar and (ethanol) sector, conducted in Brazil by the (Ministry of Foreign Affairs) and in the USA by the USTR.”

And Paul Ryberg, president of the International Sugar Trade Coalition, says he believes that the 80,000-ton allocation was indeed unfairly preferential to Brazil, and he suspects it is part of a quid pro quo.

“In the past, USTR has been meticulous about allocating TRQ increases on a pro rata basis to every quota holder who has sugar available,” said Ryberg, who represents countries that hold quota shares, such as Barbados, Jamaica and Belize. “And they didn’t (this time). There are definitely quota holders who could have shipped (more to the U.S.).”

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That 80,000-ton increase to the Brazilian allocation was part of an ad hoc action taken by USDA and USTR to address a temporary shortfall in the U.S. The bigger win for Brazil would be a perpetual increase in the annual U.S. quota that USDA unveils every year.

Every year, by statute, the USDA announces that the U.S. quota for raw sugar is about 1.1 million tons. That is the minimum amount the U.S. can set the TRQ at under its commitments to the World Trade Organization. This year was no different, and the USDA made its announcement on July 9. Later that month, the USTR released the list of countries that could provide that sugar to U.S. processors. Brazil was awarded an allocation of 152,691 tons, the same as the allocation in FY 2020. It’s the second largest share behind the Dominican Republic.

While Brazil is likely not suggesting that the U.S. increase the overall amount of the WTO minimum, U.S. sugar farmers are opposed to increasing the yearly allocation to Brazil, according to the American Sugar Alliance, which provided quotes from farmers to Agri-Pulse.

“As one of thousands of farmers in Minnesota and across the nation who grows both sugar beets and corn, I find it reprehensible that Brazil would play politics and inflict more pain on sugar farmers at a time when rural America is struggling,” said Nathaniel Hultgren of Raymond Minn. “But Brazil’s attempt to pit one important U.S. commodity against another will not succeed. U.S. agriculture is and will remain closely united.”

Paul Schlagel, a farmer in Longmont, Colo., says, “Brazil is already America’s second largest foreign sugar supplier, despite the fact that they are a major subsidizer and have a checkered environmental and human rights record. Frankly, they have already gotten more access to our market than they deserve. As farmers like me are in our fields harvesting corn and sugar beets, it makes no sense to reward Brazil’s bad acts with additional market access. Doing so could harm U.S. farmers and our other foreign suppliers.”

And the International Sugar Trade Coalition argues that giving any country preferential quota treatment outside of a free trade agreement breaks WTO rules.

Those rules, the group said in a Sept. 16 letter to Doud, “prohibit special preferential arrangements that would discriminate against other traditional suppliers.”

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