Identifier
Created
Classification
Origin
06BRASILIA965
2006-05-17 18:24:00
UNCLASSIFIED
Embassy Brasilia
Cable title:  

GOB PROVIDES EMERGENCY AID TO SOY FARMERS

Tags:  EAGR WTRO ETRD ECON BR 
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VZCZCXRO8469
RR RUEHRG
DE RUEHBR #0965/01 1371824
ZNR UUUUU ZZH
R 171824Z MAY 06
FM AMEMBASSY BRASILIA
TO RUEHC/SECSTATE WASHDC 5403
INFO RUEHSO/AMCONSUL SAO PAULO 6971
RUEHRG/AMCONSUL RECIFE 4785
RUEHRI/AMCONSUL RIO DE JANEIRO 2087
RUEHBU/AMEMBASSY BUENOS AIRES 4015
RUEHAC/AMEMBASSY ASUNCION 5432
RUEHMN/AMEMBASSY MONTEVIDEO 6249
RUEHRC/USDA FAS WASHDC
RUCPDO/USDOC WASHDC
RUEHGV/USMISSION GENEVA 1490
UNCLAS SECTION 01 OF 02 BRASILIA 000965 

SIPDIS

DEPT FOR WHA/BSC, EB/TPP
DEPT PLEASE PASS TO USTR FOR MSULLIVAN, RCROWDER
USDA FOR JBPENN, FFAS
USDOC FOR 3134/USFCS/OIO/WH/SHUPKA
USDOC FOR 4332/ITA/MAC/WH/OLAC/MWARD
GENEVA FOR USTR

SIPDIS

E.O. 12958: N/A
TAGS: EAGR WTRO ETRD ECON BR
SUBJECT: GOB PROVIDES EMERGENCY AID TO SOY FARMERS


UNCLAS SECTION 01 OF 02 BRASILIA 000965

SIPDIS

DEPT FOR WHA/BSC, EB/TPP
DEPT PLEASE PASS TO USTR FOR MSULLIVAN, RCROWDER
USDA FOR JBPENN, FFAS
USDOC FOR 3134/USFCS/OIO/WH/SHUPKA
USDOC FOR 4332/ITA/MAC/WH/OLAC/MWARD
GENEVA FOR USTR

SIPDIS

E.O. 12958: N/A
TAGS: EAGR WTRO ETRD ECON BR
SUBJECT: GOB PROVIDES EMERGENCY AID TO SOY FARMERS



1. Summary. The Brazilian federal government announced on May 12 a
subsidy of 1 billion Reais (approximately US$470 million) in
emergency aid for soybean farmers in the form of price supports.
The package seeks to reduce the indebtedness of soy farmers and help
improve the generally adverse agricultural situation, owing to the
strong Real and high production and transportation costs. The
"mini-package" was not well received by the soybean sector, which
considered it belated and insufficient to remedy their losses. Nor
did the emergency aid persuade farmers, mostly from the country's
Center-West region, to cease their continuing protests against the
federal government's agricultural policies. End Summary.


2. On May 12, 2006, the Brazilian government announced one billion
Reais (US$470 million) in emergency aid for the soybean sector.
This amount is in addition to US$8 billion that was announced April
6 in the form of price supports, debt rollover, and crop insurance
for the general agricultural sector. This new package for soy is
intended to subsidize part of the increase in transportation costs
due to higher diesel prices.


3. Some government officials here have expressed concern that the
emergency aid will be viewed as a direct subsidy for producers,
therefore compromising Brazil's position at the WTO. However, other
officials dismiss this concern, arguing that the amount of aid
contemplated is so small that it would neither affect Brazil's
bargaining position in the Doha negotiations nor prove inconsistent
with the country's current WTO obligations. They contend that
because the prevailing level of Brazilian subsidies is so low, the
current package will fit within both the "de minimis" 10% of gross
production value limit on direct subsidies and the ceiling on
General Support Measures up to an additional US$900 million.


4. The GOB will disburse the additional emergency aid through
Private Option Risk Premium (PROP) options. PROP is a price support
program managed by CONAB, the Brazilian food supply company

equivalent to the Commodity Credit Corporation, and linked to the
Ministry of Agriculture. The PROP option price represents the
maximum amount that CONAB will pay to cooperatives and processors in
order to guarantee a certain price to producers, which is above the
market price. The first weekly auction of PROP options will be
conducted on May 23, 2006. The goal is to assist in the sale of 15
to 20 million metric tons of soybeans. The government plans to pay
producers between US$0.70 and $2.80 per 60-kilo bag of soybeans,
depending on how far the producer is located from port.


5. The "mini-package," as it is being referred to, was not well
received by the soybean sector, which complained that it was like
"giving an aspirin to someone in the intensive care unit".
Producers had requested 3 billion Reais for the state of Mato Grosso
alone. Producers also question the timing of the subsidy as much of
the 2005/06 crop has already been sold.


6. After three years of adverse conditions, the vast majority of
Brazilian farmers are not in a positive financial position and the
mood of the sector is austere. In late April, Brazilian soybean
farmers began blockading roads in Mato Grosso, Parana, and Rio
Grande do Sul states, demanding minimum price guarantees for their
crop. Farmers claim that the government minimum price does not
cover their current production costs. The government's minimum
price for soybeans is about US$115 per metric ton. Farmers state
this year's cost of production to be in the range of US$230 per
metric ton.


7. When the Brazilian government rejected farmers' proposal for a
higher minimum price, farmers began blocking access to storage
facilities to prevent exports from leaving the country. Farmer
protests have entered their fourth week, and Brazilian and U.S.
industry officials report that no soybeans are being exported.
According to ANEC, the Brazilian Exporters' Association, accumulated
losses so far are in the US$100 million range, and it may be
possible that American soybeans and Argentine meal and oil will fill
Brazil's pending contracts.


8. The combination of low international prices, rising costs of
inputs and transportation (including higher diesel prices),and the
strong Real has continued to cut away at farmers' profit margins.
Other Brazilian industries are also suffering from a similar

BRASILIA 00000965 002 OF 002


cost-price squeeze, including those that produce a range of export
goods such as cars, car parts, shoes, machines, and furniture. On
May 10, the U.S. dollar slumped to 2.0, its lowest exchange rate
against the Brazilian Real in five years, bad news for Brazilian
soybean farmers. While in recent days the dollar has rallied (up to
2.13 as of May 16),many Brazilian industries will not see
significant relief until the exchange rate rises at least until 2.5
to 1.


9. For the first time in seven years, the area projected for
soybean cultivation in Brazil is projected to decline. Post
estimates that this year's planted area is down 4 percent and that
next year's area will be down another 2 percent. The governor of
Mato Grosso, and Brazil's largest soybean farmer, recently projected
a 10 percent drop in planted soybean area for 2006/07.

Comment


10. Revenues from soybeans, the country's most valuable export
crop, are vital to the Brazilian trade balance. So far in 2006,
soybeans represent a staggering 8% of total Brazilian exports, yet
this represents a drop from 12% in 2005. As Brazil's continued
economic growth remains highly dependent on exports, further
contraction of the soybean sector would increase the country's
vulnerabilities.

Chicola