Brazil acts to protect ethanol producers as U.S. imports jump

SAO PAULO (Reuters) - Brazil is toughening requirements for ethanol importers to protect domestic producers from an incoming surge of U.S. corn ethanol, a minister said on Monday, adding that he opposed the idea of new tariffs that could trigger costly retaliation.

FILE PHOTO: Large tanks of Gasoline and Ethanol are shown at a gasoline distribution terminal in San Diego, California January 7, 2015. REUTERS/Mike Blake

Buyers of foreign ethanol will now have to follow a rule applied to Brazilian ethanol producers regarding minimum stocks to guarantee supplies in the market, according to a government decision published in the official gazette on Monday.

Energy Minister Fernando Coelho said the measure aims at giving “fair treatment” to importers and producers in the face of a “violent” increase in shipments from the United States.

Brazil is the main market for U.S. exports of corn ethanol, which have swelled in recent months to fill a gap left by falling domestic output. Brazilian mills have diverted more cane to sugar production because of better returns for the sweetener.

Ethanol imports from the United States increased fivefold to a record 720 million liters in the first quarter, worth some $363 million, according to Brazil’s trade ministry.

Local mills currently need to have ethanol stocks equivalent to at least 8 percent of their total sales in the prior year by March 31 each year. The rule was created to guarantee enough ethanol between Brazil’s cane harvests in the main center-south producing region. That period runs from December to the end of March.

“This measure means that an importer will have to invest in infrastructure. It will probably take out of the market those smaller traders who do opportunistic deals,” said a local ethanol trader who declined to be named.

Coelho said Brazil needs to protect its ethanol industry from U.S. corn ethanol with measures other than import tariffs, which could trigger a U.S. response. “I think tariffs could cost us even more in retaliation,” he said.

Reuters reported on April 27 that Agriculture Minister Blairo Maggi had asked Brazilian trade authority Camex to impose tariffs on U.S. ethanol imports. The cane industry in northeast Brazil, the main point of entry for ethanol imports, is leading calls for a 20 percent tariff.

The Camex executive committee held off deciding the matter at a meeting this month to consider the broader implications of a tariff. It is expected to make a decision at a meeting in early June.

Reporting by Luciano Costa; Additional reporting by Anthony Boadle in Brasilia and Marcelo Teixeira in Sao Paulo; Writing by Bruno Federowski; Editing by Brad Haynes and Paul Simao