Last installment, of $115 million, was paid on Tuesday, 50 years after Brazil and Paraguay signed a treaty for the binational hydroelectric plant


Itaipu is the power plant that has generated the most electricity in the world — Foto: Divulgação

Itaipu is the power plant that has generated the most electricity in the world — Foto: Divulgação

The Itaipu Hydroelectric Dam paid its last installment on Tuesday, settling the debt for the construction of the plant. The payment of $115 million was the last one in 50 years after the signing of the contract between Brazil and Paraguay to carry out the largest work of the 20th century. The amount consists of $107 million to the Brazilian Development Bank (BNDES) and $8 million to the power company Eletrobras, funds that financed the studies, construction and operation of the plant and ancillary facilities.

In the 1970s, with the support of the Brazilian government, more than 300 financing agreements were signed with about 70 creditors (from Brazil, Paraguay and other countries). Half a century later, Itaipu Binacional remains key to the energy security of both countries. With 20 generating units and 14,000 MW of installed capacity, Itaipu is a world leader in the generation of clean, renewable energy, providing 8.6% of Brazil’s and 86.3% of Paraguay’s electricity supply in the last 12 months.

Despite the historical significance of the moment, the event was given little importance, and presidents Luiz Inácio Lula da Silva and Mario Abdo Benítez did not attend. Not even the new Brazilian CEO chosen by President Lula, Deputy Enio Verri, was present. The company is still headed by Vice Admiral Anatalicio Risden Junior, who was appointed by former President Jair Bolsonaro. The Minister of Mines and Energy, Alexandre Silveira, had confirmed his presence, but cancelled at the last minute.

Itaipu is the power plant that has generated the most electricity in the world, with more than 2.91 billion megawatt hours supplied to the two countries since it began operating in 1984, enough electricity to supply the entire world for 46 days. The colossal construction effort has resolved a historic border impasse dating back to the 18th century, overcoming energy and diplomatic challenges.

The company highlights the effort and will of the countries that own the company during the debt relief process, seeking financial balance. Among the solutions are the gradual reduction of the interest rates on the current loans, the dollarization of the debt because it is binational, the fixing and later the elimination of the annual adjustment factor to keep the value of installments constant in dollars, among others.

The next step is to revise Annex C, the clause in the treaty that establishes the financial and service bases for electricity. The grandiosity of the hydroelectric plant is also reflected in the regulatory complexity of the treaty that governs its existence. Regarding the possibility of revising the terms of electricity sales, there is talk of freeing up energy sales or leaving the rules as they are. Until the partners find common ground, the terms of the treaty signed in 1973 will remain in place.

*Por Robson Rodrigues — São Paulo

Source: Valor International
State-owned oil company will help to make reintroduction of taxes possible, Finance Minister Fernando Haddad told reporters


Fernando Haddad — Foto: Wenderson Araujo/Trilux

Fernando Haddad — Foto: Wenderson Araujo/Trilux

The Lula administration is working on a solution to resume the collection of federal taxes on gasoline and ethanol with minimal impact on consumers, meeting a concern of the political wing of the government. At the same time, the decision is expected to bring R$28.8 billion, as expected by the economic team, maintaining one of the pillars of fiscal adjustment signaled by the Executive branch.

According to Finance Minister Fernando Haddad, the formula will be defined on Tuesday and Petrobras can make a “contribution,” since the prices charged in the domestic market are above international levels. He argued that the company’s participation will respect the company’s import parity price policy and will occur within its pricing policy. “There is a cushion [under the policy] that allows you to decrease or raise fuel prices, and it can be used. That can be a contribution [from Petrobras],” the minister told reporters on Monday night.

The Ministry of Finance will not lose a single real, assured a government source. This information, published on Monday by Valor PRO, Valor’s real-time information service, and later confirmed by the ministry’s press office, caused market interest rates to fall. At the end of the session, the rate of the Interfinancial Deposit (DI) contract for January 2024 fell to 13.375% from 13.465% on Friday.

The issue will return to the desk of President Luiz Inácio Lula da Silva on Tuesday, who will receive at 9:30 am at the Presidential Palace Chief of Staff Rui Costa, Mines and Energy Minister Alexandre Silveira, and Petrobras CEO Jean-Paul Prates.

The government’s solution involves a new distribution of the tax burden along the fuel chain. The executive secretary of the finance ministry, Gabriel Galípolo, went to Rio de Janeiro on Monday afternoon to discuss the matter with Petrobras’s board of directors. However, this is a delicate discussion and there is resistance from some wings in the federal administration.

The resumption of federal taxation is also likely to include a change in line with the environmental agenda defended by the Finance minister. Gasoline will pay more taxes than ethanol, as a strategy to discourage the use of fossil fuels. Figures circulating on Monday indicated that 75% of the tax on gasoline would be resumed, compared with 25% of those levied on ethanol.

At the end of the morning, Mr. Haddad said he expected the final draft to be unveiled on Monday. He was expected to hold a press conference at the end of the day, but that did not happen. The minister went to the presidential office late in the morning, where he met with President Lula, Petrobras CEO, and the chief of staff.

Since last week, Mr. Haddad has been at odds with the political wing of the government over the reintroduction of taxes on gasoline and ethanol.

As spokesperson for the political group, the Worker’s Party (PT) president Gleisi Hoffmann used social networks last Saturday to argue that the return of taxes on gasoline and ethanol would take place only after a debate on the pricing policy of Petrobras. This discussion, according to her, would take place starting in April.

From India, where he was to attend the G20 meetings, Mr. Haddad called Mr. Lula on the same day and defended the opposite of Ms. Hoffmann. In the conversation, according to sources, Mr. Lula reassured the finance minister.

Planalto Palace sources evaluated on Monday that it would not be possible to wait until April for a definition because of the fiscal impact. But President Lula himself resisted the idea of resuming taxation as it was until 2022 because the impact on the price of a liter of gasoline would be R$0.69, an amount he considered high.

Against this background, alternatives were discussed, such as the gradual reintroduction of taxes. The Finance Ministry reacted to the versions that pointed to a potentially lower tax collection.

National Treasury Secretary Rogério Ceron emphasized on Monday the importance of the federal administration “reintroducing the tax burden” after the changes implemented last year. The statement was made during the interview to comment on the National Treasury Results (RTN) of January. According to him, if there is no tax reform, it will be necessary to find “other ways.”

The reduction to zero of the social taxes PIS/Cofins and the federal tax Cide rates on gasoline and ethanol was implemented last year when opinion polls already showed then-President Jair Bolsonaro at a disadvantage in the electoral race. The measure would be in effect until December 31, 2022.

During the transition, Mr. Bolsonaro’s team even extended this measure to the end of January this year but reversed the decision at the request of Mr. Haddad, who wanted to resume the collection of taxes on January 1. This was the finance minister’s first clash with the Lula administration’s political wing, which extended the tax reduction until the end of this month.

A provisional measure on fuels, enacted at the beginning of the year, extended the tax holiday until February 28. PIS/Cofins taxes on diesel, biodiesel, and LPG were kept at zero until December 31.

*Por Lu Aiko Otta, Estevão Taiar, Guilherme Pimenta, Renan Truffi, Andrea Jubé — Brasília

Source: Valor International
Dairy company also intends to enter cheese segment, build 4 new distribution centers, expand production capacity, and go public


Bruno Girão, Alvoar"s CEO. — Foto: Caio Victor/ T3 Filmes

Bruno Girão, Alvoar”s CEO. — Foto: Caio Victor/ T3 Filmes

Alvoar Lácteos, the result of the merger between Ceará-based Betânia Lácteos and Minas Gerais-based Embaré Indústrias Alimentícias, plans to invest nearly R$100 million this year in the construction of four distribution centers and the expansion of production capacity. The company is also implementing new governance processes for a future IPO.

Alvoar Lácteos is owned by the Girão family, founder of Betânia Lácteos; by the Antunes family, founder of Embaré; and by the private equity fund Arlon Latam. The merger was completed in October 2021. Each partner owns about one-third of the company’s capital. The company was already born as the fifth largest dairy in the country, behind Nestlé, Lactalis, Italac, and Laticínios Bela Vista (owner of Piracanjuba), according to market estimates.

“We need capital to continue growing. Right now, the markets are closed for this type of operation. The expectation is that they will open when interest rates fall,” said Bruno Machado Girão, CEO of Alvoar Lácteos.

The executive said that he is likely to define the date of the IPO by June. “The idea is to raise part of the funds with the IPO. Part of the amount obtained will go to the shareholders and another part will be used for investments in the plants,” said the CEO. The company has not yet hired a bank to support the operation.

Alvoar Group already has a board of directors with seven members — two from the Antunes family, two from the Girão family, two from the Arlon, and one independent member, who is the CEO of Mantiqueira Brasil, Márcio Utsch. The financial reports have been audited for five years.

Recently, as part of the efforts to go public, the company created a governance and socio-environmental sustainability (ESG) department.

Mr. Girão estimates a growth of around 15% this year compared to 2022 when Alvoar Lácteos had net revenues of R$4.3 billion. Last year, the increase was 27%. “The growth was mainly due to price adjustments. In terms of the volume of milk processed, the increase was almost zero. We focus more on the margin than on the volume,” said Mr. Girão.

According to the executive, the Ebitda margin was between 6 and 8%, and the net debt was twice the Ebitda. The forecast for this year is an Ebitda margin of 7% to 8%.

The performance of Alvoar Lácteos is above the market average, which in 2022 had a decline of 4% to 5% compared to 2021, said Valter Galan, technical and new business director of MilkPoint Ventures. For 2023, he expects an increase of 3% to 4%. Mr. Galan said that the sector’s production cost will tend to be the same or lower than in 2022. It will be more difficult to adjust prices due to the weak economy and double-digit inflation.

To support the increase in sales, Alvoar Lácteos will open four distribution centers in the Northeast, with an investment of R$100 million. The goal is to expand the capillarity of the Betânia brand in the Northeast and maintain the leadership of the Camponesa brand in the Southeast.

The company has hired the consulting firm Ana Couto Branding to evaluate the product launch strategy and brand positioning. Alvoar owns the Betânia, Bat Gut, Betânia Kids, YoBem, Embaré, and Camponesa brands.

Alvoar launched a line of dairy products with more protein under the brand name YoBem in the Northeast. “We want to bring this line to the Southeast,” said Mr. Girão.

The company also intends to enter segments such as cheese. The company invested R$25 million in the cheese line of the Camponesa brand (produced at Lagoa da Prata plant, in Minas Gerais state) and expects the production volume of this line in 2023 to grow more than 50%.

Alvoar has nine plants in Minas Gerais, Ceará, Pernambuco, Sergipe, and Bahia, and 13 distribution centers, with 4,000 employees. The processing capacity is 4.8 million liters of milk per day.

*Por Cibelle Bouças — Belo Horizonte

Source: Valor International
Share of companies generating insufficient cash has been growing


The number of publicly traded companies that are unable to cover their financial expenses with cash generation has been growing, and the trend is that this number will continue to rise until 2023. This is the result of a study conducted by the Center for Capital Market Studies (Cemec-Fipe).

According to Carlos Antonio Rocca, coordinator of Cemec-Fipe, the debt indicators of companies in general are expected to worsen. “This does not mean that there will be a disaster, but that they will leave the comfortable situation they have been in,” he says. “I don’t think it’s enough to say that we will experience a debt crisis for companies.”

In 2019, 11.6% of companies were unable to cover their financing costs with earnings before interest, taxes, depreciation and amortization (Ebitda). In the 12 months to September 2022, the proportion will rise to 15.1%, according to the study. The bill won’t arrive until the end of the year, as many have not yet released their fourth-quarter financial statements.

“This percentage is likely to increase this year, given the trends of reduced cash generation and the maintenance of interest rates at current levels,” says Mr. Rocca, considering that the situation is not even close to the crisis of 2015, when the share of companies that did not cover the cost of debt reached 28.3%.

The expectation of lower cash generation is based on several factors, such as the increase in the cost of raw materials and labor costs (competitiveness indicator). The economy is slowing down. At the same time, the key interest rate has increased to 13.75% from 2% per annum, putting pressure on financial expenses. Throughout the pandemic, companies saw an improvement in the gross margin due to the increase in prices and the stabilization of salaries. However, there was a reversal of this scenario, says Mr. Rocca.

In the retail sector, the share of companies with cash generation below financial expenses was 9.8% at the end of the third quarter. This is an increase from a year earlier, when it was 7.9%, but a sharp drop from the 17.6% reported in 2019. It remains to be seen how the retail chain Americanas case, which broke in January, will affect the industry.

The study also shows that about 14% of listed companies have a debt-to-equity ratio higher than 5, well above what would be ideal. The index is calculated by dividing net debt by Ebitda. “Generally, the indicator above 3 is already worrisome,” Mr. Rocca says. In 2021, 13.4% of companies will be in the same situation.

Ricardo Knoepfelmacher — Foto: Ana Paula Paiva/Valor

Ricardo Knoepfelmacher — Foto: Ana Paula Paiva/Valor

, founder of RK Partners, specialized in the restructuring of companies, says that the leverage of companies is at a better level than in other crises, such as the one that happened in the Rousseff administration. “Today, however, there is a great deal of fragility because the interest rate is very high and is expected to remain at a high level for at least another year,” he says. “This means that all the companies that found it easy to roll over their debt during the pandemic will now face a different scenario.”

Salvatore Milanese, a partner at consulting firm Pantalica Partners, recalls that in 2020, at the height of the health crisis, several companies reached the point of not having the funds to cover their debts because of the paralysis of activities. “However, there was the postponement of tax payments and the increase in credit concessions. This acted as an injection of adrenaline to keep the system working,” he says. In addition to public companies, which are the focus of the Cemec-Fipe study, the expert also monitors the situation of private companies.

For now, the difficulties in paying debts are concentrated among small and medium-sized companies, but the number of medium and large companies seeking to renegotiate debts has increased, Mr. Knoepfelmacher says. “The number of renegotiations and judicial recoveries may increase this year. It is difficult to pay an effective interest rate of 20% [per year], even though we are better leveraged than eight years ago.”

At Pantalica, the number of proposals to renegotiate debt has risen to 30, compared to the 10 per month seen until the third quarter. “This deterioration of the corporate situation is absolutely not good for anybody. It is bad for the credit scenario and should make banks more selective in granting funds.”

*Por Rita Azevedo — São Paulo

Source: Valor International
Valor’s survey of 75 financial institutions and consulting firms shows that median forecast is a contraction of 0.1% of GDP in the fourth quarter of 2022 compared to the third quarter


After three consecutive quarters of growth last year, Brazil’s GDP has probably declined slightly between October and December 2022, without compromising the surprising performance of activity expected for the year as a whole but indicating that 2023 will be challenging.

Valor’s survey of 75 financial institutions and consulting firms shows that the median forecast is a contraction of 0.1% of GDP in the fourth quarter of 2022 compared to the third quarter. Estimates range from -0.9% to 0.6%. The median forecast for the fourth quarter of 2021 is 2.3%, based on 73 projections.

For 2022, the median of 79 forecasts points to 3% GDP growth following a 5% recovery in 2021 after the pandemic shock of the previous year. The range of forecasts is relatively small, between 2.5% and 3.4%.

For 2023, however, the range of estimates is much wider. Forecasts range from stagnant GDP to an increase of 1.6%, with the median of 76 institutions at 0.8%.

On the supply side, services probably continued to drive GDP in the final quarter of 2022, although the median expectation is for growth to slow to 0.2% from 1.1% in the third quarter. As a result, the services sector has probably grown by 4.1% in 2022 after recovering by 5.2% in 2021.

The behavior of the industry, whose median expectation is a decline of 0.4% in the fourth quarter of 2022 compared to the third, is “quite diffuse,” according to Rafael Pacheco, an economist at Guide. “While the production of durable and non-durable goods probably had a weaker performance, the extractive industry has probably done better due to exports,” he said. In 2022, the industry probably maintained a growth of 1.6% after rising 4.8% in 2021.

On the demand side, the contribution of the external sector in the fourth quarter is drawing economists’ attention. According to the median estimate, exports in the period grew by 2.8% compared to the third quarter, while imports probably fell by 3,9%. For the year as a whole, exports are expected to have grown by 4.8% and imports by 0.9%.

Thus, the contribution of the external sector will not come for the “good reason”, which would be a growth in both fronts, but with imports advancing even more, said Luis Otávio de Souza Leal, chief economist at Banco Alfa. “The more the Brazilian economy grows, the more it would have to import. But that’s not going to happen. This supports the idea that the Brazilian economy was flat at best in the fourth quarter,” Mr. Leal said. His GDP forecast for the period is in line with Valor’s median.

Mr. Leal said he sees four growth drivers for GDP in 2022 that are unlikely to be present in the same way this year, justifying his expectation for Brazilian activity growth to 0.9% in 2023 from 3% last year.

At the beginning of 2022, there was a very strong increase in commodity prices, which was already underway and accelerated as of February with the war in Ukraine. This is a phenomenon that could even be seen again in early 2023, Mr. Leal points out because this year’s harvest is expected to break new records. “Agriculture will probably save GDP growth again in the first quarter. The problem is that it’s more or less 8% of the GDP, it can’t do everything by itself.”

Last year, the GDP also counted, according to Mr. Leal, with the effect of the reopening of the economy post-Covid, mainly from the service sector and in the second quarter, with government measures such as the release of Workers’ Severance Fund (FGTS) withdrawals in the same period and, in the third quarter, the increase of cash-transfer program Brazil Aid to R$600 a month, in addition to a very strong improvement in the labor market. “On the demand side, growth came from consumer spending,” Mr. Leal said.

The median of economists’ projections indicates a 4% increase in household consumption in 2022, but only 0.9% in 2023.

For this year, the gain from the reopening of services has already been exhausted, the trend in the labor market is decelerating, and the space for additional stimuli from the government is limited, in Mr. Leal’s view. “We have to remember that consumers have almost 30% of their income committed to debt service, and interest rates are extremely high. I don’t see consumption supporting GDP as it did last year,” he said.

The external sector is also expected to make a more modest contribution this year amid the forecast slowdown in the global economy. The median expectation is that imports will grow by 1.3% year-over-year, while exports will slow to 2.5%.

The high commodity prices that have benefited Brazilian exports are expected to weaken at least in the first half of this year, said Mr. Pacheco, with a decline mainly in oil.

An unknown factor is China, the main destination of Brazilian exports and whose activity has been surprising after leaving the zero-Covid policy. Guide was expecting 3% growth for the GDP of the Asian country in 2023. With the latest data, the projection became more optimistic, but still below 5%, according to Mr. Pacheco.

On the supply side, the industry is expected to feel the weight of interest rates, according to the Guide economist. The median of Valor indicates a slight growth of only 0.1% for the sector this year. The biggest doubt, according to Mr. Pacheco, is in services, which is expected to slow to a high of 0.8% in 2023, according to the median of the forecasts.

“The expectation is for a slowdown already at the beginning of this year, although there is a strong inertial component due to the increase in the minimum wage and government aid. But a good part of the growth in services was transitory,” Mr. Pacheco said.

On a more optimistic side of the projections for GDP in 2023, Cecília Machado, chief economist at Bocom BBM, points out that confidence indicators seem to signal that there is some pessimism in the economy, but it would not yet be reflected in some data in the services sector. “The labor market is still quite resilient, and the high-frequency data published by the big banks, with information on credit card purchases, still points to a service sector that is also resilient,” she said. Ms. Machado projects a slightly above the median zero GDP between October and December 2022.

With the perception that activity at the turn of the year was stronger than imagined, Parcitas Investimentos adjusted its estimate of fourth-quarter GDP from a contraction of nearly 0.4% to a median contraction of 0.1%. “Surveys pointed to very high inventories. We thought that perhaps household demand would not be so strong at the turn of the year, but the IBGE retail and services surveys in December and the credit card data in January point to stronger demand and a turn of the year that will not be so bad,” says economist Vitor Martello.

Nevertheless, it did not change the most pessimistic forecast for GDP in 2023, which would remain stagnant. In addition to a “very aggressive slowdown in the credit cycle,” said Mr. Martello, adding that he also has doubts about the real strength of agricultural GDP. “It will be good, but there is a catch: we look at GDP from the point of view of value-added and we have to remember that there are production costs that should be higher than last year.”

According to Ms. Machado, there are two forces at work in the Brazilian economy. “We have a monetary policy that slows down and a fiscal policy that accelerates. For now, the fiscal policy is helping to sustain services. We are not seeing the effects of monetary policy, but this is likely to become clearer in the coming quarters,” she said.

Bocom BBM expects GDP to rise 1.5% in 2023, with 0.4 percentage points being a carryover after 3% growth expected for 2022. “We have a hard time seeing such a big slowdown in the economy. That doesn’t mean it won’t happen, in reality, it’s heading in that direction,” said Ms. Machado.

Ms. Machado points out that the government’s stimulus policies, whether through social assistance or minimum wage increases, affect the population most prone to consume. She also cites some resilience in the construction sector, such as the announced resumption of the housing program Minha Casa, Minha Vida (My Home, My Life).

According to her, the idea is that growth in 2023 will be driven by the first quarter, with a peak of 1.1% compared to the previous three-month period, slowing in subsequent periods. “The way much of the stimulus is being implemented will involve the construction of popular housing and the resumption of education and health services, which may be more gradual,” she said.

Considering that the external sector and domestic consumption will be weak, Guide expects an advance of 0.5% of GDP in 2023, after a high estimated for 2022 of 3.1%. In Alfa’s growth projection of 0.9% for GDP in 2023, practically 0.7 percentage points are a carry over, and 0.2 points come from agriculture, according to Mr. Leal. “The rest of the economy will be practically zero,” he says. “I would even put a downward bias on that 0.9% because I think we’re going to have a credit problem in that first half,” Mr. Leal said.

*Por Anaïs Fernandes, Marta Watanabe — São Paulo

Source: Valor International
Drugmaker acquired lab in Canada and will invest around R$1bn in new, modern industrial complex in Minas Gerais


Cleiton de Castro Marques — Foto: Carol Carquejeiro/Valor

Cleiton de Castro Marques — Foto: Carol Carquejeiro/Valor

Biolab, one of Brazil’s leading pharmaceutical companies, is expanding its exposure to foreign markets at the same time as it continues to invest in a new and modern industrial complex in Minas Gerais, an investment estimated at almost R$1 billion due to the increase in the cost of construction equipment and materials.

In January, six months after the acquisition of the Canadian laboratory Exzell Pharma, owner of brands such as Swiss Naturals and Salinex, it obtained the registration in Saudi Arabia of Vonau Flash (Ondansetron), an innovative medicine against nausea and vomiting with almost immediate oral dissolution. This paves the way for the drug, which will be marketed under the brand name Mundell in the Arab market, to be sold in 22 countries of the Arab League.

The company has already exported Vonau to Ecuador and Colombia and supplied another product, Encrise, used to treat septic shock, to Saudi Arabia. The next step is to take Encrise to Central American countries, Mexico – where it will be distributed by another Brazilian pharmaceutical company, Eurofarma – and Canada.

“We are looking for approval for different products in Canada,” said Cleiton de Castro Marques, CEO and a partner in Biolab. According to him, in the international market, the strategy is to reach countries with hard currencies, such as the United States. And the world’s largest pharmaceutical market is a likely target in the short or medium term. “We will enter with less complex products, but with a certain degree of innovation,” he said.

Biolab has a business in the United States and has accumulated experience in neighboring Canada, where it arrived in 2017 with its own research, development and innovation center and where the industry rules are similar to those in the United States.

Yet, the exposure of its business to the international market is still low, about 1% last year, without considering the Canadian operation. According to Mr. Marques, the proposal is to use the industrial capacity in Brazil to serve the other markets. The acquisition in Canada, he explained, took into account Exzell’s robust sales and distribution structure and the country’s interest in attracting investors to the sector. “There, investment in pharmaceuticals is strategic,” he said.

Brazil, the world’s sixth-largest pharmaceutical market, is also attractive, but lacks an effective long-term policy for the sector, he said. Biolab became a partner in Orygen, one of the “superpharmaceutical companies” idealized by the federal government for the national production of biosimilars, but abandoned the project. Together with Eurofarma, which also left the partnership, it is conducting research in this field on its own. “We are not interested in this PDP [Partnership for Productive Development] model,” says the company.

Even so, Biolab remains firm with the project of putting into operation, in the country, its largest unit. With an initial budget of R$500 million, the new Biolab plant in Pouso Alegre, Minas Gerais, was announced in 2017. Since then, the estimated expenses for the construction of the industrial complex, which will have a built area of 80,000 square meters, have virtually doubled and are now close to R$1 billion.

“In addition to the increase in the cost of steel and cement, even the infrastructure has become more expensive,” Mr. Marques said. Two areas of the new plant, which will be the company’s largest, are already in operation, but the actual production of drugs is likely to begin in the second half of 2024, after all the certification and approval stages by the National Health Surveillance Agency (Anvisa).

The pharmaceutical company, which reported a turnover of R$2.5 billion last year, has a diversified activity, including plastic bottles, but still finds in the cardiology portfolio almost 50% of its revenues. With 45 launches last year, it has in its portfolio 425 branded and generic drugs, including the various presentations, and 81 items in the veterinary line (Avert).

*Por Stella Fontes — São Paulo

Source: Valor International
Tax relief has an impact of about R$25bn and expires next Tuesday


Fuel tax holiday will end next Tuesday — Foto: Marcello Casal Jr./Agência Brasil

Fuel tax holiday will end next Tuesday — Foto: Marcello Casal Jr./Agência Brasil

The return of federal taxes on gasoline and ethanol could become a new focus of confrontation between Finance Minister Fernando Haddad and the political wing of the Lula administration. The tax relief on these fuels will expire next Tuesday. President Luiz Inácio Lula da Silva will have the final word on the matter.

According to interlocutors, Mr. Haddad defends the return of federal taxes on fuels. The idea, however, is opposed by political ministers and Worker’s Party (PT) leaders, who are worried about the impact of the unpopular measure, especially on the middle class.

The issue already put the two groups on opposite sides at the end of last year, while the government was still in transition. On December 31, the tax benefit promoted by then President Jair Bolsonaro expired. Mr. Haddad was against the continuation of the measure but was defeated by the wing led by the president of the PT, Gleisi Hoffmann, and the president of the Brazilian Development Bank (BNDES), Aloizio Mercadante.

Chief of Staff Rui Costa has not yet defined a position on the issue. According to people close to him, he is “observing the technical and political aspects of the measure to help Mr. Lula to decide at the end of the process.”

The position of the Finance Ministry, however, is already clear in favor of the return of the federal tax in early March. A source says that the continuation of the tax relief is not “on the radar.”

It also highlights that “the cost of extending the relief is greater than the additional cost” of increasing the minimum wage to R$1,320 from R$1,302, extending the exemption of Income Tax (IR) to two minimum wages and paying R$150 monthly per child up to 6 years old enrolled in the cash-transfer program Bolsa Família. In addition, the tax relief “would benefit the upper- and middle-income population” and encourage “polluting fuels,” according to the source.

President Lula will meet this Friday with Petrobras CEO Jean Paul Prates at the Planalto Palace. The subject of the meeting was not officially announced, but it is expected that they will discuss the resumption of taxes on fuels.

The meeting was supposed to take place Thursday but did not happen because Mr. Prates had problems with a flight to Brasília.

Mr. Prates was the rapporteur of a bill in the Senate to create a stabilization fund to cushion fuel price fluctuations.

Mr. Lula, for his part, has always been critical of Petrobras’s current pricing policy, which since the Temer administration has tied local prices to the international price of crude oil.

Economists estimate that the return of federal taxes will increase fuel prices by R$0.69 per liter.

According to Felipe Salto, chief economist and partner at Warren Rena, the return of fuel taxes could have a positive impact of about R$25 billion on public accounts this year. He argues that to mitigate the impact on inflation and given the tight fiscal framework, Petrobras should refrain from passing on any increase in the international price of the product.

“I understand that the return [of taxes] will contribute with about R$25 billion, that is, for the period from March to December. It is an important measure. Nothing prevents Petrobras from keeping part of the transfer,” he told Valor. “The priority is the fiscal situation.”

The so-called Fuel Provisional Measure, enacted earlier this year, reduced the social taxes PIS and Cofins rates on gasoline and ethanol to zero until February 28. It also reduced the federal tax Cide rates on gasoline to zero in the same period. In the case of diesel, biodiesel, and LPG (liquefied petroleum gas), the social taxes PIS and Cofins rates were kept at zero until December 31.

The Finance Ministry does not intend to modify the tax reductions for cooking gas, diesel, and biodiesel. This is because the former directly affects the poorest families. And an increase in diesel would harm truck drivers, who are the political base of former President Jair Bolsonaro, and have the potential to stop the country, as already happened in a strike of the category in 2018.

*Por Fabio Murakawa, Renan Truffi, Estevão Taiar — Brasília

Source: Valor International
Self-embargo goes into effect, but market awaits technical report from Canada


The Ministry of Agriculture announced last night the suspension of beef exports to China and confirmed a case of mad cow disease in Pará. The self-embargo goes into effect this Thursday.

“The matter is being handled with total transparency to ensure Brazilian and global consumers the recognized quality of our meat,” said Minister Carlos Fávaro, in a statement.

It is not yet known whether it is a classic or atypical case of the disease, but, because it is a mad cow disease, Brazil must voluntarily suspend its beef exports to China, as required by the bilateral agreement signed in 2015. The Asian country was the main importer of Brazilian protein in 2022 and the destination of 53.3% of shipments.

The Chinese market is likely to remain closed until Beijing evaluates the information provided by the Brazilian government. The Ministry of Agriculture have already notified the World Organization for Animal Health (WOAH), and Mr. Fávaro is expected to meet with the Chinese ambassador in Brazil at any moment this Thursday. The result of the test conducted by the WOAH reference laboratory in Alberta, Canada, which could confirm whether the case is atypical, is expected to come out on Thursday.

Sources heard by Valor in the last days indicate that this is an atypical case, in which the animal develops the disease naturally, due to its advanced age. Therefore, there is no risk of spreading the disease or human contamination.

However, in anticipation of the self-imposed ban, shares in the slaughterhouses traded on B3 plummeted on Wednesday. Minerva’s shares fell 7.92%, to R$11.40, the biggest drop on B3 on Wednesday. JBS and Marfrig, which are less dependent on exports from Brazil to China, fell 4.33% and 4.71% to R$17.91 and R$6.27, respectively.

“The market uses what has happened in the past to make projections. In 2019, China’s embargo lasted for 13 days, so there wasn’t time for further impact. But in 2021, it lasted for a long time and significantly affected the results of these companies in the fourth quarter,” said Gustavo Troyano, an analyst at Itaú BBA.

According to Mr. Troyano, the market usually expects the worst and then makes corrections, as the situation unfolds. “The fact is that exports haven’t even been interrupted yet, but it seems that the market is pricing in a scenario where the Chinese market won’t be closed for just one week,” he said.

On the other hand, the Itaú BBA analyst points out that Brazil is the best option for beef supply at this moment. “The supply problems are very serious. If China expects growth in its internal consumption, it has to come from somewhere,” he added.

Fernando Iglesias, an analyst at Safras & Mercado, says that in 2021 China had large stocks, which made it possible to extend the embargo. This year, the scenario is different and suppliers such as Argentina, the United States, and Uruguay have limited supplies. “That plays in our favor,” he says.

Of the three cattle slaughterhouses, Minerva remains Itaú BBA’s favorite. Despite this short-term instability, the turn of the cattle cycle in Brazil tends to favor the business of the company, which is the largest exporter in South America. Thus, in one year, the company’s shares still accumulate a high of 16.8%.

In the same period, JBS and Marfrig fell 47.91% and 65.32%, respectively, since they are more exposed to the American market, where there is a gradual reduction in the supply of cattle. Mr. Troyano explains that the big doubt in the market today is what the margins of American operations will be. “It is known that they can get to very low levels, but there is still great uncertainty,” he says.

The physical market for fat cattle was virtually nonexistent on Wednesday, according to Mr. Iglesias. “The exporting slaughterhouses have suspended slaughter this week. They are waiting for the technical report from Canada to understand what will happen,” he said. In the futures market, March cattle contracts fell 5.7%, to R$288.65.

Also, at some distance from the cattle market, the shares of BRF, a poultry and pork company, fell 6.71% on Wednesday, to R$6.40. It turns out that avian influenza has been advancing through South America in recent weeks. Today, countries bordering Brazil are struggling to stop the spread of avian influenza.

The Brazilian government, states, and industry are also stepping up biosecurity measures to prevent contamination in commercial poultry farms, which would require the preventive slaughter of animals, in addition to export embargoes on chicken.

*Por José Florentino, Rafael Walendorff — São Paulo, Brasília

Source: Valor International

Average declined 3.3% in 2022 despite price increases


Daiane Santos — Foto: Leo Pinheiro/Valor

Daiane Santos — Foto: Leo Pinheiro/Valor

Under pressure from production costs and a more unfavorable exchange rate, the average profitability of exporters fell by 3.3% in 2022 compared to the previous year. The average prices of shipped products increased by 13.7%, but this did not offset the impact of the 12.5% surge in production costs and the 4.3% appreciation of the nominal exchange rate, according to data from the Foundation for Foreign Trade Studies Center (Funcex).

The scenario for 2023 remains challenging due to price adjustments in Brazil’s main exports and a slowdown in international trade, experts say.

Daiane Santos, an economist at Funcex, says that a slight depreciation of the real against the dollar in 2023 will allow for a marginal improvement in the profitability of exporters, but in a scenario in which the production costs and prices of exported products do not exert negative pressure.

José Augusto de Castro, of the Brazilian Foreign Trade Association (AEB), says that the scenario for 2023 is challenging for profitability. The general expectation, he says, is for price adjustment amid expectations of a slowdown in world trade.

The decrease in the margin in 2022 comes after two consecutive years of increased profitability in exports, 3.4% in 2021 and 6.5% in 2020, compared to the previous years, according to data from Funcex. In these periods there was also important pressure from production costs, but the effects were largely neutralized by a higher pace of increase in export prices or by the devaluation of the real against the dollar.

Ms. Santos points out that in the last four years, production cost have undergone significant adjustments in all major sectors of activity: non-industrial, extractive industry, and manufacturing industry. The recovery of the economy after the first moment of the pandemic caused a mismatch between supply and demand, and the Russia-Ukraine war in 2022 increased the pressure on prices. In some sectors this cost effect was amplified or neutralized by the behavior of prices, according to her.

The extractive industry – which includes oil, natural gas, and metallic and non-metallic minerals – faced an 11.5% increase in production costs in 2022. The behavior of average prices did not help, with a decrease of 2.7%. As a result, the profitability of exports in this sector fell by 16.6%.

Welber Barral, a partner at BMJ and a former foreign trade secretary, says that in this group of extractive industries the base effect on export prices must be taken into account. Iron ore, one of Brazil’s main exports, reached historic prices in 2021, but gave up part of the increase last year, he recalled.

According to Funcex, the average export prices of the extractive industry rose 59.8% in 2021 compared to the previous year, after falling 7.6% in 2020. The drop in average prices in 2022 in the extractive industry group was probably mitigated, recalls Mr. Barral, by the price of oil, which rose last year under the impact of the war in Eastern Europe.

In the non-industrial group, which includes agriculture, forestry, and fishing, the average profitability index moved in the opposite direction of total exports, ending last year with an increase of 13.1% compared to 2021. This group also suffered from the increase in production costs, which reached 11.3% in 2022. But this effect, combined with the appreciation of the real against the dollar, was offset by the good performance of prices, which advanced 31.4% last year. In annual terms, according to Funcex, the non-industrial group had the third consecutive high profitability of exports, with an advance of 6.7% in 2021 and 16.7% in 2020 compared to the previous years.

The manufacturing industry, on the other hand, faced a loss of 2.2% in export profitability in 2022, after a 5.1% decline in 2021. According to Ms. Santos, the sector’s export prices have increased in the last two years, but not enough to offset the impact of production costs and, in 2022, the exchange rate. The sector’s average export prices will increase by 15.2% in 2022 and 18.2% in 2021. Production costs increase by 12.7% and 30.3%, respectively.

*Por Marta Watanabe — São Paulo

Source: Valor International