Official forecasts indicate a low probability of heavy rains in the coming months, but grid operator ONS insists there is no supply risk
03/18/2025
The Lajes reservoir in Rio: prolonged heat waves intensified, further straining the system — Photo: Light/Divulgação
Reservoir levels across Brazil have stagnated, and electricity prices in the free market—where consumers can choose their supplier and contract terms—have surged. However, Brazil’s national grid operator ONS maintains that there is no risk to power supply, given the current reservoir levels.
In 2024, Brazil experienced one of the most severe droughts in 83 years, raising concerns about water storage for hydropower generation. Rainfall returned at the start of the wet season in November, allowing hydro plants to rebuild reserves. However, precipitation tapered off in January and became scarce in February and March.
Instead of rain, prolonged heat waves intensified, further straining the system. Both government and private sector forecasts suggest a low likelihood of significant rainfall in the coming months. ONS projections indicate that the wet season, which typically lasts from November to April, could end earlier than usual.
River flows below historical averages
According to ONS’s weekly operations report released on Friday (14), river inflows are expected to remain below historical averages in all four energy submarkets by the end of March.
The natural energy inflow (ENA)—a measure of river flow as a percentage of the Long-Term Average (MLT)—remains low. A value above 100% would indicate flows above the historical norm, which is not the case.
ONS projects that in March the North will close at 98% of the MLT, the Southeast/Central-West at 56%, the South at 45%, and the Northeast at just 24%.
In terms of water storage, the North is expected to maintain 95.8% capacity, while the Northeast should reach 77.6%. The Southeast/Central-West submarket is projected at 67.5%, and the South at 36.7%—the lowest among the regions.
“The outlook for the coming months indicates full capacity to meet national demand. Reservoirs are in a favorable condition, and operational policies are aimed at preserving water resources. We are closely monitoring the potential early arrival of the dry season,” said ONS Director-General Marcio Rea in a statement.
Thermal power plants
The drying trend has triggered a sharp increase in energy prices in the free market. For more than two years, from 2022 to mid-2024, the settlement price of differences (PLD)—the benchmark price in the free electricity market—remained at the regulatory floor of R$61.07 per megawatt-hour.
However, the 2024 drought has pushed the PLD above this threshold, with significant volatility. Because prices are set on an hourly basis, they have risen sharply at sunset, when around 35 gigawatts of solar generation exit the grid. To stabilize the system, ONS has resorted to thermal power plants to compensate for the loss of solar output.
Heat waves drive up electricity demand
The heat waves in February and March also fueled record-high electricity consumption, occasionally forcing thermal plants to ramp up for supply security.
Additionally, unexpected events have further strained the system. One such incident involved the temporary failure of a transmission line carrying power from the Belo Monte hydro plant, leading to brief disruptions.
As a result, the PLD in the key Southeast/Central-West submarket has surpassed R$300/MWh for several weeks. Energy contracts have also risen above R$300/MWh, in some cases nearing R$400/MWh, depending on market conditions, according to price projections from energy traders.
For instance, Paraty Energia reported that on February 4, the price of hydro and thermal power—known as “conventional energy”—for contracts starting in March was R$93/MWh. By March 11, the same contract had soared to R$317/MWh, marking a 241% increase.
Economists’ predictions for the Selic rate at the end of the current monetary tightening range from 14.25% to 16.25%; the median forecast points to 15% in Q1
03/17/2025
With the Central Bank’s Monetary Policy Committee (COPOM) widely expected to raise the benchmark Selic rate by 100 basis points, the market’s focus is now on any signals the committee might provide regarding the next steps in monetary policy. The prevailing view is that the tightening will continue into the second quarter. However, the use of forward guidance has sparked debate among market participants, as some expect clearer communication on the interest rate trajectory starting in May.
The argument against tying the COPOM’s hands comes from the broader economic landscape. Since January, economic activity data has been weaker than expected, while inflation remains persistently above target with an unfavorable composition, given rising service prices and core inflation pressures. Additionally, the international environment has become significantly more unstable, increasing asset price volatility and uncertainty among economic agents.
“There’s no point in providing signals,” said Santander economist, Marco Antonio Caruso. “We believe the COPOM should not make any strong statements about its next moves. Decisions should be based on inflation convergence, without giving hints about the direction.”
In December, when the COPOM announced a “shock” rate hike to stabilize markets and curb the depreciation of domestic assets, it signaled two consecutive increases of 100 basis points in January and March. This has heightened market expectations, as economic forecasts vary significantly regarding future steps.
Market projections
Among 125 financial institutions and consultancies surveyed by Valor, all anticipate a 100-basis-point hike in the Selic rate on Wednesday (19), bringing it to 14.25%. However, when asked about the expected level at the end of the tightening cycle, projections range from 14.25% to 16.25%. This disparity was anticipated by the Central Bank itself. At an event in Rio de Janeiro in February, Central Bank Chair Gabriel Galípolo noted that as the forward guidance period neared its end, “the boat would rock a little more.”
“We are in a period where the Central Bank is data-dependent. There is a need to assess whether the economic slowdown is temporary or if we are entering a more sustained deceleration. Given the current magnitude of interest rates, some slowdown was expected. We are seeing it happen, but it remains a minor factor amid ongoing uncertainties and risks,” said Ariane Benedito, chief economist at PicPay, whose forecast points to a Selic rate of 15% in May.
Given this more unstable backdrop, Ms. Benedito sees potential benefits in the Central Bank providing forward guidance for the next meeting. “Ideally, that would be the best approach in our view. However, we believe it is highly unlikely that the Central Bank will take this route given the current conditions. External uncertainty is too high and will weigh on the risk assessment, which is why we expect future steps to remain data-dependent and conditional on evolving circumstances.”
In its January decision, the COPOM maintained an inflation risk assessment with an upward bias, but there is now market uncertainty about whether this stance will be reiterated in the upcoming statement. Key concerns among market participants include rising external uncertainty—driven by the trade war initiated by U.S. President Donald Trump—and weaker-than-expected economic activity data since the last meeting in January.
Alexandre Bassoli, chief economist at Apex Capital, expects a softer communication from the COPOM. “Based on public statements from policymakers, my impression is that they now see a more balanced risk assessment,” he said. In his view, recent signs of economic cooling should be emphasized by the committee. However, he believes the slowdown will be “gradual” and points out that “there are no signs of an economic collapse,” even as domestic inflation remains a challenge.
“The trajectory of inflation expectations has been a major challenge,” Mr. Bassoli noted. In Valor’s survey, the median forecast for the IPCA official inflation rate this year increased from 5.4% in January to 5.6%, while the median inflation estimate for 2026 rose from 4.2% to 4.4%, approaching the upper limit of the target range. “What seems most likely to me is that, over time, there will be disappointment with the inflation trajectory,” he added.
Meanwhile, Marcela Rocha, chief economist at Principal Asset Management in Brazil, expects the COPOM to maintain a hawkish stance, given persistent inflationary pressures and a gradual loss of economic momentum, which she considers a natural outcome of the monetary tightening already in place. “The COPOM will not change its risk assessment and will keep the upward bias for inflation. Despite weaker economic activity data and a stronger exchange rate, the Central Bank’s projections and the broader economic outlook still suggest upside risks.”
Inflation de-anchoring
Taking into account recent shifts in exchange rates, oil prices, and inflation expectations from the Central Bank’s Focus survey, Ms. Rocha estimates that the COPOM’s inflation projection for its relevant horizon (Q3 2026) should decline from 4% to 3.7%. Given this outlook, she believes the COPOM “cannot be complacent” with the extent of inflation de-anchoring suggested by both market expectations and its own forecasts. This, she argues, could lead the Central Bank to signal the continuation of monetary tightening in upcoming meetings.
“If communication is too open, with too much flexibility, it could have a counterproductive effect for the COPOM,” Ms. Rocha warned. She argued that if the Central Bank does not signal further rate hikes, it could send a message that it is unconcerned about the current de-anchoring of inflation expectations and is not committed to restoring credibility. “The moment calls for the Central Bank to indicate that this next Selic increase will not be the last,” she said.
Mr. Caruso from Santander, who also expects the COPOM’s inflation projection for the relevant horizon to fall to between 3.7% and 3.8%, attributed this mainly to exchange rate appreciation. However, he stressed that the gap to the 3% target “will still be significant.” “This opens the discussion for a slowdown in the pace of hikes, which would be reasonable if we assume the exchange rate remains at current levels,” he said. “The challenge lies in inflation expectations.”
While also emphasizing inflationary pressures and the de-anchoring of expectations, Raí Chicoli, chief economist at Citrino Gestão de Recursos, believes rising uncertainties should carry greater weight. “It is becoming very difficult for the COPOM to provide forward guidance at this stage. Most likely, they will try to maintain communication without committing to a specific next step. That doesn’t mean the COPOM will stop raising rates.”
As long as the committee’s projections continue to indicate the need for further rate adjustments, Mr. Chicoli does not expect the Central Bank to end the tightening cycle now. His forecast places the Selic rate at 15.25%, but given the high level of uncertainty, he sees little benefit in making a firm commitment on future moves. “There’s no way to predict what will happen with the U.S. economy or Brazil’s economy in the meantime,” he noted.
Regarding the COPOM’s statement, Mr. Chicoli believes it may acknowledge that growth was weaker than expected in the final quarter of last year and that the committee’s expectations may have been slightly more optimistic. “The communication will likely be more concise when addressing the slightly weaker activity, and this will be elaborated further in the meeting minutes. But I don’t think the tone will change much from January. Signs of a slowdown are still in their early stages, and it’s too soon to say there is a clear shift in trend,” he argued.
Export price premium reaches 75 cents per bushel at Santos port
03/17/2025
Ongoing trade tensions between the United States and China have increased Chinese demand for Brazilian soybeans, driving up export premiums at the country’s ports. Analysts believe this trend is likely to continue in the coming months.
Currently, soybean premiums at the Port of Santos (São Paulo) stand at 65 cents per bushel for April shipments and 75 cents for May shipments. This reflects China’s need to secure supplies, according to Ronaldo Fernandes, an analyst at Royal Rural.
“China has announced changes to its customs policies, but it is paying a price for this decision. Previously, it took seven to ten days for soybeans to reach processing plants; now it takes up to 20 days,” Mr. Fernandes said. “The local market is undersupplied, with low soybean meal stocks, and Brazil is the only supplier capable of meeting this demand.”
According to Mr. Fernandes, Sinograin, China’s state-owned grain storage company, still holds relatively comfortable reserves. However, the new customs policy could spark a rush for soybeans among Chinese buyers, leading to significant drawdowns in local inventories.
The soybean export premium is the difference between the physical commodity price at a given location and its price on the Chicago Board of Trade (CBOT). Various factors influence this premium, including domestic supply and demand, exchange rates, and logistical and port conditions. Fluctuations in these elements determine whether the premium is positive (indicating a price increase) or negative (indicating a discount).
The export premium is either added to or deducted from the futures contract price before converting the value from dollars per bushel to reais per bag. When demand for Brazilian soybeans rises due to external factors—such as trade disputes between China and the U.S.—premiums at ports tend to increase. The market closely tracks these fluctuations, as the premium is a key component in Brazil’s soybean pricing structure.
João Birkhan, president of Sin Consult, noted that Brazilian soybean premiums were already positive before the current trade war. However, after China imposed a 10% tariff on U.S. soybeans in response to U.S. tariffs on Chinese goods, the trend gained further momentum.
“The Chinese now have to source from Brazil to replace the supply they would have received from the U.S. We are going to sell more soybeans, and premiums should remain between 65 and 75 cents for the remainder of this season,” Mr. Birkhan projected.
Daniele Siqueira, an analyst at AgRural, said that under normal circumstances, Brazilian export premiums would decline at this time of year, particularly with a record harvest expected. “With the Chinese tariff on U.S. soybeans and pressure on CBOT prices, the trend is for premiums to remain strong despite Brazil’s ongoing harvest. However, we do not expect premiums to rise as sharply as they did in 2018 during the first trade war,” she said.
That year, China’s strong demand for Brazilian soybeans pushed the export premium to an unprecedented 200 points, a record high at the time.
Productivity per effective hour worked fell 0.5% in Q4 and edged up just 0.1% last year
03/17/2025
Although Brazil’s overall economy grew at a similar pace in 2023 and 2024, labor productivity followed a different trend in the two years. In 2024, productivity per effectively worked hour increased by just 0.1%, compared to a 2.3% rise in 2023, when it grew above the country’s historical average. The data, obtained in advance by Valor, comes from the Regis Bonelli Productivity Observatory at the Brazilian Institute of Economics (FGV Ibre).
For 2025, researchers at the observatory do not expect significant productivity gains, warning that it may even decline. They caution that an economy growing above its potential without productivity gains fuels inflationary pressure.
Productivity is measured by comparing the added value—a variable similar to gross domestic product (GDP) but excluding taxes and subsidies—with labor factor indicators. In 2024, the economy’s aggregate added value rose 3.1%, while effective hours worked increased by 3%. This resulted in a productivity variation of just 0.1%. “Virtually all GDP growth came from employment and working hours,” said Fernando Veloso, who co-leads the observatory alongside Silvia Matos.
Effective working hours account for reductions due to illness, holidays, or shorter work shifts—such as those implemented during the COVID-19 crisis—as well as increases driven by production peaks and overtime compensation.
Considering other labor factors, the number of hours usually worked grew 3% in 2024, while the employed population increased by 2.8%. As a result, productivity measures registered increases of 0.1% and 0.3%, respectively.
The COVID-19 pandemic disrupted the labor market in 2020, keeping the most qualified and potentially most productive workers employed. This led to a 12.7% surge in productivity per effective hour that year. In 2021 and 2022, as this “composition effect” faded, annual productivity dropped by 8.1% and 4.4%, respectively.
Mr. Veloso noted that 2023 was the first “normal” year, and productivity initially showed an unexpected increase. “In Brazil, any increase, even a small one, is always surprising. It appeared in the first quarter of 2023, breaking the pattern seen in 2022, and again in the second quarter, but then gradually slowed down until disappearing—depending on the metric—by the fourth quarter of 2024. It was truly a temporary phenomenon,” he said.
In the fourth quarter of 2024 alone, productivity per effective hour worked fell 0.5% compared to the same period in 2023 and declined 0.9% from the previous quarter. As a result, it now stands just 0.9% above pre-pandemic levels. Compared to the expected trend before the COVID-19 shock, productivity is running slightly above that level but continues to follow a very similar trajectory, Mr. Veloso said.
“All of this increase came from just one or two quarters at the beginning of 2023 and then stopped. There has been absolutely no productivity growth momentum since the second quarter of 2023,” he said.
Record harvest
Mr. Veloso emphasized the significance of productivity growth, as it helps contain inflation and enables lower interest rates. “GDP growth with rising productivity is not inflationary. But if it’s only a temporary increase, even if it has a positive effect on inflation, it’s not something the Central Bank can rely on for monetary policy,” he noted.
As in 2023, the agricultural sector was the key driver preventing an even worse productivity performance in Brazil last year. While the sector’s added value dropped by 3.2%, effective hours worked fell even further, by 4.8%. This resulted in a 1.6% increase in agricultural productivity in 2024, following a 22.3% surge in 2023 due to a record harvest.
“Agriculture performed much worse than in 2023, which made all the difference for 2024. But even when production declines, the sector remains a success story—fewer workers still lead to higher productivity,” Mr. Veloso said.
Meanwhile, productivity per effective hour worked in the industrial sector fell 0.5% in 2024, while the services sector remained flat after rising 2.1% and 0.5%, respectively, in 2023. “Services are the main sector of Brazil’s economy, both in GDP share and employment. It had a tiny increase in 2023 and zero growth in 2024. When the services sector lacks momentum, any productivity gains depend entirely on agriculture,” Mr. Veloso said.
For Paulo Peruchetti, an economist at FGV Ibre, the historical data compiled by the observatory from 1995 to 2024 shows that agricultural productivity per effective hour has grown at an average annual rate of 5.8%, far outpacing aggregate productivity, which has risen just 0.8% per year. Over the same period, services sector productivity has averaged only 0.2% growth, while industrial productivity has declined by 0.3% annually.
“Agriculture’s productivity growth is continuous, and without it, there is no aggregate productivity growth,” Mr. Veloso concluded.
Total factor productivity (TFP) per effective hour worked, which measures how efficiently capital and labor are transformed into production, fell by 0.8% in 2024 after rising by 1% in 2023. By the end of 2024, TFP remained 5.8% below its pre-pandemic level. “It’s a bleak picture,” Mr. Veloso said.
Since 2021, job creation in Brazil has been predominantly in the formal sector, which typically has a positive effect on productivity, according to researchers at FGV Ibre. However, this impact has yet to materialize. “And now, at the margin, there already seems to be a slowdown in employment in 2025,” Mr. Peruchetti noted.
With economic activity still strong but productivity gains absent, the adjustment to inflation will have to come from a slowdown in employment, Mr. Veloso said. This trend is beginning to appear in official data on formal employment from the General Register of Employed and Unemployed Workers (CAGED). “At the start of last year, the labor market seemed set to follow a trajectory similar to 2022, but in the second half of 2024, formal job creation began to lose momentum,” he said.
Looking ahead, in a simplified projection, if FGV Ibre expects Brazil’s economy to grow by 1.7% in 2025 while the employed population increases by 2%, productivity would decline by about 0.3% this year, Mr. Peruchetti noted. “There is still a lot of data to come,” he cautioned. “But productivity was stronger in 2023, slowed in 2024, and will likely remain stable or see a slight decline in 2025. This follows the pre-pandemic pattern.”
Mr. Peruchetti pointed out that in 2017, productivity per effective hour increased by 2.1%, also driven by an exceptional agricultural harvest. In 2018, it slowed to 0.5%, and in 2019, it fell by 1.5%. “At that time, however, we had a functioning spending cap. Now, we have a fiscal framework that has proven very weak. In some ways, we are in an even worse situation,” Mr. Veloso said.
Economist Vitor Vidal from consulting firm VVC also highlighted the similarity between current productivity levels and those seen just before the pandemic. However, he pointed out other key differences. “Today, unemployment is much lower than it was back then, when the economy was growing at 1.5% and the unemployment rate was in the double digits,” he said.
According to his calculations, productivity fell by 0.3% in 2024, with a 0.5% drop in the fourth quarter. However, he said some recovery might occur in the first quarter of this year, given expectations of another record harvest.
Taking a longer-term view, a study by Santander found that Brazil’s productivity metrics have followed a cyclical pattern over the past 12 years without showing sustainable growth. This has constrained the country’s potential GDP expansion, particularly amid declining population growth and investment restrictions, according to the bank’s economists.
Even if TFP returns to positive levels, they said, achieving potential GDP growth above 2% per year will be difficult. “Even under the relatively optimistic assumption that productivity will not decline in the coming quarters, the long-term trend points to lower potential GDP growth stabilizing at around 1.5%,” wrote Santander economists Henrique Danyi, Gabriel Couto, and Felipe Kotinda in their report.
Brazil’s JBS and Saudi competitors express interest, but deal remains uncertain
03/11/2025
The Middle East is becoming an increasingly strategic market for the global meat industry. This time, Saudi Arabia’s Al Watania, the region’s largest poultry producer, has attracted takeover bids from interested buyers, including Brazilian food giant JBS, according to sources. The information was first reported by Bloomberg, citing individuals familiar with the matter.
A source told Valor that JBS’s bid was more conservative, while Saudi competitor Almarai submitted a more aggressive proposal. Another source mentioned that JBS had shown interest, but the negotiations did not progress further.
When contacted, JBS declined to comment, while Almarai did not respond to requests for statements.
Other potential buyers include Saudi firm Tanmiah Food and a consortium led by Ukraine-based agribusiness technology company MHP, according to Bloomberg. However, buyers may still withdraw, or Al Watania could ultimately decide not to proceed with the sale.
If the deal moves forward—regardless of the buyer—it is expected to be a challenging transaction. “Al Watania is a complex asset, with significant inefficiencies,” a source told Valor.
Last week, Al Watania announced a strategic partnership with the Halal Products Development Company (Halal Devco), aiming to accelerate the adoption of sustainable and innovative practices in the halal food industry—where production follows Islamic slaughtering guidelines.
These improvements are part of an effort to make the company more competitive and expand its poultry exports to new markets, catering to the growing demand for halal-certified products.
According to Al Watania’s official statement last week, the goal of this partnership is to position Saudi Arabia as a leading global hub for halal products.
“By prioritizing innovation and market needs, we remain committed to delivering high-quality halal products that support national food security goals and enhance Saudi Arabia’s local and global competitiveness,” said Mohammed bin Hamad Al Shaya, Al Watania’s acting CEO, in the statement.
Founded in 1977, Al Watania processes over 1 million chickens and 1.5 million eggs per day.
A potential bid for Al Watania would represent another step in JBS’s strategy to expand its global footprint, despite the company already having a presence in the Middle East.
“The Brazilian market has become too big on its own,” said a meat industry source, explaining that Brazilian companies have the financial resources to compete for strategic assets worldwide.
The Saudi government’s Vision 2030 program is another key factor driving interest in the country’s meat industry. The initiative aims to achieve self-sufficiency in food production while positioning Saudi Arabia as a major player in global food exports.
Proposal sparks debate amid inflation concerns, raising risks for small pharmacies
03/11/2025
The Brazilian federal government is set to discuss a proposal in the coming weeks to lower the maximum price of medicines, currently regulated by the Drug Market Regulation Chamber (CMED) under ANVISA, the country’s health surveillance agency. The move aims to narrow the gap between the price ceiling and actual retail prices, as pharmacies typically offer an average 30% discount off the government-set maximum.
Pharmaceutical retailers and manufacturers argue that the measure could discourage competition and harm small and regional pharmacies. Independent and small-chain drugstores, which make up 80% of the sector, tend to charge full price to maximize revenue and could be disproportionately affected.
Pharmaceutical companies warn that reducing the price ceiling could result in the withdrawal of lower-cost medicines from the market, as some drugs are already sold with tight profit margins.
While CMED is exploring ways to bring the ceiling closer to market prices, officials suggest that any reduction will be moderate to preserve the current system of retail discounts.
This debate is not new. In 2020, Senator Fabiano Contarato (Sustainability Network Party, Espírito Santo) introduced a bill on the issue after the Brazilian Institute for Consumer Protection (IDEC) raised concerns that the gap between the price ceiling and actual market prices allows for sudden price hikes during supply shortages.
With inflation control a priority for the federal government, the issue has resurfaced as part of the regulatory framework for medicines, which was listed in January as one of 25 key initiatives for the Finance Ministry. Some industry representatives believe that proposing a drug price cut now is a political move, aimed at offsetting the government’s image damage caused by rising food inflation.
During an event held by the National Association of Private Hospitals (ANAHP) last month, CMED Executive Secretary Daniela Marreco confirmed that the topic is under discussion. “We have debated this extensively, and there is even a bill from 2020 suggesting that CMED should bring the actual market price closer to the ceiling due to the discounts commonly observed,” she said.
However, Nelson Mussolini, president of Sindusfarma, Brazil’s pharmaceutical industry association, said that the sector has not been consulted by the government on this issue and firmly opposes the proposal, warning of potential disruptions to market competition.
“In my view, if the price drops, profit margins shrink in absolute terms. There will be pressure to maintain profitability. Initially, smaller companies will feel the impact, but ultimately, the cost will be passed on to consumers,” he said.
Mr. Mussolini also warned that lowering the price ceiling could make it unviable to manufacture certain low-cost medicines, as production costs might exceed government-imposed prices.
When asked whether the proposal is linked to the broader economic landscape, Mr. Mussolini dismissed the idea. “It doesn’t make sense for the government to lower medicine prices to fight inflation, because pharmaceutical inflation is low and not a major factor. This year, we are already seeing the smallest price adjustment in years,” he said. At 3.8%*, the increase is set to fall below inflation for the first time in seven years.
Ms. Marreco, from CMED, acknowledged that a sudden policy shift could create market risks. “One concern we need to consider is that in countries that have adopted similar measures—aligning the price ceiling with actual market prices—over time, we’ve seen a reduction in the discounts offered by manufacturers and retailers,” she noted during the event.
She also pointed out that in some cases, aligning the price ceiling with market prices has led to price increases for certain medicines whose prices were previously lagging behind inflation.
The public consultation on the new regulatory framework, which addresses various issues, including high-cost medicines, is expected mid-year. Any changes could be implemented through an interministerial decree, involving the Health, Finance, Chief of Staff Office, and Justice Ministries, as well as ANVISA.
Ms. Marreco clarified that the ongoing discussions do not impact the annual price adjustment mechanism, which is determined in March and governed by Law 10.742 of 2003.
In a statement, Interfarma, which represents the pharmaceutical industry, said it was unaware of any formal government discussions on altering the price ceiling. “Poorly structured pricing policies could lead companies to withhold product launches or even cause supply shortages,” the group warned.
In the retail sector, the biggest risk of lowering the price ceiling for medicines would fall on small, independent pharmacies, which serve remote areas far from urban centers. These businesses operate with higher costs and limited scale, making it difficult for them to sell medicines at lower prices.
Impact on small pharmacies
Many of these small pharmacies remain profitable not through high sales volumes but by selling at full list prices or operating in the informal market. Given their role in providing essential medications to low-income populations, these businesses are critical to the government’s efforts to expand the Farmácia Popular program, which subsidizes medicines for low-income Brazilians.
“It’s important to recognize that business models in this industry vary significantly. The market is not uniform, and companies are not all the same,” said a representative from the pharmacy sector.
According to the executive, lowering the price ceiling could force 50,000 to 60,000 pharmacies out of business, as these stores rely on pricing flexibility to stay afloat. “Many small drugstores survive by selling at full price and only offering discounts when absolutely necessary—often when a customer is about to walk out without making a purchase. Selling at consistently lower prices would be unsustainable for them.”
Brazil has approximately 90,000 pharmacies, according to the Federal Pharmacy Council (CFF), with 80% classified as micro or small businesses. Many are family-run operations or sole proprietorships, generating an average monthly revenue of around R$60,000, based on industry association data.
Two major pharmacy chains interviewed said they do not expect negative impacts from the potential policy change. These companies already operate with highly competitive pricing, often below the market average, which is not expected to be directly affected.
The debate over the medicine price ceiling comes just weeks after the government announced changes to the Farmácia Popular program, a move that drew criticism from small pharmacies.
The Health Ministry recently expanded the list of subsidized products to include adult diapers and dapagliflozin, a medication used to treat diabetes associated with cardiovascular disease. However, independent pharmacies have voiced frustration over delayed government reimbursements for these subsidized sales. With the program’s expansion, more products will be subject to this payment system, further complicating cash flow for smaller businesses.
These payment delays disrupt financial operations for small pharmacies, which often have limited access to working capital. The problem is particularly acute in low-income regions, where demand for subsidized products is highest, making small drugstores increasingly dependent on government reimbursements to stay in business.
When contacted for comment on concerns raised by the retail and pharmaceutical sectors, CMED did not respond before publication. The Brazilian Pharmacy Retail Association (ABRAFARMA) also declined to comment.
Research to focus on rare earths, lithium, cassiterite, and tin in three mining regions
03/11/2025
Brazil and the United States are set to resume joint research to identify areas rich in critical minerals within Brazilian territory. Signed last year, the agreement initially planned studies in four states: Minas Gerais, Goiás, and a region spanning Rio Grande do Norte and Paraíba.
Rare earth elements, lithium, tin, and cassiterite were among the key minerals targeted in the partnership, with initial sample collection already underway last year.
In January, Brazilian authorities were informed by the U.S. Department of State that President Donald Trump’s administration had decided to suspend the cooperation. However, in early March, the U.S. government reversed course.
“We received a delegation from the U.S. government, which informed us that all aspects of our agreement would be honored because the U.S. Supreme Court ruled that agreements already in progress must be completed,” said Francisco Valdir Silveira, director of Geology and Mineral Resources at the Geological Survey of Brazil (SGB), which operates under the Ministry of Mines and Energy.
“The decision to move forward was made because the agreement had already been signed, funding had been allocated, and Deloitte had been contracted for consulting services,” Mr. Silveira added.
Brazil was notified of the cooperation’s resumption during a meeting between Brazilian and American representatives at the Prospectors & Developers Association of Canada (PDAC 2025) Annual Convention, one of the world’s leading mining industry events, held from March 2 to 5 in Toronto.
Strategic interest
Critical minerals, also known as strategic minerals, are essential for the production of electric vehicle batteries, mobile phones, solar panels, semiconductors, and military technologies.
Mr. Silveira highlighted Brazil’s significant potential to become a major global producer of rare earth elements, a market currently dominated by China.
Since the administration of then-President Joe Biden (2021-2025), the United States has sought agreements to secure access to critical mineral deposits in other countries, aiming to reduce its dependence on China. Mr. Trump has reinforced the strategic importance of securing these resources, making them a key point of negotiations between the U.S. and Ukraine. The U.S. president has also focused on deposits in Canada and Greenland.
In Brazil, the cooperation agreement remains a limited-scale initiative, operating as a pilot project involving U.S. and Brazilian teams in the search for mineral deposits.
The agreement established three regions for the initial phase of joint research, carried out by specialists from both the SGB and the U.S. Geological Survey.
The first is the Seridó/Borborema region, which spans Rio Grande do Norte and Paraíba.
“Last year, we conducted fieldwork there, including sample collection, geophysical surveys, and geological mapping. The final step was sending the samples for analysis,” Mr. Silveira said. The main focus in this region is lithium, with tantalum and niobium also drawing interest. Additional field activities were planned for April and May 2025.
The Alto Paranaíba region in Minas Gerais is another target area, where the focus is on rare earth element deposits.
The third area designated for joint exploration is the tin province of Goiás, where researchers aim to gather data on reserves of rare earths, tin, and cassiterite.
Beyond field research, the agreement includes specialized training for three SGB geophysicists by the U.S. Geological Survey. Additionally, the U.S. government is funding five scholarships for Brazilian researchers to visit mineral deposits in Finland that share geological similarities with Brazil.
The partnership was developed following a visit to Brazil last year by Geoffrey Pyatt, then U.S. Assistant Secretary for Energy Resources at the State Department.
Mr. Silveira noted that while U.S. financial contributions to the project amount to less than $1 million, the primary benefit of the agreement lies in scientific collaboration and laying the groundwork for larger-scale projects.
“The focus was more on scientific cooperation and establishing an initial partnership to advance toward bigger projects,” he said.
Before the Toronto event, Valor contacted the U.S. State Department’s press office, which declined to comment. Following Mr. Silveira’s remarks on the agreement’s reinstatement, Valor reached out again via email but received no response.
The issue is on the Supreme Court’s agenda; score so far is in favor of the National Treasury
03/07/2025
The ongoing debate at Brazil’s Federal Supreme Court (STF) regarding the taxation of profits from foreign subsidiary and affiliate companies could potentially result in a R$142.5 billion impact on Brazil’s federal government if the ruling goes against it. This estimate, outlined in a technical note from the Brazilian Revenue Service, pertains to the reimbursement or loss of Business Income Tax (IRPJ) and Social Contribution over Net Profit (CSLL) revenues from 2017 to 2021. Additionally, the decision could reduce the National Treasury’s annual revenue by R$28.5 billion moving forward.
This calculation—part of the Federal Revenue note (“Nota Cetad/Coest No. 14 of 2023”)—was prepared at the request of the Attorney General’s Office of the National Treasury (PGFN) and is based on data from the Central Bank concerning profits and dividends received abroad from direct investments between 2017 and 2021. The document notes that this estimate does not account for all affected taxpayers but rather a subset assumed to share a similar taxable situation.
A survey by the law firm Trench Rossi Watanabe reveals that in addition to Vale—which is involved in the STF case—Petrobras, JBS, Ambev, and CSN are embroiled in similar multi-billion disputes. Collectively, these five multinational companies are challenging R$64.1 billion in assessments from the Brazilian Revenue Service: R$22.2 billion from Vale, R$20.6 billion from Petrobras, R$11.3 billion from JBS, R$5.8 billion from CSN, and R$4.4 billion from Ambev. The survey was based on the most recent reference forms disclosed by these companies.
The issue resurfaced on the STF’s agenda in early February, but the analysis was postponed following Justice Nunes Marques’s request for more time. It may resume in May, with a new opinion expected within 90 days. The justices are evaluating the validity of applying IRPJ and CSLL on domestic companies’ profits from affiliates in countries with treaties with Brazil to avoid double taxation. Currently, 38 such agreements are in place.
Lawyers indicate that the Superior Court of Justice (STJ) precedent is more favorable to taxpayers, recognizing the supremacy of international treaties over Brazilian domestic law. However, at the STF, the government currently leads two votes to one. According to Lana Borges, Deputy Attorney General for Court Representation of the PGFN, the STJ did not adhere to STF precedents on this matter.
Most multinational companies’ cases remain in the administrative phase, and their liabilities are not provisioned since losses are deemed possible, based on STJ precedents. The issue is contentious and typically resolved by the tiebreaking vote of the president of the Administrative Council of Tax Appeals (CARF), who represents the National Treasury.
The tax authority argues it is not taxing the profits of the foreign subsidiaries but rather those of the Brazilian parent company, which reflect the foreign entities’ accounting results via the equity method (MEP).
The method aims to assess the value of an investment when a company holds a stake in another. Through it, the investment is initially recognized at cost and then adjusted to reflect the invested company’s results, proportionate to the investing company’s stake.
This methodology is outlined in the Brazilian Corporate Law (No. 6.404/76) and was later incorporated into tax law by Article 74 of the provisional presidential decree No. 2158/2001. The provision states that “profits obtained by a foreign subsidiary or affiliate will be considered available to the Brazilian parent or affiliate company on the date of the financial statements in which they were accounted for, as per regulations.”
Petrobras faces the most cases on the matter, with five in court. Four have already resulted in unfavorable decisions. In the remaining case, Petrobras won at the appellate level, but the PGFN’s appeal is pending. Ambev has four cases, but only one is in court, still in the expert phase.
CSN is contesting four cases before the Administrative Council of Tax Appeals (CARF), with no victories, and one in court. A favorable ruling was made, but the PGFN appealed to the Federal Regional Court of the 6th Region (TRF-6). JBS has faced several tax deficiency notices between 2006 and 2018, and all discussions remain in the administrative realm.
In its explanatory notes, Vale states it has faced multiple deficiency notices for years 1996 to 2008. The dispute for 1996 to 2002 had a R$2.3 billion impact, but it received a final favorable decision. From 2003 to 2012, the impact stands at R$22.2 billion. The company also reports it has entered a payment plan, with a remaining balance of R$10 billion to be paid in 58 installments.
While Vale’s case does not have general repercussions, it will serve as a significant precedent—being the first and only case to reach the STF. The court has not yet thoroughly analyzed the matter concerning treaty precedence. A key precedent dates back to 2013 when Article 74 of presidential decree 2158/2001 was validated for affiliate companies in tax havens or favorable tax regimes (ADI 2588).
The current judgment will determine whether the rule applies to foreign companies in countries with which Brazil has a double taxation treaty. Vale is challenging the “automatic taxation” of IRPJ and CSLL on profits earned by subsidiaries in Belgium, Denmark, Luxembourg, and Bermuda.
So far, Justices Gilmar Mendes and Alexandre de Moraes have sided with the PGFN, contending that treaties do not preclude taxation in Brazil. The rapporteur, Justice André Mendonça, deemed the issue non-constitutional but stated he would support Vale if overruled on that point.
Initial and appellate court rulings favored the federal government, but the STJ partially reversed this, maintaining the charge only for Bermuda, as there is no bilateral agreement with Brazil and it is considered a tax haven.
Simone Dias Musa, a partner at Trench Rossi Watanabe, believes there are chances for a taxpayer victory. She argues that the Treasury’s stance that the equity method inherently presents an economic or legal availability for taxpayers is flawed. “The equity method thesis claims that the profit accounted for in Brazil from foreign affiliates allows for taxation. However, treaties to prevent double taxation should preclude Brazil’s jurisdiction from taxing profit earned by a foreign-based company,” she states.
The equity method, she explains, is an accounting method to prevent a Brazilian parent company’s balance sheet from reflecting the group’s profit. “It does not represent standalone profit,” she says. “It is an accounting reflection of a profit generated by a foreign company, so the double taxation treaty is perfectly suited to prevent taxation in Brazil until it is distributed.”
However, Deputy Attorney General Lana Borges asserts that the profit does not have to be repatriated to be taxed. “It is already within the parent company’s assets,” she claims. Ms. Borges views it as a matter of fiscal fairness. “A Brazilian company with no foreign affiliates pays taxes once its profits are accounted for, not when they are distributed. Should a parent company with foreign subsidiaries not pay taxes?”
Ms. Borges also argues that there is no reason to invoke treaty-based double taxation relief, as there is no tax on profits generated abroad. “Typically, the parent company pays the tax. Being in Brazil, the Brazilian law applies, so there is no double taxation,” she explains.
She notes that Brazilian legislation provides mechanisms for the parent company to deduct any taxes paid on the same profits abroad by the subsidiary—such as Article 26 of Law No. 9.249/1995 and, later, Article 87 of Law No. 12.973/2014.
Tax lawyer Telírio Saraiva, also a partner at Trench law firm, emphasizes that the STJ has ruled in favor of treaty precedence. “Brazil must honor its commitments with other nations,” he states. He disagrees with the votes of Justices Mendes and Moraes, who argue that Brazilian taxation aligns with OECD principles. “OECD only permits double taxation in cases of abusive tax planning,” he argues, noting the significant impact of the thesis on multinationals—34% on profits from foreign subsidiaries.
Tax attorney Eduardo Pugliese, a partner at Schneider Pugliese Advogados, claims that the Revenue Service seeks to tax foreign subsidiaries’ profits automatically. “It won’t wait for a foreign company to remit the funds to Brazil and intends to tax the profit as soon as it is realized abroad as if it were an automatic availability,” he says.
In a statement, CSN asserts that international treaty rules hierarchically supersede domestic universal taxation rules. “Therefore, international tax law rules prevail over ordinary domestic legislation,” the company states, citing STJ rulings.
Vale, JBS, and Ambev declined to comment on the matter. Petrobras did not respond immediately.
Change to help manage exchange-rate fluctuations reduces bonus that would go toward offsetting electricity increases for residential and rural consumers
03/07/2025
Decree 12,390/2025, published in the Diário Oficial da União (DOU) on February 5, may impose additional costs on low-income consumers, experts told Valor. They discussed the government’s decision to redirect part of the so-called “Itaipu bonus” commonly used to reduce electricity bills for poorer customers. With this decree, a portion of these funds will now be allocated to cover the deficit of the Itaipu Commercialization Account.
The Itaipu Account comprises various revenue sources, primarily from payments made by distributors in the South, Southeast, and Central-West regions, which share the cost of power generation from the binational plant. After covering the hydroelectric plant’s expenses, any remaining balance is returned to consumers.
Following Wednesday’s decree, Empresa Brasileira de Participações em Energia Nuclear e Binacional (ENBPar)–the state company overseeing Brazil’s stake in Itaipu–is authorized to establish a financial reserve, directing up to 5% of the positive balance from the Itaipu Account to manage fluctuations in the plant’s power cost. These fluctuations occur because the cost is booked in U.S. dollars and subject to currency variations throughout the year. Currently, the hydroelectric plant’s power cost is $17.66/kW, effective until the end of March.
Although the government argues that the measure prevents a 5.99% increase in average costs, experts warn that, in practice, using the “bonus” will result in disadvantages for lower-income consumers. Since up to 5% of these resources might be used to reduce the tariff deficit, the financial amount available for consumers will decrease. This amount is credited as a discount on the bills of residential and rural classes in Brazil with consumption billed below 350 kilowatt-hours per month.
The decree was issued after the Brazilian Electricity Regulatory Agency (Aneel) identified a calculation error in the price agreement between Brazil and Paraguay in 2024, resulting in a $120.9 million deficit (approximately R$700 million) in Itaipu’s accounts. Former Aneel director Edvaldo Santana notes that the Itaipu Account balance is not a real bonus but rather a refund of overpaid amounts by consumers.
The National Front of Energy Consumers had already warned that redirecting the bonus balance would increase electricity bills: “This is happening due to the poor agreement signede last April by Minister Alexandre Silveira and the successive increases in Itaipu’s socio-environmental expenses with funds that should have ensured tariff moderation,” said the front’s president, Luiz Eduardo Barata.
The Ministry of Mines and Energy stated that the decree “refers to a complementary strategy to the annual contribution already made by Itaipu.” According to the ministry, it is “a structural solution used to cover remaining balances of the commercialization account over time.”
For former Aneel general director Jerson Kelman, the decree resolves the calculation error in the negotiation between Brazil and Paraguay regarding power costs in 2024. However, a technical note from the National Academy of Engineering indicates that the $301 million cashback was insufficient to ensure cost stability in power bills.
“Like a magician, the government put money in the consumer’s left pocket, taking it from their right pocket. If the government had adhered to the treaty, refraining from inventing socio-environmental sponsorships in Brazil and Paraguay unrelated to the plant’s funding, Brazilian consumers would be paying about half of what they currently pay for Itaipu’s power,” he asserts.Decree 12,390/2025, published in the Diário Oficial da União (DOU) on Wednesday (5), may impose additional costs on low-income consumers, experts told Valor. They discussed the government’s decision to redirect part of the “Itaipu bonus” used to reduce electricity bills for poorer customers. With this decree, a portion of these funds will now be allocated to cover the deficit of the Itaipu Commercialization Account.
The Itaipu Account comprises various revenue sources, primarily from payments made by distributors in the South, Southeast, and Midwest regions, which share the cost of energy generation from the binational plant. After covering the hydroelectric plant’s expenses, any remaining positive balance is returned to consumers.
Following Wednesday’s decree, the Empresa Brasileira de Participações em Energia Nuclear e Binacional (ENBPar) – the state company overseeing Brazil’s stake in Itaipu – is authorized to establish a financial reserve, directing up to 5% of the positive balance from the Itaipu Account to manage fluctuations in the plant’s tariff. These fluctuations occur because the Itaipu tariff is denominated in U.S. dollars and is subject to currency variations throughout the year. Currently, the hydroelectric plant’s tariff is US$17.66/kW, effective until the end of March.
Although the government argues that the measure prevents a 5.99% increase in average tariffs, experts warn that, in practice, using the “bonus” will result in disadvantages for lower-income consumers. Since up to 5% of these resources might be used to reduce the tariff deficit, the financial amount available for consumers will decrease. This amount is credited as a discount on the bills of residential and rural classes in Brazil with consumption billed below 350 kilowatt-hours per month.
The decree was issued after Aneel identified a calculation error in the tariff agreement between Brazil and Paraguay in 2024, resulting in a US$120.9 million deficit (approximately R$700 million) in Itaipu’s accounts. Former Aneel director Edvaldo Santana notes that the Itaipu Account balance is not a real bonus but rather a refund of overpaid amounts by consumers.
The National Front of Energy Consumers had already warned that redirecting the bonus resources would increase electricity bills: “This is happening due to the poor agreement made last April by Minister Alexandre Silveira and the successive increases in Itaipu’s socio-environmental expenses with funds that should have ensured tariff moderation,” said the front’s president, Luiz Eduardo Barata.
When contacted, the Ministry of Mines and Energy stated that the decree “refers to a complementary strategy to the annual contribution already made by Itaipu.” According to the ministry, it is “a structural solution used to cover remaining balances of the commercialization account over time.”
For former Aneel General Director Jerson Kelman, the decree resolves the calculation error in the negotiation between Brazil and Paraguay regarding the Itaipu tariff in 2024. However, a technical note from the National Academy of Engineering indicates that the US$301 million “cashback” was insufficient to ensure electricity bill stability.
“Like a magician, the government put money in the consumer’s left pocket, taking it from their right pocket. If the government had adhered to the Treaty, refraining from inventing socio-environmental sponsorships in Brazil and Paraguay unrelated to the plant’s funding, Brazilian consumers would be paying about half of what they currently pay for Itaipu energy,” he asserts.
*By Robson Rodrigues And Fábio Couto — São Paulo and Rio de Janeiro
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