Increasing taxation on high income does not ensure a change in the tax model, experts say
03/20/2025
The proposal announced by the Lula administration to reform income tax, affecting both those earning up to R$5,000 and high-income taxpayers, places Brazil at the heart of a debate that has gained momentum in recent years.
The discussion revolves around adopting progressive taxation where wealthier individuals pay proportionally more taxes than those with lower incomes. Once primarily advocated by inequality scholars, the idea of increasing taxes for those at the top of the income pyramid has now crossed borders, experts say.
The scale of income disparities became clearer through the research of French economist Thomas Piketty, using income tax data in his book “Capital in the Twenty-First Century,” which has helped draw more attention to the issue, according to Marcelo Neri, director of the Center for Social Policies at the Fundação Getulio Vargas (FGV Social).
Even among higher-income individuals, the idea seems more acceptable than in the past, according to tax experts. That is partly because the proposed 10% minimum effective tax rate on dividends is below the previously considered 20% rate.
However, greater attention in public debate does not guarantee changes in the country’s tax structure. Economists and lawyers foresee intense battles to modify and limit the proposal, not ruling out the possibility of a total standoff in Congress. Questions about the efficiency of public spending could add renewed pressure to these negotiations, they point out.
“Over the past decade, the way inequality is perceived has changed. With Piketty’s studies, we can better see income disparities and the top of the income distribution. The inequalities are even greater than anticipated,” Mr. Neri said.
In 2020, the taxation of large fortunes was included in the final document of the G20 Summit under Brazil’s presidency of the group. Luiza Nassif Pires, co-director of the Center for Research in Macro-Economics of Inequality (MADE/USP) and professor at the Institute of Economics at UNICAMP said the Brazilian government’s announcement focuses on a specific issue—alterations in income tax rather than overall wealth.
“This announcement involves a tax on income, slightly different from a tax on wealth. It makes sense domestically, doesn’t require global coordination, and aligns with what other countries are already doing. The proposal simply attempts to reverse the regressivity of Brazil’s tax system.”
The public debate is further reinforced by the support of liberals like former Central Bank president Arminio Fraga and contributions from individuals like Neca Setubal, heir to Itaú with a life dedicated to social causes, and Elie Horn, founder of Cyrela and one of two South American participants in Giving Pledge, a commitment to donate at least half of one’s fortune.
“The perception is that sentiment has changed. A year ago, a tax for high-income earners reaching Congress was unimaginable. Today, the idea seems more acceptable. However, many high-income individuals believe they are already taxed on these dividends. This sentiment will resonate in Congress, with lawmakers facing pressure,” says a tax attorney from a nationally operating firm.
Despite the broader debate on inequality and the celebration of the government’s proposal, Marcelo Neri admits he is “not particularly optimistic” about its progress through Congress and foresees “a long road ahead”:
“It is not a consensus agenda. Brazilian society has become accustomed to higher levels of inequality. The initial reaction was positive, but I don’t see it as an easy task. There is greater awareness of inequality, but the pendulum can swing when we look at the international landscape.”
Resistance in the legislative debate is also expected by Ms. Pires, given the history of easier approvals for tax deductions than for tax increases.
“Taxation should be understood as part of a social pact and not just as a tax burden. Decisions not to pay taxes have very high costs as well,” she pointed out, emphasizing the importance of maintaining the government’s revenue-generating capacity and the social commitments established by the Brazilian Constitution, such as public education and healthcare.
Research by MADE/USP reveals income tax exemption for those earning up to R$5,000 is unlikely to affect inequality because it targets a segment of the population not at the bottom of the income pyramid. Under the 2025 Income Tax table, these individuals would have a monthly income of up to R$2,824.
“A large portion of the population falls within the income range of two times the minimum wage and is exempt from income tax. The current measure targets the middle of the income range. Therefore, to have an impact on inequality, it must be paired with high-income taxation,” says the co-director of MADE/USP.
Visiting professor at FGV Law Rio, tax attorney Gabriel Quintanilha questions the choice of the R$50,000 per month threshold to define the high-income population. With an exemption for those earning up to R$5,000, he sees a small gap between the two income levels.
Moreover, he argues that the government’s proposal is “a small patch” in a tax system that requires a comprehensive update. “I’m not against taxing high incomes, but a broader reform of income taxation, for both corporations and individuals, should be discussed.”
Gustavo Carmona, leader of international taxes at EY Brasil, perceives a lack of clarity in areas such as non-resident investors: “There is an expectation of credit between what has been withheld and the 34% rate, but it doesn’t specify how this credit will be constituted. Non-resident investors cannot file a compensation report.”
*By Lucianne Carneiro — Rio de Janeiro
Source: Valor International
Eldorado is controlled by the Batista family’s J&F, who claim the contract signed with Paper expired in 2018; courts have already recognized its validity
03/20/2025
/i.s3.glbimg.com/v1/AUTH_63b422c2caee4269b8b34177e8876b93/internal_photos/bs/2025/P/5/SnREKtRdiJsa0v9wTuqA/foto23emp-301-eldorado-b5.jpg)
The Tribunal of the Administrative Council for Economic Defense (CADE) has narrowed the scope of the provisional remedy imposed by the antitrust watchdog’s General Superintendency, thus restoring certain shareholder rights to Paper Excellence in the pulp producer Eldorado, owned by J&F Investimentos.
In an ongoing legal battle, the members of the tribunal decided on Wednesday (19), by a vote of 6 to 1, that there were grounds to maintain the provisional remedy while limiting its reach: Paper Excellence is prohibited from vetoing any potential expansion project for Eldorado, a contentious issue in the legal dispute that has dragged on for more than six years.
Since last year, as Valor has reported, both J&F, the holding company owned by the Batista family, and Paper, owned by Indonesian businessman Jackson Wijaya, have been in talks with the Mato Grosso do Sul state government regarding the potential construction of a second production line for Eldorado or an independent facility in the state.
With estimated investments at R$25 billion, the expansion project for Eldorado has been in the pipeline for nearly a decade but was stalled due to shareholder disagreements. Both partners have publicly expressed interest in the expansion, although initially, Paper linked the project’s execution to taking control of the pulp producer by performing the purchase and sale agreement signed in 2017.
Valor found that no expansion project has been submitted to Eldorado’s board of directors so far to initiate the investment. People close to the company say Paper’s indication that it would veto the project has derailed the plan.
“Paper Excellence asserts that it has always supported the factory’s expansion. However, the company emphasizes that it has been demanding that J&F provide economic and financial feasibility studies, as is customary for major investments in the pulp sector,” Paper stated in a note on Wednesday (19).
Eldorado and J&F have not commented when reached for their input.
Through a provisional remedy in December, the antitrust regulator’s General Superintendency barred Paper from voting in general meetings and participating in company decisions after accepting a request from Eldorado, which accuses the minority shareholder of engaging in eight alleged anticompetitive practices.
Rapporteur Victor Fernandes stated in his vote that CADE is competent to analyze the dispute, even though it involves corporate aspects. According to Mr. Fernandes, corporate law is related to antitrust law, which examines the repercussions of business decisions.
He noted, that there is “jurisdictional complementarity” between the antitrust regulator’s analyses and those of the Securities and Exchange Commission of Brazil (CVM) concerning this dispute. The capital market regulator, he pointed out, has already recognized CADE’s competence to analyze the matter from an antitrust perspective.
He suggested that the provisional remedy should only apply to the veto rights that Paper holds over investments in Eldorado. According to the rapporteur, these powers could be hindering the company’s investments.
All political rights remain in effect, including the appointment of board members and other officials appointed pursuant to the bylaws. The rapporteur was joined by members Diogo Thomson, Camila Alves, José Levi, Gustavo Augusto, and President Alexandre Cordeiro.
“I believe that it is particularly fair and proportional to restrict the effects of the provisional remedy solely to the veto powers invoked by the appellant [Paper] in its warning expressions sent to Eldorado regarding the Expansion Project,” the rapporteur noted in his vote.
The only dissenting vote came from member Carlos Jaques. According to him, corporate rights could cause competitive harm to Eldorado. Therefore, he also opted to maintain the corporate restrictions in his vote.
Beyond the specific case’s effects, the antitrust community was watching the process to discern signals from the current CADE tribunal. This is the main case reviewed by the current CADE members—four of whom were appointed in 2023 during the Lula administration.
Additionally, companies and lawyers were monitoring whether a faction of the tribunal would have the strength to overturn or mitigate a provisional remedy imposed by the technical department.
The main uncertainty for the session was the vote of member José Levi. According to him, no competition issue in the case would justify overturning the provisional remedy entirely. “However, to form a majority with the rapporteur’s vote and for legal safety, I adhere to the rapporteur’s proposal for partial provision,” Mr. Levi explained in the vote that formed the majority.
The case had undergone several legal developments before reaching the antitrust watchdog’s Tribunal on Wednesday (19). In January, the Federal Regional Court of the 3rd Region (TRF-3) overturned the General Superintendency’s provisional remedy. It reinstated Paper’s corporate rights in the pulp producer until the antitrust regulator’s final judgment of the remedy, which occurred on Wednesday (19).
Eldorado is owned by J&F, the Batista family’s holding company, which argues that the purchase and sale contract signed with Paper in September 2017 expired in 2018—although the courts have recognized its validity. The Batista family is seeking to annul an arbitral award that ruled in Paper’s favor, ensuring the transfer of Eldorado’s control.
*By Guilherme Pimenta and Stella Fontes, Valor — Brasília
Source: Valor International
The 100-basis-point hike announced Wednesday marks the fifth consecutive increase, pushing the benchmark interest rate to its highest level since 2016
03/20/2025
As expected, the Central Bank’s Monetary Policy Committee (COPOM) raised the benchmark Selic interest rate from 13.25% to 14.25%. The key question now is what comes next. On this front, the committee indicated that, if the expected scenario is confirmed, the adjustment at the May meeting will be of a “smaller magnitude.”
The unanimous decision marks the fifth hike in the monetary tightening that began in September 2024, bringing the Selic to its highest level since October 2016, during the Michel Temer administration. This move also signaled the end of the forward guidance introduced in December when the Central Bank raised rates by 100 basis points and indicated two more hikes of the same size in January and March.
The COPOM justified this week’s decision by pointing to a “challenging scenario” for inflation convergence. “Given the persistent adverse conditions for inflation convergence, the high level of uncertainty, and the inherent lags in the ongoing tightening cycle, the committee anticipates, if the expected scenario is confirmed, a smaller adjustment at the next meeting,” it said.
The committee refrained from making commitments beyond May, saying only that the total magnitude of the tightening cycle will be guided by its “firm commitment” to bringing inflation back to target. Future decisions will depend on inflation dynamics, forecasts, expectations, the output gap (a measure of economic slack), and the overall risk balance.
The assessment that inflation risks remain skewed to the upside was maintained. The statement also reiterated that market perceptions regarding fiscal policy continue to have a “significant impact” on asset prices and expectations.
Inflation forecasts
However, the COPOM slightly lowered its inflation forecasts for 2025, from 5.2% to 5.1%, and for the relevant monetary policy horizon—now the third quarter of 2026—from 4% to 3.9%. The inflation target is 3%, with a tolerance band of 150 basis points in either direction.
“The latest scenario is marked by further de-anchoring of inflation expectations, high inflation projections, resilient economic activity, and labor market pressures, all of which require a more contractionary monetary policy,” the committee said.
Regarding economic activity and the labor market, the COPOM maintained its previous assessment that indicators remain strong but noted this time that growth is showing “early signs of moderation.”
In its January meeting minutes, the COPOM had already mentioned “incipient” signs of “some moderation” in growth but cautioned that the data was high-frequency and required careful interpretation. This view was later echoed by Central Bank Chair Gabriel Galípolo and Economic Policy Director Diogo Guillen in public statements.
The Central Bank’s Economic Activity Index (IBC-Br), a GDP proxy, rose 0.89% in January from December, exceeding market expectations. However, in December 2024, the index had shown a 0.60% drop compared to November.
Regarding the external environment, the COPOM highlighted that global conditions remain “challenging,” particularly due to economic policies in the United States, and pointed to uncertainties surrounding U.S. trade policy and its potential effects.
Following the decision, Finance Minister Fernando Haddad attributed the rate hike to the guidance issued at the end of 2024. “The Central Bank president said the guidance would be followed,” he said.
On the same day, the Federal Reserve kept its benchmark interest rate unchanged in the 4.25%-4.50% range. After the decision, Fed Chair Jerome Powell said that a significant portion of this year’s inflation is expected to come from trade tariffs imposed by President Donald Trump. However, he noted that it is still too early to determine the full impact.
*By Gabriel Shinohara and Alex Ribeiro, Valor — Brasília and São Paulo
Source: Valor International
Farmers struggle with long wait times amid record harvest and logistical bottlenecks
03/18/2025
In a year of record grain production and a concentrated soybean harvest driven by weather conditions, producers are struggling to transport their crops through the port of Porto Velho, the capital city of northern Rondônia state. From there, the soybeans are shipped via the Madeira River to the port of Santarém (Pará state) for export.
This month alone, the queue of trucks waiting at support stations along the BR-364 highway to unload soybeans at transshipment stations has surpassed 1,100 vehicles. The daily loading capacity at Porto Velho’s port is 10,000 tonnes, or approximately 200 trucks.
With no space to deposit their cargo at unloading stations, trucks are parking at the Mirian network support post in Candeias do Jamari, in Rondônia. As of Monday (17), trucks were already lining up along the roadside because the parking lot at the support post was full, according to soybean producers in Rondônia.
“The average wait time to unload is between four and six days. One or two days is expected for this period, but five days is excessive. It’s a tough situation. Some producers are even losing grain in the fields because they can’t store it in warehouses,” said Marcelo Lucas da Silva, director of the Association of Soybean and Corn Producers of Rondônia (Aprosoja RO).
Sources connected to trading companies, who wished to remain anonymous, indicated that such long queues are common during the peak of the harvest season. Cargill and Amaggi are the primary grain traders shipping soybeans through Porto Velho.
The National Supply Company (CONAB) estimates that Brazil’s 2024/25 soybean crop will reach a record 167.4 million tonnes, reflecting a 13.3% increase. In Rondônia, CONAB projects a 7.1% increase to 2.4 million tonnes, while APROSOJA estimates a 12% increase.
Porto Velho’s terminal handles not only Rondônia’s production but also shipments from northwestern and northern Mato Grosso. Mr. Silva claimed that Amaggi, which operates the private Portuchuelo terminal in Porto Velho, is prioritizing its own fleet of trucks, leaving independent producers in Rondônia waiting longer. “There isn’t a single queue; they prioritize their own trucks,” he said.
In a statement, Amaggi said that “the scheduling of truck arrivals from Mato Grosso and Rondônia at its two Porto Velho port units follows a pre-established company plan.” The company also said that it is adjusting its operations to accommodate greater grain volumes, which have risen due to delayed harvesting in Rondônia caused by adverse weather conditions. Amaggi acknowledged that this may lead to “some delays” but emphasized that the situation “should not significantly impact grain exports through this corridor.”
Rondônia state legislator Ezequiel Neiva raised concerns in the Legislative Assembly, alleging that Hermasa—Amaggi’s subsidiary operating at Porto Velho’s port—has an annual capacity of 2.4 million tonnes but is only utilizing 30% of it. Mr. Neiva called for the Rondônia Ports and Waterways Authority (SOPH) to appear before the legislature to address the issue.
Last week, APROSOJA Rondônia sent a formal request to SOPH president Fernando Parente, urging the agency to open the port to more operators willing to invest and expand shipping capacity.
Mr. Parente said that the state government plans to initiate a bidding process by Friday (21) to attract new companies to the port. “We have a 22,000-square-meter area that could accommodate new silos,” he noted.
He also mentioned that the anticipated concession of the Madeira River waterway this year should enhance regional waterborne transport. A public consultation on the project, coordinated by the National Waterway Transport Agency (ANTAQ), is scheduled for the 20th. Mr. Parente expects these developments to bolster port operations by 2026.
In the short term, Mr. Parente anticipates that the backlog will ease with the arrival of a large Bertolini Transporte e Navegação convoy on Thursday, consisting of 20 barges set to transport 50,000 tonnes of soybeans to Santarém—equivalent to 1,000 trucks.
According to Mr. Parente, an average of 170 trucks arrive daily at the port, which has a capacity of 200 trucks per day or 10,000 tonne. “The cargo arrives damp and needs to be dried in silos. We have four silos, each with a 10,000-tonne capacity. Three are full, and the fourth is being loaded,” he said.
He acknowledged logistical challenges due to Amaggi’s operations, which bring in around 110 trucks daily to the company’s private drying facilities. “There is indeed a logistical bottleneck,” Mr. Parente said.
*By Cibelle Bouças e Rafael Walendorff, Globo Rural — Belo Horizonte and Brasília
Source: Valor International
High interest rates expected to sustain wave of corporate restructurings
03/18/2025
More than 20 publicly traded companies in Brazil are currently undergoing bankruptcy protection or out-of-court restructuring, a figure that is likely to rise in 2025 as more firms struggle to meet their debt obligations amid persistently high interest rates. Experts consulted by Valor anticipate yet another record year for corporate financial distress in the country.
Recent cases include consumer goods company Bombril and agribusiness group Agrogalaxy, while notable ongoing proceedings involve telecom group Oi, which has filed for bankruptcy protection for the second time, and retailer Americanas, which sought court protection after the disclosure of a multi-billion-real accounting fraud. Publicly listed companies tend to stand out in these proceedings due to the scale of their debts—some among the largest in the country—and because regulatory requirements mandate financial disclosures, shedding more light on their challenges. This transparency also offers insight into the situation of smaller firms, which often face even greater financial distress.
A Valor Data analysis of 52 companies in Brazil’s benchmark Ibovespa stock index that have reported 2024 results shows that average leverage increased from 1.47 times to 1.64 times.
Fabiana Solano, a partner at law firm Felsberg Advogados, warned that the financial crisis is worsening even for larger companies. “Persistently high interest rates and global instability are having an immediate impact on businesses,” she said. While smaller firms are in a more fragile position, she noted that even listed companies face significant debt burdens. “For them, this is a moment for caution and vigilance.”
Among the publicly traded firms in distress is shipbuilding and offshore services company OSX, controlled by Eike Batista, which, like Oi, has filed for bankruptcy protection for a second time. Energy company Light has been under restructuring since 2023. Meanwhile, textile manufacturer Teka, which has been under bankruptcy protection for over a decade, recently had its liquidation order confirmed.
The number of filings would be even higher if not for companies that managed to restructure their debts through bilateral negotiations, such as airline Azul and e-commerce solutions provider Infracommerce. Wind blade manufacturer Aeris and Viveo, a healthcare distributor backed by the Bueno family (owners of diagnostic services provider Dasa), are also negotiating with creditors to avoid more drastic measures.
While listed companies typically have broader access to credit—both through bank loans and capital markets—the equity market remains frozen, reflecting investor aversion to stocks and capital outflows from equity funds. The only expected stock offering in four months is from insurance company Caixa Seguridade, a transaction motivated solely by the need to comply with B3’s liquidity requirements.
Regulatory and market implications
Under current rules, publicly traded companies undergoing bankruptcy protection are excluded from B3’s theoretical indexes but can still have their shares traded. This rule was introduced over a decade ago following the collapse of the X Group, which had several of the most liquid stocks on the exchange at the time.
Roberto Zarour, a restructuring partner at law firm Lefosse Advogados, pointed out that, unlike privately held firms, listed companies must follow strict disclosure requirements, keeping investors informed through material fact statements and market announcements. The challenge, he said, is balancing transparency with the confidentiality required in sensitive negotiations.
Marcelo Ricupero, a restructuring partner at law firm Mattos Filho Advogados, noted that the rising number of cases among listed companies underscores the widespread nature of the crisis. “No company is immune to the current turbulence. The trend is for more cases to emerge,” he said.
Mr. Zarour from Lefosse added that debt restructuring among publicly traded companies—typically more governed and with better credit access—highlights the deeper struggles of smaller firms. Many took on debt when interest rates were low but are now struggling to cope with the cost of borrowing in a high-rate environment.
Laura Bumachar, a partner at Dias Carneiro Advogados, pointed out that many companies have accumulated debt over the years and are now feeling the strain. “I believe 2026 will be even worse. Many companies are barely managing to keep up. A new wave of filings is coming,” she warned. Her firm has recently seen a surge in cases, not only for bankruptcy protection and out-of-court restructuring but also for outright bankruptcy.
According to Ms. Solano of Felsberg Advogados, one expected consequence of the crisis will be greater market concentration. Stronger companies with capital will seek mergers and acquisitions as financially weaker firms shrink or collapse. Mr. Ricupero from Mattos Filho noted that distressed M&A activity is on the rise.
When contacted, Light said it approved its restructuring plan in May 2024. “In a sign of confidence in the company’s future, creditor demand to convert debt into equity was 50% higher than the plan’s set limit,” it noted. The company added that all restructuring steps have been carried out as planned.
Azul reiterated its January statement upon concluding creditor negotiations, highlighting that the agreements will improve cash flow over the next three years and result in a pro forma deleveraging of approximately 1.4 times based on third-quarter 2024 figures.
Aeris said its financial negotiations are publicly known and have been disclosed through market announcements. The company emphasized that these negotiations “do not involve discussions or requests related to bankruptcy protection.”
Viveo reported that between late 2024 and early 2025, it successfully renegotiated and adjusted the covenant schedule of its debt with creditors.
Teka said that the decision to liquidate while maintaining operations “ensures that the company continues to function, removing uncertainty about its future and reaffirming its commitment to business continuity.” The company acknowledged that shareholders may resist the move, as they will be the most negatively affected due to the loss of equity value and control. However, it emphasized that its priority is to keep operations running, protect jobs, and maximize creditor repayments. The ruling also strengthens the company’s asset value, potentially attracting investors.
Infracommerce said that, in agreement with financial institutions and new investors, it has launched a restructuring plan to adjust its capital structure and secure new funding sources for its transformation. The company stressed that this plan is being implemented outside the scope of bankruptcy protection.
Agrogalaxy, Americanas, Oi, and OSX declined to comment, while Bombril did not respond.
*By Fernanda Guimarães — São Paulo
Source: Valor International
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
/i.s3.glbimg.com/v1/AUTH_63b422c2caee4269b8b34177e8876b93/internal_photos/bs/2024/6/X/fOa4UBTf2ije1onrvxpg/lajes-1.jpg)
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.
*By Fábio Couto, Valor — Rio de Janeiro
Source: Valor International
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.
*By Gabriel Caldeira e Victor Rezende — São Paulo
Source: Valor International
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.
*By Paulo Santos, Globo Rural — Campina Grande
Source: Valor International
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.
*By Anaïs Fernandes — São Paulo
Source: Valor International