The National Fertilizer Plan will not receive direct financial contributions from the federal government. Instead, investments in new factories for the expansion of fertilizer production will come essentially from the private sector, although companies are likely to take advantage of fiscal and tax breaks – if these facilities actually get off the drawing board.

The effort was launched on Friday by the Bolsonaro administration amid the turmoil that tripled the international prices of some agricultural inputs because of the pandemic, the energy crisis in some countries and the Russia-Ukraine war, which threatens the supply of inputs from Eastern Europe to Brazil.

“These waves of private-sector investment will guarantee Brazil’s growth in the coming years,” Economy Minister Paulo Guedes told reporters on Friday. “Brazil’s growth cannot be limited to the investment capacity of Petrobras and Eletrobras,” he said, citing behemoth state-owned companies in the oil and power industries.

The government will use direct investments to improve the country’s business environment, Mr. Guedes said. “Eliminate dysfunctional taxes, make industrial research, production and transformation easier. We will create a private-sector complex and draw those investments. The speed of response is much faster.”

The Minister of Mines and Energy, Bento Albuquerque, pointed out that the mineral industry is expected to invest about $40 billion by 2025 in the country. The post-pandemic economic recovery and the rise in fertilizer prices are also expected to make private-sector business for production in Brazil more attractive. “With this crisis, several projects are being put back into operation, such as hibernated nitrogen plants that are now economically viable. And this is also due to the 22% increase in natural gas production in the last three years,” he said.

“The increase in production is already a fact,” Mr. Guedes added, saying that “interventionist administrations” would act differently, focusing on public investments. President Jair Bolsonaro made fun of it, saying he will not create “Adubobras,” or a Brazilian state-owned company to produce fertilizers. He also said that the climate is “favorable” for the Chamber of Deputies to pass in a few weeks a bill to allow mineral exploration and other economic activities on indigenous lands.

Mr. Guedes acknowledged that food prices are likely to increase in the medium term with the indirect impact of the rise in global costs of fertilizers and grains. He is also following the unfolding of the war, which may require additional tax efforts. The minister argued that tax adjustments could reindustrialize the country, and cited the possibility of eliminating the Tax on Industrialized Products (IPI) to encourage domestic production of fertilizers.

The Economy minister also cited facilities for imports of machinery and equipment used in the production of fertilizers and the creation of tax credits from the purchase of imported inputs. “We are convinced that indirect taxes are destroying the domestic industry. The idea is to reduce the taxes that caused a decline of manufacturing in Brazil,” he said.

One concern at the moment is in cutting taxes on Brazilian fertilizers. Sales tax ICMS on these inputs are being adjusted after approval by the National Council of Finance Policy (Confaz) last year. By 2025, domestic production will gradually drop to a 4% tax from 8%, while imported products, currently exempt, will pay 4%. Luis Eduardo Rangel, a director of the executive secretariat of the Ministry of Agriculture, said that fair taxation is the starting point to make the Brazilian fertilizer industry competitive again.

According to Mr. Rangel, with the rebalancing of tax rates, it will be possible to increase the domestic production by 35% by 2025 and regain 10% of domestic autonomy. Bernardo Silva, head of the National Union of the Fertilizer Raw Material Industry (Sinprifert), said that the growth projected in the short term is not irrelevant and will help reduce the “risk” the country faces today.

The fertilizer plan, in his view, is a “good, optimistic and bold” message. Even so, the Brazil cost remains high with obstacles such as environmental permit, transportation, logistics, energy and natural gas. “We need a positive message because the industry needs heavy investments. A nitrogen plant requires investments of $1.5 billion, and needs a long time to mature. We look up to 50 years ahead. We need institutional stability and security for this,” he said.

Agriculture Minister Tereza Cristina said that it will be necessary to administer the “dose very well” to know the best time to rebalance the ICMS rates on domestic and imported products. “If the war gets worse, we have to zero taxes,” Mr. Guedes said.

Source: Valor International

https://valorinternational.globo.com