The export tax and the leather segment loss

The leather segment in Brazil has been presenting a significative growth regarding the production and exports of beef segment in the last few years. Brazilian beef exports might reach the amount of US$ 4.5 billions in 2007, with a growth of 18% about the last year result. In volume, the segment might reach 2.35 milions tons of equivalent carcass, a growth of 7% about 2006 result.

The good performance of beef export has stimulated Brazilian cattle raising in the last few years. In 2003, Brazil assumed the worldwide market leadership, surpassing Australia in beef exports. Several factors have contributed to increase Brazilian participation in the international beef trade, among them sanitarian problems in several producer conuntries, as the United Stated and European Union, which have engendered a crisis caused by bovine spongiform encephalopathy (bse). Other competitor countries, such as Argentina , suffered problems caused by foot-and-mouth disease and by cattle reduction, whcih has damaged their offer for exports. Australia also had offer problems caused by climatic issues which have affect production. In addition, the beef offer reduction in European Union has made possible the growth of Brazilian beef imports and has also opened the doors of other markets that were usually supplied with european beef, as the East Europe countries.

During this period, Brazil have substantially advanced by controlling foot-and-mouth disease and increasing cattle productivity. Brazil has the greatest trade bovine cattle of the world, with about 200 millions heads, and, due to the efficiency of Brazilian production, the segment was entitled to the growth of external market requirement. The favorable external setting, allied to production ability took Brazil to assume worldwide leadership in beef exports, selling to more than 170 countries all over the world and becoming the greater supplier for external markets such as European Union and Russia .

In the last few years, low prices and production costs increase generated a crisis in the cattle rising segment. According to a research made by CNA in partnership with the Center of Advanced Studies in Applied Economy (Cepea/ Esalq/ USP), from 2003 February to 2007 September the Total Operating Expenses of the activity accumulated an increase of 43,82%. In the same period, the finished cattle arroba has increased average only 4.5% in rated values, causing a great profitability loss in the segment.

As a result of such disincentive, cattle breeders have considerably increased reprodutive cow slaughter in the last few years, reaching 37.9% in the first semester of 2007. From the second semester of 2007, with the offer reduction in off-season period, there was the beginning of the process of recuperation in finished cattle arroba prices. The expectation for the next years is that the segment can continue with the process of income recuperation for the segment and can return activities' growth cycle.

The hide segment has been increasing its sales in the internal and external market, following Brazilian cattle rising evolution. With slaughter evaluated in 45 millions of bovine heads in 2007, Brazilian hide industry has, in theory, the same hide amount for processing.

Bovine hide exports, from 2007 January to September, reached 25.16 millions of hides, which represents a small waste of 0.77% regarding the same period of the last year. In value, bovine hide exports reached US$ 1.6 billion in the same period, with a growth of 25.33%. Estimations are that the segment finish the year with external sales of US$ 2.2 billions and loads of around 30 millions of hides. These numbers show that the segment is exporting around 66% of the production (of an evaluated sum of 45 millions of bovine hides produced in 2007), which is an amazing number.

As hide production and export strongly depend on beff market, hide segment perspectives are very favorable, judging by Brazilian amazing performance in beef international trade. However, Brazil could take better advantage of the opportunities of growth of the hide market. An example are the frequent accusations against cattle breeders, that they are responsible for the most part of Brazilian hide imperfections. But the rural producer doesn't have any incentive for taking better care of the animals handling, in order to get a better quality hide. In contrast, assessment that incises on wet blue hide exports incises also on cattle breeder, who is penalized twice. He doesn't get the prize for hide quality, and furthermore he has to bear the costs of the Export Tax.

The Export Tax generates product's price depreciation in the internal market, and it goes from the tannery to the slaughterhouse and from the slaughterhouse to the producer, via reduction of the cattle arroba price. Brazilian hide price is already one of the lowest in the world, and the producer still have to bear such absurd tax. This is a real income transfer from cattle breeders to footwear industries and other hide articles. Why provide financial assistance to footwear industry with costs for rural producers? That's immoral.

In order to increase its competitiveness, the segment should begin to reorganize, cutting out the Export Tax and creating a quality program, awarding a prize to the cattle breeder as a motivation for quality improve. In 7 years of existence of the hide export tax, results of this policy are not solid and they cause too much losses rather than profits to the segment. A interventionist and low effective policy, which end up impairing the weaker link of the chain. The construction of a policy which valorizes quality and consolidates productive chain would have more and more positive effects to the segment and to Brazil .

 

Antenor de Amorim Nogueira

President of the National Permanent Forum of Beef Cattle Farming of Brazilian Agriculture and Cattle Raising Confederacy – CNA

 

Paulo Sérgio Mustefaga

Economist, technical advisor of the National Permanent Forum of Beef Cattle Farming of CNA