May 20,2003

Grassley Seeks Details on Brazilian Soybean Production

WASHINGTON – Sen. Chuck Grassley, chairman of the Committee on Finance, today asked
several federal agencies for information to help domestic soybean producers understand the potential competition posed by Brazilian soybean producers.

“During the last five years, Brazil has increased its production of soybeans by 57 percent,”
Grassley said. “The Economic Research Service estimated that Brazil has the potential to bring more new ground into production than U.S. farmers currently have in production. Iowa is the number one producer of soybeans in the United States. Brazil is the largest competitor in the international market. Iowa’s soybean producers pay a lot of attention to Brazil’s production since it affects our prices. That’s why I’m asking several questions about how the Brazilian industry works.”

The text of Grassley’s letter to the Foreign Agricultural Service at the Department of Agriculture, with copies to the United States Trade Representative, the Economic Research Service, and the Commerce Department, follows.


May 20, 2003

The Honorable Ellen Terpstra
Administrator
Foreign Agricultural Service
U.S. Department of Agriculture
1400 Independence Avenue, S.W.
Room 5071-S
Washington, D.C. 20520

Dear Administrator Terpstra:

The American Soybean Association (ASA) recently led a soybean study mission to Brazil. The
purpose of the trip was to assess Brazil’s soybean production, existing and potential infrastructure and transportation issues, processing capacity, and intellectual property rights, as well as to educate the trip’s participants on these issues.

Brazil's potential for soybean production is a matter of great interest to American soybean producers. During the last five years, Brazil has increased its production of soybeans by 57 percent. The Economic Research Service (ERS) of the U.S. Department of Agriculture (USDA) estimates that Brazil has the potential to bring more new ground into production in coming years than is currently used in production in the United States.

I have attached a list of questions generated by ASA participants through their observations in Brazil. I request that you work with your colleagues from the ERS, the Office of the U.S. Trade
Representative, and the Subsidies Enforcement Office of the Department of Commerce’s  International Trade Administration to provide answers to these questions.

Given the importance of soybeans to Iowa and other states, I look forward to your timely response.


Sincerely,

Charles E. Grassley
United States Senator

cc: The Honorable Robert Zoellick
U.S. Trade Representative

The Honorable Susan Offutt
Administrator, Economic Research Service

The Honorable Grant Aldonas
Under Secretary for International Trade
Department of Commerce

QUESTIONS ON BRAZILIAN SOYBEAN PRODUCTION

WTO Reporting Requirements, Definitions and Disciplines

Has Brazil fully notified in accordance with its WTO obligations tax, credit, input, transportation, investment, or energy subsidies (discussed below) that affect agricultural production? If so, are these subsidies being calculated properly and reported to the WTO in accordance with Brazil’s obligations? Should new reporting requirements be considered to capture the value of such
subsidies, or are existing WTO reporting requirements sufficient?

Tax Policies

Are Brazilian tax policies helping to drive the expansion of soybean production in Brazil? Are
tax credits, rebates, or deferments available to Brazil's soybean producers or marketing groups? Are federal, state, or local taxes reduced, deferred, or waived if a soybean product is exported?

Credit Policies

Reportedly, soybean growers in Brazil are receiving credit from a variety of sources (e.g., the
government, Banco do Brazil, equipment and input suppliers, exporters, and processors) at rates
substantially below the rate of inflation and foreign exchange risk. For instance, it is reported that growers may be receiving credit from the government at 8.75 percent, whereas the rate of inflation is 12.5 percent. It is also reported that equipment manufacturers offer credit to growers at rates and terms substantially below the commercial rates and foreign exchange risk offered by banks. In each instance – whether it is government, equipment supplier, or other – more information is needed with respect to the policies that may be facilitating the offering of credit to soybean growers at subsidized rates.

Input Prices

Do government policies influence input prices for Brazilian farmers, leading to prices that are
sharply lower than prices paid by U.S. growers for comparable inputs? Rampant soybean seed piracy affords Brazilian growers a competitive advantage; however, are there other high technology inputs, such as farm equipment, available to Brazilian growers at discounted prices due to the infringement of intellectual property rights? Are there any government policies that can explain sharply lower prices for farm machinery in Brazil? Are there any government policies that influence the market for herbicides, leading to lower prices in Brazil than in the United States?

Transportation Policies

How are Brazilian infrastructure improvements, and in particular federal highway construction
projects, being financed? Who pays the funds? Since much of the highway use in the cerrados area is to support agriculture, do agricultural producers contribute to the cost? How does their
contribution compare to contributions from other users? The same kind of information is needed for state highways, waterways, and rail. This information on transportation financing is particularly
important due to the draft Doha Round agricultural text prepared by Agriculture Negotiating Group Chairman Harbinson that proposes to declare agricultural transportation subsidies for developing countries as "green box" subsidies that would be exempt from domestic support reduction commitments under the WTO Agreement on Agriculture.

Investment

More information is also needed on domestic and foreign investment that may be fueling
expansion of soybean acreage in Brazil. Do we know which countries are investing in Brazilian soy
production and why? Does this funding come from private or government investment sources? To
what extent does government policy encourage investment in agriculture? Is agricultural production required on new land to maintain ownership or reduce taxes? What penalties do farmers face if they do not develop acquired land within certain time periods?

Energy Policies

ERS reports that diesel fuel is sold to farmers at a single, uniform price throughout Brazil,
even though costs to supply diesel to the Center-West are substantially higher due to transportation costs. This policy provides a fuel subsidy to farmers in the Center-West and further encourages development of the cerrados area. How does the fuel subsidy program work? Who is eligible? Is the subsidy available only for on-farm use of fuel, or is it also available for the transportation of agricultural goods? What is the estimated value of the fuel subsidy in recent years and currently? Are there other energy or fuel subsidies being made available to Brazilian agriculture, processing, and transport?

Environmental Consequences

The International Food Policy Research Institute has reported, "The generally positive trends
in food production may mask negative trends in the underlying biophysical capacity of ecosystems, e.g., nutrient mining, soil erosion, and over-extraction of groundwater resources." What are the environmental consequences of Brazil's land clearing policies in the cerrados? Are soil resources being mined of their nutrient values? Is soil erosion being addressed in Brazil?

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