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July 5, 2018

Brazilian Congress holds Hearing on Controversial Freight Rates

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

A congressional commission of the Brazilian Congress held a public hearing earlier this week to discuss the unresolved issue over minimum freight rates in Brazil. The controversial measure to establish a system of freight rates in Brazil was part of the agreement the federal government agreed to in order to end the crippling truck driver strike at the end of May. The commission, which is composed of various members of Congress, heard from many of the parties involved in an attempt to try to resolve the issue.

Participants from the agricultural sector urged members of the commission to pass legislation that would make the rates only recommendations and not law and that the final rates should be determined by the marketplace. The Agriculture and Livestock Confederation of Brazil (CNA) told the commission as well as the Brazilian Supreme Court that there is an urgent need to resolve this issue.

Interestingly, CNA framed the debate over freight rates as how it would impact low income Brazilians. They indicated that the higher freight rates would significantly increase the cost of the basic food basket (cuesta basica) that low income Brazilians receive from the government.

According to CNA, the higher freight rates would increase the cost for the basic food basket by 12% as soon as this month. The basket includs rice, meat, dry beans, milk, eggs, tubers, fruits, and vegetables. Collectively, these products compose 90% of the basket. If these higher freight rates remain in place, CNA calculates that the poorest Brazilians would spend more than 50% of their disposal income on food.

The Brazilian Association of Grain companies (Acebr) indicated that this issue cannot be resolved only to the benefit of independent truck drivers and to the detriment production agriculture which is facing serious difficulties. They emphasized that a "one size fits all" is not realistic for a country as big as Brazil with a diverse production agriculture.

The original measure stipulated a rate based on one size of truck and the distance traveled, but there was no differentiation between trucks hauling grain long distances to the ports verses the delivery of animal feed in a small geographic area.

There have already been two different tables of freight rates released by the government. The first was agreed to during the intense negotiations between the government and the striking truck drivers. It was immediately heavily criticized by the transportation industry and the agricultural sector and there were dozens of lawsuits filed claiming it was unconstitutional. The first version was in place for a week when a second version with lower rates was announced by the government. The second version was in place for only a few hours when I was declared null and void by the Brazilian National Land Transportation Agency (ANTT). Participants are urging that a third more realistic rate be established

This issue has already been disputed in front of the Brazilian Supreme Court two different times. The independent truckers emphysied that the freight rate in the marketplace was not enough to cover their expenses. The freight companies and the agricultural sector argured that the higher minimal rates drove up their costs and eventually would be passed on to the consumer in the form of higher prices. They also contend that the establishment of a minimal rate is unconstitutional because it takes away their ability to bargain in the marketplace concerning freight rates.

The Supreme Court did not resolve this issue and another hearing was scheduled for August 27th.