Lower-Cost Guaranteed for Brazil’s fertilizer industry

The Fertilizer Industry Development Program (Profert) aims to enhance domestic production.

In 2021, Brazil’s agricultural sector consumed around 45 million tons of fertilizers, making it the fourth-largest consumer globally, trailing only the United States, India, and China. However, unlike these countries that produce most of what they consume, Brazil relies on imports for 85% of its fertilizer needs. This dependency poses a threat to national agricultural production.

To address the need for increased domestic production and measures to reduce the cost of fertilizers, the Parliamentary Fronts for Agriculture (FPA), Sustainable Mining (FPMin), Chemistry (FPQuímica), and Brasil Competitivo organized a seminar titled “Fertilizers – a strategic issue for Brazil.” The event included representatives from the Executive Branch, the production chain, and research and innovation.

The seminar focused on actions such as streamlining and simplifying environmental licensing processes, which often cause delays in projects; expanding funding sources, particularly for long-term projects; optimizing the production and distribution of natural gas through pricing policies and supply guarantees; and most importantly, implementing a new tax regime to incentivize the fertilizer production and distribution chain. These objectives are outlined in PL 3507/2021, which establishes Profert.

Authored by former deputy Laércio Oliveira (PP-SE), who is now a senator, Profert modernizes the Special Incentive Regime for the Development of Fertilizer Industry Infrastructure (REIF), established by Law 12,974/2013, which was in effect until 2017. REIF aimed to encourage the establishment and expansion of new plants by suspending the collection of federal taxes on the import or domestic sale of equipment. However, the differentiated regime was not effectively implemented, with local content rules being a major obstacle, according to analysts.

Therefore, in addition to suspending the collection of PIS/Pasep, Cofins, and IPI, Profert eliminates the requirement for local content as a condition to benefit from the special tax regime. Furthermore, it also exempts the Additional Freight for the Renewal of the Merchant Marine (AFRMM) on goods intended for approved projects. This exemption is crucial as it reduces the cost of freight by 25% for international navigation and 40% for river navigation.

Additionally, Profert adjusts the IRRF rates (from 15% to 25%) for contracting engineering services and technical consultancies abroad. It also suspends the PIS/Pasep and Cofins rates for contracts related to the receipt and delivery of natural gas, a primary raw material in the production of nitrogenous fertilizers, as its price significantly impacts the economic viability of the industry.

For instance, a leading manufacturer of urea, ammonia, and ammonium sulfate recently announced the shutdown of its plant in Sergipe due to the exorbitant cost of Brazilian gas, which is nearly four times higher than the price in the USA. This closure will result in the need to import 1,420 tons of nitrogenous fertilizers, further increasing dependency and leading to the loss of 500 direct jobs.

The approval of Profert is, therefore, crucial for the recovery of Brazil’s fertilizer industry, which is a strategic concern for the country. This sector contributes to a quarter of the national economy and should not be held hostage by relying heavily on imports for its main inputs.