Brazil's new tax rules rejected! Coffee sales slowdown is expected to improve

In June, it is the harvest time of Brazil's new coffee season. According to Safras&Mercado data, Brazil has already harvested 37% of this year's coffee production, which is higher than the harvest of 33% in the same period last year and the average of 34% in the past five years. progress.

Among them, the harvest progress of Arabica coffee is 30%, which is higher than the average harvest progress of 25% in the same period last year and the past five years, while the harvest progress of Robusta coffee is 51%, which is also higher than the same period last year. 49%.

Safras&Mercado said that the reason for the current acceleration of coffee harvesting in Brazil is the weather. The weather in Brazil's coffee producing areas is now relatively dry and there has been no rain in the past two weeks, which has greatly promoted the harvesting progress. It also believes that the current dry weather is beneficial to the processing of coffee cherries, through good drying, processing and storage procedures, which will help improve the quality of coffee beans.

But at the same time, concerns were also expressed that drier weather conditions than before would adversely affect Brazil's coffee production, so the harvest was accelerated.

Although the harvest schedule has accelerated, sales of new-season coffee in Brazil have slowed relatively. Currently, Brazil has sold 22% of this year's coffee production, which is lower than the sales progress of 26% in the same period last year and the average of 32% in the past five years.

In addition, delays in Brazilian ports persist. According to a report from the Brazilian Coffee Exporters Association Cecafe, more than half of coffee export ships delayed shipments in May due to delays. In the first few months of 2024 in Brazil, the coffee ship delay rate at the Port of Santos, the largest coffee exporter, was 80%, while the recent delay rate has improved slightly, with the Port of Santos having a ship delay rate of 78% in May.

The Port of Santos has always been the main export port of coffee in Brazil's history. However, insufficient investment in container cargo transportation has not kept up with the development of Brazil's foreign trade, which ultimately led to a shortage of port savings space and congestion at exit ports.

In fact, in recent times, the main reason for the slowdown in coffee sales in Brazil's new coffee season is that the Brazilian government has proposed to amend the PIS/Coffins tax rules. According to the Brazilian Coffee Exporters Council (Cecafé), this will affect the cash flow of coffee exporting companies, affect costs, increase expenditures and increase operating burdens, ultimately reducing the international competitiveness of Brazilian coffee. And some soybean, coffee and other growers have stopped selling their agricultural products.

In addition, after the exchange rate of the US dollar against the Brazilian real exceeded the 1: 5.40 mark last week, the US dollar has appreciated by more than 10% against the real this year. Some experts said the sharp appreciation of the dollar will continue to bring inflationary pressure to Brazil in the coming months.

However, there has been good news in recent days. According to Brazilian local media reports, the Brazilian Congress has rejected the government's tax measures, and Brazilian coffee and other agriculture can continue to enjoy PIS/Coffins tax incentives, so the slowdown in coffee sales will be resolved.