US  ethanol  market  participants   and trade groups Thursday decried the Brazilian governm 

ent's Wednesday decision to levy a 20% tariff on ethanol imports above 600 million liters. 

"We're  very disappointed with this news," said Geoff Cooper, executive vice president at the 

US' largest ethanol industry group the Renewable Fuels Association. "It felt like we had been 

making  progress  in  our  discussions  with  Brazilian  officials. We're not going to give up on 

continuing  the dialogue with the Brazilians about this decision and its implications for both of 

our markets." 

Brazil,  the  second  largest  ethanol producer in the world, began importing large volumes of 

ethanol  in 2016 as high sugar prices made the sweetener more attractive to sugarcane mills 

than ethanol. 

Through  June,  the US exported over 1.045 billion liters of ethanol to Brazil, according to US 

Department of Agriculture data. 

That  could  mean  that any further exports to Brazil would be subject to the 20% tariff. But it 

does  not appear that exports from earlier this year above the 600 million liter level would be 

affected by the tariff. 

"We haven't heard any indication that this would be retroactive in nature," said Cooper. "Wha

t  isn't  clear  is  when  it  would become effective." The decision could be entered into Brazil's 

official   gazette  within  a few days, but whether the tariff would be in place immediately or the 

gazette entry would set a future date was not specified by the government. 

US traders have been hesitant to update their export models yet. 

"I  think with the arbitrage where it is, it will not be a problem," said a US source. "But if the arb 

tilts back in favor of heavy exports from the USGC to Brazil, I think it will become a mess. Righ

t  now  it  is  just  a band-aid to  calm  the  flex  plants in the  northeast  of Brazil and try to not 

anger the US to the point that it starts some kind of a trade war." 

With  the  tariff  in  place,  ethanol  prices  in  Brazil  could  climb and keep the arbitrage open 

despite  the  20%  tariff.  But the tariff adds a new hurdle to overcome when traders eye Brazil 

for exports. 

"We  think  Brazil  will  remain  short of ethanol and will continue to import it from the US," said 

Bruce Pickover, biofuels director at PIRA Energy Group, a unit of S&P Global Platts. "We don'

t  see  where  else  Brazil  can get the ethanol they need. I think the tariff will just increase the 

price  of  ethanol  to consumers in the north and northeast region. It will help the producers in 

the region which is the main purpose." 

The North and Northeast regions of Brazil are naturally short on ethanol and rely on transfers 

from  the  Center-South region, the largest ethanol producing region in the country. But since 

the Center-South  has produced less ethanol in favor of sugar, the North and Northeast have 

had to rely on imports. 

Sugarcane mills in Brazil had called for the tariff for months, saying imports from the US were 

unfairly hurting domestic plants. A vote on the tariff was delayed three times since early May. 

Unica, a sugarcane industry group in Brazil, praised the decision in an emailed statement. 

"This measure helps to reduce the lack of equality between rules for marketing domestic and 

imported  ethanol,  to  reduce  environment  impacts  --  as  sugarcane  ethanol  has a better 

environment  footprint  than  imported  corn  ethanol  -- and to keep economic benefits to the 

entire ethanol industry in Brazil, which generates almost 1 million jobs."