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The old policy to transfer the onus to society

The Brazilian government ignored the truckers’ strike and preferred to focus its attention on political trades to save its mandate. What the government did not expect, however, is that the strike would paralyze Brazil. Pressed and fearful by the speed of the protest, the federal government accepted several requirements of truckers, showing signs of its incapacity to manage crisis. Again, the government put in practice the old policy to transfer the onus to society.


The attempt to control prices is not a new practice in Brazilian economy. In the 1950’s, Cofap (Federal Commission of Supply and Prices) was created, through Law n. 1522, which assured the free distribution of necessary products to the consumption of population. In 1962, in the government of João Goulart, National Superintendency of Supplies (Sunab) was created to interfere in the market, fix prices and control inventories.


Most recent history on price freeze occurred in 1996, in the government of Sarney. One of his characteristics was to establish prices of food, fuel, cleaning products, services and exchange rate. The plan worked at the beginning; however, it became unsustainable. The price control favored the consumption, but the producing sector started to have its profitability reduced, shrinking the supply at stores. Exports diminished, while imports increased and inflation soared. As a result, economy collapsed.


The measure of Temer government establishes the discount of 0.46 cents of Real on diesel prices and a minimum value for freight. The subsidy in diesel quotes brings immediate benefits; however, it will have negative consequences for society.


Although the minimum freight is positive for the self-employed trucker, the decision to contract the service will not follow the price. The contractor will include other competitive aspects for the decision-making, such as quality, route flexibility and punctuality.


Another example is that freight values may facilitate that companies invest in their own truck fleet. Therefore, freight prices may decrease in relation to the national mandatory minimum, given that self-employed truckers would have less loads.


For agriculture, the intervention of the government in freight values impacts price formation directly. As for the revenue, prices received by producers may decrease with freight increase. According to data from Cepea, the average freight price to transport soybean from Sorriso (MT) to Paranaguá port (PR) rose 44% in May compared to April (from 300 BRL to 433 BRL per ton).


Production costs may increase with price rises of inputs through exchange rate and freight adjustment. Real devaluation against dollar was 17.4% from January to June this year, boosting quotes of major inputs indexed to dollar.


As for freight, the inputs market has faced uncertainties for the 2018/19 trading period. Usually, companies take advantage of the return load to transport imported fertilizers from the port to producing regions. However, trades of fertilizers are paralyzed, because there is an impasse of freight values between the transportation company and fertilizers importers, delaying the schedule to deliver fertilizer to producing regions. Farmers who had not purchased the product until May can face price rises.


The major problem in the agriculture and livestock production will occur for farmers focused on the domestic market, given that the profit margin is low, likewise the margin of self-employed truckers. Both agents are facing the same problem of low demand of products and services due to the economic recession in Brazil. The government aimed to solve its problem, transferring the responsibility to society in both the end price of product and service and the investment reduction.

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