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Future Sugar Policy in Limbo after Brazilian Election Shocker

Pollsters and prognosticators were stunned by the results of Brazil’s October 5 election results.

Embattled Workers Party incumbent President Dilma Rousseff, who during her tenure elevated sugar industry subsidies to an art form, was expected to move to on a run-off election against fellow leftist Marina Silva of the Socialist Party later this month.

But in what the Wall Street Journal refers to as a “late surge,” conservative economist Aecio Neves, Governor of Minas Gerais, took 34% of the vote, compared to Rousseff’s 41%.  Ms. Silva, in a “stunning reversal,” came in third – after leading in the polls just a couple weeks ago – with just 21%.

So what does this potentially mean for Brazil’s sugar industry in particular – which accounts for more than half of the world’s exports – and the global sugar market in general?

Neves’ surprising second-place finish immediately resulted in a bounce in the nation’s currency, but Rousseff is expected to pick up the lion’s share of Silva’s support and gain a second term in the scheduled October 26 run-off. If so, the nation’s sugar program and subsidies are likely to remain unchanged.

That would include new plans announced by Finance Minister Guido Mantega on September 10th to add the nation’s sugar and ethanol industries to a tax refund program worth an estimated $395 million.

Still, there remains considerable unrest within the volatile Brazilian electorate.

As the Wall Street Journal reported on Monday, “Brazil slipped into recession this year after four years of stagnation, and inflation is on the rise.”  So no one is writing Neves off just yet.  There’s still hope for a more business-friendly, market-driven leader in the South American nation.

All of which again reminds us that it is not in the best national security or financial interest of the United States to risk harming our country’s domestic sugar industry for the short-term benefit of cheap, heavily-subsidized imported sugar that is subject to wild swings in politically unstable foreign nations.

This is why a zero-for-zero policy – in which other nations agree to simultaneously drop their sugar programs in return for the United States dropping its – should be hammered out and agreed to via treaty, overseen by the World Trade Organization. Establishing a true global free market that will withstand changes in government leadership should be the objective pursued by the Obama administration and Congress.