The announcement follows the first bilateral meeting between US President Donald Trump and recently elected Brazilian President Jair Bolsonaro aimed at lowering barriers to agricultural trade.
According to a joint statement, no duties will be levied on up to 750,000 tonnes of imported wheat (about 28 million bushels) a year, worth around $125m at current prices on the futures market.
The US has a huge wheat stockpile – forecast to equal a six-month supply when the 2019 crop is ready for harvest – and exports are an important outlet.
Brazil is the world’s fourth largest wheat importer – importing 55% of its annual consumption – and currently pays a 10% duty on wheat grown outside the Mercosur countries of Argentina, Paraguay, or Uruguay.
In 1994, it had agreed to create a tariff-rate quota (TRQ), but this was rarely offered to the US.
According to Ben Scholz, president of the US’s National Association of Wheat Growers, the TRQ will allow US wheat to compete evenly with South American wheat.
However, wheat growers in Argentina’s Pampas farm belt have expressed concern the deal could become permanent, and not just a one-off. Brazil is the main buyer of Argentine wheat exports.
Data from the Brazilian Wheat Industry Association Abitrigo shows that, of the 6.8 million tonnes of wheat that Brazil imported last year, 5.9 million tonnes came from Argentina.
“Argentina’s wheat sector totally rejects Brazil’s decision to import from the United States without tariffs,” said Andres Alcaraz, spokesman for Argentina’s CEC grains export companies chamber.
“Under Mercosur regulations, Brazil must request permission from Argentina, as the main supplier of wheat to the neighboring country, to carry out that operation.”
On the other hand, Abitrigo's president Ruben Barbosa says the association supports the US import quota, as it will give the industry access to more suppliers at lower prices.
The Brazilian government is also hoping to see the reopening of the US market to Brazil imports.
During the news conference to announce the agreement, President Trump said he expects a ‘fantastic working relationship’ with former army captain Bolsonaro, both of whom adopt right-wing, anti-immigrant politics.
“We have many views that are similar. And we certainly feel very, very true to each other on trade,” said Trump.
"I think Brazil’s relationship with the United States, because of our friendship, is probably better than it’s ever been by far.”
It's time for bread to be more Brazilian
Earlier this month, Abitrigo’s Barbosa submitted the association’s proposal to increase local wheat production to Brazilian Minister of Agriculture Tereza Cristina.
The project – approved at the International Wheat Congress held by Abitrigo in September last year – aims to turn Brazil into an exporter of wheat and reduce its dependence.
According to the International Grains Council, Brazil is one of the world’s biggest agricultural exporters.
However, its small wheat crop is diminishing, ‘squeezed in recent years by expanding soybean hectares, as farmers try to increase revenue with a relatively more profitable crop.’
The IGC forecasts the country’s total wheat production in 2018-19 will be 5.4 million tons versus the imported quota of 7.4 million tons.