Legal Strategies for Economic Problems: the Food Shortage Case

"Price surges", "food shortage", "export taxes" and "suspension of exports" are the buzzwords most heard nowadays in the international trade scenario. Countries are again concerned with the rise of the worldwide demand for commodities, as well as their prices, which may cause inflation. Governments are creating barriers to their exports to level these distortions. This situation may evoke the rebirth of postwar protectionism, when countries raised trade barriers to make it economically feasible to produce the main agricultural products needed and prevent food shortages. Blocking exports and imports can overcome internal problems faced by one country, but, then again, they can cause major disruptions in other markets. Food processing industries and end-consumers are the most affected, but are also those who would less resort to the legal solutions available to solve this kind of economic dilemma.

Recently, Brazil faced the consequences from the decision of its neighbor, Argentina, to retain their production of wheat. Approximately 60% of all the Brazilian wheat imports came from Argentina, but a series of factors changed the balance of this trade flow: in 2002, a 20% export tariff was imposed on the sales of both wheat and wheat flour. In 2006, Argentina differentiated their export tariffs, trying to stimulate the sales of products with higher value-added, by imposing an export tariff of 20% for wheat and 10% for flour. Finally, in March 2007 and subsequent periods, Argentina decided to obstruct its wheat exports, resulting in a drastic shortage in the Brazilian market. Because wheat flour exports became more economically viable than the exports of wheat, the Brazilian wheat flour manufacturers, which could not predict or avoid these sovereign decisions, had to face all the consequences of the Argentinean chaotic trade policy alone.

On the way to overcome the consequences produced by this economic scenario, the Brazilian wheat industry developed a successful legal and political strategy. From the some alternatives available, the first solution sought together with the Brazilian government was the reduction of the import tax, enabling the importation from other suppliers (i.e. USA and Canada). Together with this initiative and with the objective of lowering the prices of the grain to the food chain and end-consumers, internal taxes were reduced for the commercialization of wheat, flour and baked bread, and other options are still being evaluated. With this successful legal and political strategy, the Brazilian wheat industry managed to survive – for the moment – the imbalance produced by the changes in the domestic policy of its alleged “hermano”.

Private companies have to start developing legal strategies to overcome economic problems that hinder their day-to-day business. International trade practices have to become part of the solution and, even before, have to be taken into consideration when defining the corporate strategies. The case of the wheat shortage in the Brazilian market is a good example for private companies that legal strategies, despite not widely known as alternatives to commercial and economical problems, can compose an interesting alternative to remedy an unfavorable scenario to business, creating, in this case, an alternative to price surges, food shortage and export taxes.

Further information on the above-mentioned matter may be obtained directly from Roberto Kanitz at robertokanitz@felsberg.com.br and Luciana Silveira at lucianasilveira@felsberg.com.br.