Tax Reform and the Challenges of Agribusiness in the Global Context

Brazil is experiencing a historic moment with the approval of its Tax Reform, strategically divided into two phases to ease political passage.

Phase One: Consumption Tax Overhaul

The first phase focuses on consumption taxation and resulted in the enactment of Complementary Law No. 214/2025, signed into law on January 16 by President Luiz Inácio Lula da Silva. This legislation replaces multiple indirect taxes — ISS, ICMS, PIS, and COFINS — with a unified Value-Added Tax (VAT).

Phase Two: Income Taxation Pending

The second phase, which addresses income taxation, is still making its way slowly through Congress, facing more complex political hurdles.

A Record-High VAT

At an average rate of 28%, Brazil’s new VAT will become the highest in the world, overtaking rates in Hungary, Denmark, and Sweden. This has raised concerns, especially within agribusiness, a sector that contributes 23.2% to the national GDP, according to Cepea (Center for Advanced Studies in Applied Economics).

Support Measures for Agribusiness

In response to concerns from agribusiness associations and congressional representatives, and acknowledging the sector’s strategic importance, the government granted a 60% reduction in the VAT base for agribusiness.

This tax base reduction applies to key inputs such as seeds, fertilizers, pesticides, and biotechnology products, effectively lowering the tax burden for the sector. Agricultural associations have welcomed the move, emphasizing that clear, stable rules are crucial for fostering innovation and maintaining competitiveness.

Global Leadership in Agribusiness

Brazil’s agricultural sector continues to gain international prominence, driven by record harvests and strong demand from Asian and Middle Eastern countries.

According to projections from the USDA, Brazil is on track to become the world’s largest exporter of corn by 2034, with anticipated exports of 77.5 million tons — surpassing the United States’ projected 63.5 million tons. Beef and chicken exports are also rising steadily, further establishing Brazil as a foundational player in global food supply chains.

Ongoing Structural Barriers

Despite global gains, significant domestic challenges remain. Logistics is one of the most pressing obstacles: poor road conditions, overloaded ports, and limited storage facilities drive up production and distribution costs.

A study by Insper highlights that investments in infrastructure are essential to improving Brazil’s competitiveness and reducing economic losses. In addition, Brazil’s dependence on a few major buyers — with China alone accounting for 22% of agribusiness exports — increases its exposure to market fluctuations and geopolitical shifts.

Geopolitical and Global Market Volatility

The international landscape presents further risks. Ongoing events such as the war in Europe, US-China trade tensions, and the rise of neoprotectionist policies are reshaping global trade patterns.

In the short term, Brazil may benefit from shifts in purchasing behavior as importers seek alternative suppliers. However, this advantage may be short-lived, as these countries are expected to diversify their sources further, reducing reliance on any one supplier.

On top of this, a range of additional global issues — including climate change, inflation, disease outbreaks, and the weakening of multilateral institutions like the UN, WTO, and COPs — adds layers of uncertainty to global food markets. Recent events such as the Covid-19 pandemic, avian flu, and African swine fever demonstrate the fragility of supply chains and food security worldwide.

Strategic Outlook: Innovation and Sustainability

To strengthen its position, Brazil must go beyond production volume and invest in:

• Technological innovation

• Sustainable practices

• Commercial intelligence

One important step in this direction is the potential ratification of the Mercosur-European Union agreement, which could open up new export markets and encourage higher standards for Brazilian products. Furthermore, the integration of ESG (Environmental, Social, and Governance) principles is quickly becoming a key differentiator in international trade.

Conclusion: Turning Reform into Opportunity

Brazilian agribusiness stands at a pivotal crossroads. The new tax reform offers a chance to boost internal efficiency while simultaneously capturing a stronger role on the global stage.

By focusing on logistics improvement, technological advancement, and market diversification, Brazil can transform this moment into a strategic leap forward — ensuring its place as one of the central pillars of global food security in the decades to come.