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INTERVIEW OF THE MONTH – PETTERSON MOLINA VALE

There is a lot of inefficiency within the beef chain supply system

If Brazil had an incentive structure to the productive system that was not subject to so many program overlaps, it would be possible to maintain subsidies at a much lower value, as is the case of the 123 billion reais granted in a decade by the State and Federal Governments to beef chain. “We could reduce spending and maintain the benefit that the chain receives because we would eliminate inefficiency”. For the researcher Petterson Molina Vale, one of the authors of the study “From pasture to plate: subsidies and environmental footprint of beef”, there is no doubt that it is quite inefficient within this subsidy system. The study was launched in a seminar, carried out in partnership with Folha de S. Paulo newspaper, on the last 30th, in São Paulo.

Born in Machadinho d’Oeste, 354 km from the capital Porto Velho, in the interior of Rondônia, the researcher grew up living with deforestation in the 80s and 90s. Graduated in economics, Petterson studied to USP and Unicamp in the beginning of 2000, a time when sustainability and the issue of deforestation in the Amazon were very much in vogue. In a decade of academic life, he dedicated himself to understanding the role of livestock and the environment in the development process.

Escolhas – You have just presented the results of the study that shows the amount of public money in the beef supply chain. What are the main results?

Petterson – The main results are three. The first is the amount that the government invests in the chain, estimated at R$ 123 billion in a decade. This is a completely new result. This result did not exist for this chain or for others. The second is the fact that this value represents around 10% of the price of a kilo of beef. So, when the citizen buys a kilo of beef, the study shows that 10% of that was invested by the government. And the third result is what this number represents in terms of the collection of the chain: around 80% of the value of what is collected in the chain. In Brazil as a whole, this percentage is lower (the average is 20%, when looking at the subsidized percentage in relation to the amount collected). The beef supply chain receives more than the rest of the economy as a whole.

Escolhas – How many months have you looked at this research? What was more challenging?

Petterson – It was six months of work. My team worked in partnership with the team at Instituto Escolhas. The most challenging was how to deal with the ICMS, which is a state tax. The Union gives states the power to determine a number of things in relation to ICMS. The states, in the form of state law, through decrees and others, define the rates, the bases of calculation, the forms of collection, the exceptions, etc. Each of the Federation units has its ICMS regulation, acronym RICMS. It was necessary to evaluate the regulation of many states. The regulations are very complex and we ended up making this individual list of the regulations, but adopting a more general methodological path.

Escolhas – During the seminar, when the study was launched, some doubts about possible work limitations were raised. Can you talk about the points raised and what is concrete?

Petterson – You see, it essentially has two main lines of reading. What is asked is whether there is uncertainty in these calculations. Anyone who reads the full report of the 93-page study, which is available on the Escolhas website, will see that this issue is discussed very clearly throughout the report. And it is extremely legitimate, given that it is a new form of calculation. This methodology did not exist, so it is normal.

Second, the question was raised that this number would be of little use for decision making in public policy. I disagree a little. Why do you disagree? Because the beef chain is the subject of scrutiny in Brazil and in the world, more and more, and we understood that what the government has to invest in this chain is fundamental to launch a discussion.

Bernard Appy (director of the Center for Tax Citizenship and debater at the seminar that launched the study), defends that the tax structure is highly simplified and that it basically becomes a system in which a tax is collected and then returned to society shares that value to correct distortions that exist in the economy. For example, so that low-income people can be taxed differently. So, to the extent that there will be a single tax, it would return the most tax for low-income people and the least for high-income people. This is Appy’s proposal.

Now, so that – in a sector of the economy, such as the beef chain that is so important – you can know what you will need to return tax for that sector, after you have collected this unique tax, you have to know how much that sector receives annually, so the number is useful. So, I believe that methodological difficulties are not an impediment to producing a number that will serve to guide public policy. How will it serve? It will serve subject to scrutiny. It will serve as public policy, being reviewed and questioned, which is what is happening now.

Escolhas – So, do you believe that your number can contribute to the improvement of public policies?

Petterson – I am sure you can contribute! We have already had a series of reactions. And reactions are necessary to look program by program, instead of making a general assessment, because we are talking about a series of problems: waiver of ICMS, waiver of Funrural (Fund for Assistance to Rural Workers), subsidies via Pronaf (National Program for Strengthening Family Farming) and the exemption from the basic food basket. These are very different things and we are already in the direction of thinking program by program. For this reason, work is very important and is already bearing fruit.

Escolhas – There are two types of looks: one look at the subsidized amount and the other at each subsidy itself, is that it?

Petterson – When we look at this number, R$ 123 billion in a decade, it is an “absolute” number, it is not relative. But it can also become a relative, for example, 10% of the kilo of beef or 80% of the collection. When we look at this number, it allows us to begin to situate what has happened in terms of public investment in the beef chain. So, this is already an important contribution. But, the contribution is more in the sense of instigating the debate. So you say: “Wow, 10% of the beef’s kg. Hell, I never imagined. So, let me understand what that 10% is”. Here lies the interesting part, looking at program by program. For example, the exemption from the basic basket that promotes exemption from PIS/COFINS. An exemption that revolves around 3.105% of the gross revenue of companies, is a lot! So, there is this exemption for the beef retailer, the supermarket or grocery store or butcher, there is this exemption for the refrigerator and the tannery, when it is done by a legal entity. So, there is this waiver.

Currently, even before our study, the following question is in the debate: but does this exemption reach the consumer, in the object, in the person who consumes the basic basket or in the consumer as a whole? Not only from the basic basket, but all of us. We all eat beef, not just the poor. Does it get there at the end, at the consumer? Yes or no. That’s one question. Another: regardless of whether it arrives, it benefits whom: to the consumer only or to the consumer and also to cattle raising? So, these questions are basic to reflect on these exemptions. And the reflections on it are instigated by our study, so it’s a great result.

Escolhas – In the comparison between Brazilian livestock and other countries, with data from FAO, Brazilian livestock grew much more than Argentina, than South Africa, for example, in terms of production value. Is this growth related to the subsidy?

Petterson – Sure. Subsidies have a very strong argument there, and I fully agree with that argument, they are made in a very inefficient way. Basically, it is the overlapping of subsidies. So, you want to benefit the milk producer has Pronaf and a number of other programs, several tax breaks that affect the milk producer, have other state subsidy programs. So, there are a lot of things overlapping. This overlap creates inefficiency. In the worst case, it has self-canceling effects. In these 123 billion reais there is a lot of inefficiency, the result is far below what it would have been if the 123 billion reais were given in another way.  There is inefficiency in that.

Escolhas – So, the application of resources is not done efficiently. Is that it?

Petterson – If we had an incentive structure, not only for the beef chain, but an incentive structure for the productive system in Brazil, that would not be subject to so many program overlaps. If we had a much better structure than the one we have, we would be able to maintain the same benefit only by reducing these 123 billion reais to a much lower value. We could reduce spending and maintain the benefit that the chain receives because we would eliminate inefficiency. I have no doubt that it is quite inefficient within this subsidy system.

Escolhas – Within the study, what was given and the result that impressed you?

Petterson – The result that impressed me the most was the comparison between total subsidies, this R$ 12.3 billion per year, and the volume collected from the chain (R$ 15.1 billion per year, average from 2008 to 2017) . Before starting the study, someone said that it would be interesting to compare the amount of subsidies with the volume collected from the chain. Suppose you have more subsidy than tax, it would be a little absurd. The Public Power would be granting more than it receives. So, we didn’t reach that, but we reached 80% of subsidies in this decade. In two years it really surpassed. In 2015 and 2016, the amount of subsidies exceeded the amount collected. Very important numbers because they show that the chain is receiving a lot of support. Especially we as insiders, we who are dealing with the chain on a day-to-day basis, we already know, but we did not know in such a concrete way.

Escolhas – Some of his works show this interrelation between agricultural and environmental policies. What was the motivation to dedicate to this theme?

Petterson – The motivation to dedicate myself to the topic is that I come from Machadinho d’Oeste, in Rondônia, and I grew up and lived through this issue of deforestation and environmental policies. I grew up here in Machadinho in the 80s and 90s. This generated a lot of interest, since I graduated with this subject. It started to emerge, when I entered college, in the beginning of 2000, sustainability and the issue of deforestation in the Amazon were very much in vogue. So, I was motivated to work in this area, since graduation, master’s and doctorate and, later, in my professional life. So my work is very focused on two things: Amazon and climate change.