Brazil's Tax Reform Places Milk and Dairy in an Environmental Dilemma

Food-related emissions would rise by 8.22% under the tax reform analysed by economists Bícego and Paula Carvalho Pereda. Emissions linked to non-food goods and services would fall by 2.72%, partly because services would face a higher tax burden.

Overall, the researchers estimate a net increase of 10.2m tonnes of carbon-dioxide equivalent after the reform. That amount equals 0.5% of Brazil's total greenhouse-gas inventory and 1.71% of emissions associated with household consumption.

Food accounts for 12.7% of household spending but almost half of consumption-related emissions, according to the study. Pereda, a professor in the University of São Paulo's economics department and president of the Brazilian Econometric Society, said Brazil's emissions profile made food particularly important to its consumption footprint. Animal products are among the main contributors, with much of their emissions associated with land-use change.

Milk and other dairy products are placed among the goods that would receive substantial tax reductions. Lower prices could increase consumers' purchasing power and food consumption, creating a larger volume of emissions associated with eating. The authors identify meat as especially important because it has the largest carbon footprint, but say the same mechanism applies to other animal products, including dairy.

The economists say the reform could use a more targeted environmental criterion instead of broadly lowering taxes on food regardless of its carbon intensity. In the scenario examined, a selective tax on food and non-food goods would have a rate of 15.13% if the revenue were returned to low-income households through a tax cashback scheme. The authors present this approach as a way to combine environmental taxation with income distribution by charging more on products with high emissions and directing the additional revenue to poorer households.

Implementing such a change would require an amendment to the supplementary law governing the tax reform, but not to Brazil's Constitution. The study also says that an additional tax on meat would not undermine food security or adequate protein intake. It notes that a gradual shift from animal protein towards fruit, vegetables, chicken and eggs could produce environmental and nutritional benefits.

The issue is linked to Brazil's emissions structure: more than 70% of national emissions come from agriculture and land-use change. The paper, by Bícego and Pereda, was published in the Journal of Environmental Economics and Management. For the dairy sector, the study treats lower taxation on milk and dairy as part of a broader change affecting prices, consumption and food-related emissions at the same time.