Issues & Analysis
Credit in policy framework
Domestic Support to Brazilian Agriculture on the Rise
Government agricultural credit administered by the Brazilian Ministry of Agriculture (Ministério da Agricultura, Pecuária e Abastecimento, MAPA) and disbursed through the National System of Rural Credit rose to US$73 billion (R$122.8 billion) in 2011/12, up 5 percent from 2010/11 (see footnote 2 in the table Excel icon (16x16) for details on the exchange rate used.)
Credit in Brazil's Agricultural Policy Framework
Government credit is by far the dominant source of financing available to agricultural producers. The credit system provides financial resources at subsidized fixed, low-interest rates through separate production and marketing programs (62 percent), investment programs (21 percent), and programs for financing agribusinesses at market rates (17 percent). About two-thirds of the resources for production and marketing come from a 28-percent bank reserve set-aside required by the Brazilian Government for credit lines to farmers ( table Excel icon (16x16) , item 1). The remaining production and marketing funds come from other government programs.
Through the Banco Nacional de Desenvolvimento Econômico e Social (BNDES), the Brazilian Government also maintains long-term loan programs that support agricultural production and farm income at subsidized interest rates (see table, item 2 for individual programs). Under these programs, subsidized interest loans (usually at 68.75 percent per year) are available to producers depending on the program and the farmer's annual income. Other BNDES credit programs charge interest rates of between 8.5 and 9.5 percent per year for large producers. These subsidized rates compare favorably to the current average market rates for farmers in Brazil of between 20 and 25 percent per year. The average market interest rate for business in general is 35 percent per year, well below the average rate of 50 percent per year for consumer credit. The terms for the subsidized agricultural credit programs also vary by length of time and commodity.
The amount the Brazilian Government has budgeted for agriculture has increased rapidly in recent years, almost doubling since crop year 2005/06. The current "Crop and Livestock Plan 2011/12" announced in June 2011 budgeted US$73 billion (R$122.8 billion) in credit lines for producers (see table Excel icon (16x16) , item 6). This amount includes three major credit categories: resources for production and marketing, resources for investment programs, and lending at market rates
The impact of all the programs under the National System of Rural Credit varies by crops and region. For soybeans, southern farms are smaller and producers receive subsidized credit to cover much of their production costs. For medium and large farms, government production financing is less significant, although producers can still obtain subsidized credit lines up to a maximum amount set by the Government. Soybean processors, exporters, and input suppliers provide the bulk of production financing to large farms, which are on an in-kind (crop) basis. Processors and exporters provide over 50 percent of soybean crop financing, input dealers cover less than 20 percent, and commercial banks cover the remainder. Large producers also make use of futures markets at times when the devaluation of the Real vis-á-vis the U.S. dollar leads to forward selling of the new crop. This practice has facilitated the financing of land opening, inputs, and planting costs.
Exporters benefit from the Advance on Exports Contracts and Rural Promissory Note (ACC-CPR) program, which entitles them to receive cash advances from the Bank of Brazil, using the Rural Promissory Note (CPR) as collateral (see table Excel icon (16x16) , item 3). Cash advances are limited to 50 percent of the total export value of the shipment.
For several years, Brazil appeared to achieve its agricultural growth with relatively small levels of government support. This pattern is changing quickly, as internal and external adverse circumstances are being met with increased government funding.
Brazil's Rural Credit Programs and Use of Financial Resources Excel icon (16x16)