Resource for production
For decades, Brazil's import-substitution industrialization (ISI) development approach promoted industrial development at the expense of agriculture by keeping food prices low. During the 1960s and 1970s, Brazil used subsidized credit, minimum prices, and government stock accumulation to compensate agriculture for the pro-industrial tilt of its economic policies. Simultaneously, Brazil pursued its long-term national economic development plan to incorporate intensive agriculture systems in the agricultural frontier in the country's Center-West region and theCerradosarea, with concurrent infrastructure investments. Up to the mid-1980s, these policies were also accompanied by increasing government investment in agricultural research and a rural extension program.
With fiscal austerity in the 1990s, Brazil reduced much of the support provided to agriculture. During this time, there was a dramatic economic shift towards market-oriented policy reforms, including trade liberalization, privatization, and opening to foreign investment. In this new environment, the main factor behind the growth of agricultural production was the strong systematic increase in productivity, paired with changes to Brazil's agrarian structure to include large-scale commercial farms and consolidating modern production systems to supply both domestic and external markets. Since 1996, domestic support to Brazilian agricultural producers has been provided through subsidized credit and price support programs.
Domestic support to Brazilian agricultural producers historically has been provided through policies that seek to address three principal objectives:
- Provide subsidized credit for production and investment, with funds offered at below-market interest rates.
- Provide income support to commercial agricultural producers-including individuals, farm cooperatives, and processors-through various intervention mechanisms in the marketing of commodities.
- Support rural development through subsidized credit and income support programs for low-income, small-scale producers and agrarian reform settlers.
Brazil's agricultural policies are implemented by the Federal Government with credit disbursed through the National System of Rural Credit (Sistema Nacional de Crédito Rural, or SNCR) and administered by the Central Bank in coordination with Banco do Brasil, Banco de Crédito da Amazônia, Banco do Nordeste do Brasil, and Banco Nacional de Crédito Cooperativo.
The SNCR credit system provides about one-third of the farm sector credit needs at subsidized, below-market fixed interest rates, with the rest coming from private sources. Economic liberalization has given Brazilian producers access to credit from traders, processors, and input manufacturers, especially for modern, export-oriented sectors like soybeans and cotton.
The amount the Brazilian Government has budgeted for agriculture has tripled since crop year 2002/03 (July to June). The 2011/2012 Agricultural and Livestock Plan allocated US $73.4 billion in credit for production, marketing, investment, and subsistence agriculture, nearly a two-fold increase over the 2007/2008 Plan (see Brazil's Rural Credit Programs Excel icon (16x16) ).
Resources for Production, Marketing, and Investment
Loans are available to finance commodity production and marketing (54.2 percent of total financial resources), farms and processors investment (18.0 percent), agribusinesses (13 percent), and subsistence farms (14.8 percent). About two-thirds of the resources for production and marketing loans come from a reserve that the Government requires banks to set aside for credit lines to farmers, equaling 28 percent of their deposits, with banks being compensated through a Government equalization program that provides some funding to the banks to offset the lower returns they get from lending to agriculture. The remaining production and marketing funds come from other government programs.
Production credit loans are used to buy inputs for planting with a loan period of around 9 months, and are repaid when the production is sold. Subsidized loans for production (currently at 6.75 percent per year) are available to producers depending on the commodity. Other government subsidized investment credit programs charge interest rates of between 6.75 and 9.5 percent per year, while the new Low Carbon Agriculture Program incorporated in the 2011/2012 Agricultural and Livestock Plan charges a 5.5 percent interest rate. These subsidized rates compare to recent market interest rates for farmers in Brazil of between 20 and 25 percent per year.
Marketing credit programs have been heavily used by Brazilian agricultural producers when domestic minimum prices announced by the Government have been significantly below market prices. The value of a marketing credit loan is based on the quantity of output owned by the farmer times the minimum pre-established price for the crop year; the typical loan term is 180 days. The most significant marketing credit program is the Federal Government Loans (Empréstimo do Governo Federal, EFG), which in 2010 disbursed over $5.3 billion for the marketing of most agricultural commodities. Other marketing credit programs also exist, but are currently small compared with the EGF. One is the Rural Product Note (Cédula de Produto Rural, CPR)and the Rural Promissory Note/Rural Duplicate (Nota Promissória Rural, NPR/Duplicata Rural, DR).
In Brazil, commodity price support programs are based on a system of minimum guaranteed prices. The current system of price support was established in 1996 and revolves around auctions of premiums between the minimum and market prices. Minimum support prices for each commodity and the portion of the crop that will be eligible for the program, are announced in the annual agricultural economic plan.
The leading income support program is the Equalizing Premium Paid to Growers(Prêmio Equalizador Pago ao Produtor, PEPRO). This program, principally used by cotton, corn, and bean producers, has been operating since 1996 and allows individual growers or cooperatives to sell the commodities for a return greater than the market price by receiving an "equalizing premium" from the Government. In a reverse auction that occurs at several scheduled points during harvest, farmers willing to accept the smallest premium win the right to receive payments. A second income support programs to aide in the marketing of rice, corn and wheat include the Program for Product Flow (Prêmio para Escoamento do Produto, PEP). The Risk Premium to Purchase Ag. Products/Private Selling Option Contracts-PROPprimarily used by corn and soybean producers was eliminated in 2009.
The Brazilian Government also maintains publicly owned stocks of agricultural commodities acquired through purchasing programs. The programs leading to stock acquisition include the Federal Government Acquisition (Aquisição do Governo Federal, AGF) and the Selling Option Contract of Agricultural Products (Contrato Governamental de Opção de Venda). Through the AGF mechanism (available for cotton, rice, corn, sorghum, wheat, coffee, and beans), the Government purchases the product at the minimum guarantee price (higher than the market price); farmers store the product they intend to sell to the Government in a warehouse accredited by CONAB. The Selling Option Contract of Agricultural Products serves as insurance for low market prices. Individual farmers and/or cooperatives buy or sell option contracts through public auction, pay a price (called a premium) and have the right to sell their production at a pre-set value (called an exercise price), on the date the contract expires. This program has been primarily used by corn and coffee producers.
Investment credit is provided through a variety of programs administered by the National Development Bank (BNDES). The largest is the Programa Modernização da Frota de Máquinas e Equipamentos Agrícolas (MODERFROTA), for agricultural machinery. The program is aimed at medium- and large-scale producers and was an important component of the opening of new production areas in Brazil in the 1990s and helped mechanized Brazilian agriculture.
Brazil's government policy to expand social programs and reduce poverty has increased funding for the National Program for the Strengthening of Family Agriculture (PRONAF). Funds under these programs have increased to $9.1 billion in 2011/2012 from $6.2 billion in 2007-2008. These programs provide subsidized interest rates of between 0.5 to 4.5 percent to low income producers. PRONAF is expected to benefit nearly 2 million low-income agricultural producers, deriving at least 70 percent of their income from agriculture.
Brazil's government policy to expand social programs and reduce poverty has increased funding for the National Program for the Strengthening of Family Agriculture (PRONAF). Funds under these programs have increased to $9.6 billion in 2011/2012 from $6.2 billion in 2007-2008. These programs provide subsidized interest rates of between 0.5 to 4.5 percent to low income producers. PRONAF is expected to benefit nearly 2 million low-income agricultural producers, deriving at least 70 percent of their income from agriculture.
Brazilian agricultural policy instruments and the corresponding annual credit allocations are routinely consolidated in the annual Agricultural and Livestock Plan (Plano Agrícola y Pecuário, PAP) executed by the Ministry of Agriculture (Ministério da Agricultura; Pecuária e Abastecimento, MAPA) and the Harvest Plan for Family Agriculture executed by the Ministry of Agrarian Development (Plano Safra da Agricultura Familiar, Ministério do Desenvolvimento Agrário, MDA).
In addition to Federal Government support, State Governments have at times implemented support programs for development of crop production and agro-processing industries. Programs for farm debt forgiveness and rescheduling with longer repayment terms and with lower interests rates have been regularly made available to Brazilian producers by legislators in the Brazilian Congress.
The increasing investment in research has been singled out by MAPA researchers of Brazilian agriculture as an important factor and credited with the rapid technological development of the sector. Agricultural research was carried out through several public and private Brazilian research institutions and universities. But it was EMBRAPA, the Brazilian Agricultural Research Enterprise, a public corporation linked to the Ministry of Agriculture and Food Supply, which played the key role in developing and diffusing new agricultural technologies.
Created in 1973, EMBRAPA's primary task was applied research on cereals, animal production, fruits and vegetables to generate and transfer new technologies, genetic materials, and production practices that would lead to productivity increases. Since its creation and throughout the 1980s, the main focus was regional adaptive research-the adaptation of agricultural systems to the new ecosystems in the new production frontiers, particularly in the semi-arid lands of the Cerrados.
EMBRAPA was also tasked with providing extension services for the distribution of these new technological packages, which included new and improved seeds, the provision of soil correction techniques and implementation of agricultural practices, including the use of new machinery and equipment in traditional and newly developed regions of the Cerrados.
EMBRAPA's research system was centrally coordinated but carried out through 16 commodity research centers, 10 agro-system research centers, 14 regional research centers, and several service and technology transfer research centers located through the country. EMBRAPA receives funding from the Brazilian government and international institutions. The amount of resources allocated to EMBRAPA increased from an average of US $246 million per year (in constant 1993 US$), during the 1976-80 period to over US $450 million per year during the 1990's (also in 1993 US$). EMBRAPA is credited with recommending more than nine thousand technologies for Brazilian agriculture, which significantly reduced production costs and helped Brazil to expand its productive capacity (MAPA, 2010).
One of the most significant contributions of EMBRAPA to the growth of Brazilian agriculture is EMBRAPA's crop varieties role on the Brazilian seed market, in particular for rice, beans, corn, wheat, soybeans, potatoes and cotton. Another instance of EMBRAPA's involvement has been on developing improved grass varieties, and new breeds for cross-breeding cattle with domestic breeds. Funds were also applied to extension services and new farming techniques such as no-till production, crop rotation systems, market information systems, and adaptation of farm equipment to local conditions.
The results of the investments in agricultural research resulted in high productivity advances for crops and animal products. Production of major crops (soybeans, corn, rice, edible beans, and wheat) rose to 54 million tons in 1990, double the level of 1970. During the 1990s, total oilseed area increased 1 percent per year, compared with a decrease of 1.9 percent per year for total grain area, while yield increased 5.2 percent per year, compared with 4.3 percent per year for grains.
Additional information on Brazil's economy and credit sector is available from a number of sources: