Is rural credit keeping up with the growth of Brazilian agribusiness?

Brazilian agribusiness has shown strong growth over the last few decades and has increasingly become of great importance to the country's economy, representing approximately 25% of GDP, according to data from CNA and CEPEA-ESALQ/USP.

The sector’s growth in recent decades has been driven by a significant increase in productivity in the field, supported by investments and new technologies. The introduction of genetically modified seeds, which are more resistant to pests and diseases, together with advanced irrigation techniques, has played a crucial role. In addition, the adoption of precision technologies, such as drones and soil sensors, allows detailed monitoring of agricultural conditions. State-of-the-art, fully connected machinery generates data in real time, facilitating the management and continuous improvement of production processes in the field. These technological advances also include new products for agricultural production, such as bioinputs and high-efficiency fertilizers, which contribute to sustainability and the optimization of natural resources. These new technologies have raised the standard of production in arable areas in Brazil, including the conversion of degraded areas into fertile land.

Brazil is currently one of the largest exporters of agricultural commodities in the world. Over the past 10 years, exports have helped boost the country's economy, maintaining a positive trade balance and offsetting deficits in other economic sectors. Currently, one of the main challenges in meeting this consistent expansion of agribusiness is the limited capacity for growth in financing for the sector, especially in government subsidy lines, given the restrictions on public resources.

Focusing more specifically on this context, it is worth highlighting that one of the main public policies aimed at the development of agriculture in Brazil is the Harvest Plan. This policy is announced annually by the federal government and has a set of guidelines, goals and financial resources that must be allocated to agribusiness. Its objective is to provide support to rural producers, encouraging production (funding), marketing and modernization of agricultural activities.

The Safra Plan offers credit lines with special conditions, such as subsidized interest rates, flexible terms and limits adapted to the needs of farmers and ranchers. These resources can be used for investments in infrastructure, purchase of equipment, production costs, support for marketing and adoption of more efficient practices that preserve the environment.

The Plan is subdivided into two blocks:

• Family farming: aimed at small producers with an annual gross family income of up to R$500.000,00. This program provides financing resources of up to R$250.000,00, offering interest rates subsidized by the Federal Government through the National Family Farming Program (Pronaf).
• Corporate Agriculture: serves medium and large producers who earn more than R$500.000,00 per year from activities related to agriculture and livestock.

In Corporate Agriculture, there is a distinction between medium and large producers. Medium producers are those who have a gross family income of up to R$3.000.000,00 per harvest year. This class also has access to resources subsidized by the National Treasury in the form of the National Program to Support Medium-Sized Rural Producers (Pronamp), with each CPF being able to raise up to R$600.000,00 per year to fund their agricultural activity.

Every year, the federal government allows financial institutions to apply to act as agents for the transfer of subsidized resources, directed to small and medium-sized producers. In the 2023/2024 harvest year, there were 21 financial institutions registered to transfer these special resources.

For large producers, most of the resources available for financing are based on market rates, without subsidies. These are the so-called “free resources.” This class of producers will find subsidized resources only in some types of investments that the government understands to be priorities. Examples include the Warehouse Construction Program (PCA) and investments in sustainable practices aimed at preserving the environment, such as the use of bioinputs, green cover in the field, waste treatment and the absence of environmental liabilities.

Although the resources allocated to the Safra Plan have increased significantly in recent years, they have grown at a lower rate compared to the increase in agribusiness GDP over the same period. The following graph shows the increase in this gap, especially since 2020.

To make matters worse, the lack of control over government accounts and its high public deficit are limiting factors for the promotion of agricultural activity, which requires financial costs at reduced rates, given that profit margins in the commodities sector are quite tight.

The following graph shows that the growth in financing volumes under the Safra Plan has been based mainly on the expansion of free resources, without subsidies from the federal government. Given the State's inability to subsidize agribusiness, especially medium and large producers, these producers are increasingly seeking financing alternatives in the private credit market to meet their cash flow needs and maintain their business operations.

Given the government's lack of resources, interest rate subsidies that are passed on to accredited financial institutions, also known as "interest rate equalization", are being directed primarily to family farming, which, as of the 2021-2022 harvest years, began to receive more resources than the corporate agriculture plan, as can be seen in the graph below. These resources, in the 2023-2024 Harvest Plan, represented a total of R$13,6 billion, which was equivalent to only 3% of the total resources made available by the Harvest Plan. With this, the current government's strategy has been to focus on serving a greater number of small producers, who raise resources in smaller volumes compared to medium-sized producers.

In addition to public funds earmarked for interest rate subsidies for small and medium-sized producers, an amount slightly over R$1 billion is used for the Rural Insurance Subsidy Program (PSR). This program provides coverage for potential crop losses resulting from adverse weather conditions, enabling producers to minimize their losses by recovering the capital invested in their crops. The following graph shows the evolution of PSR resources over the last few years.

As can be seen in the graph, in the second half of the last decade, between 2 and 2015, the severe economic crisis that Brazil went through led to a major contingency of these resources, which were "parked" at around R$2019 million per year. As of 500, these resources have practically doubled, but have been at R$2020 billion for the past five years, which is very little compared to investments in the cost of Corporate Agriculture, which totaled R$1 billion, representing only 272% of this total.

Given the State's inability to subsidize the agribusiness chain in Brazil, as a consequence we see a strong growth in credit operations in the capital market, which is clearly evidenced in the statistics of the increase in CRA operations and, more recently, by Fiagros, which was created in 2021, based on Law 14.130.

In short, Brazilian agribusiness faces the challenge of financing its expansion in the face of limited public resources and high interest rates. Although the Safra Plan plays a crucial role in supporting small and medium-sized producers, insufficient subsidies for medium and large producers are increasingly forcing them to seek financing alternatives in the private market. The increasing adoption of advanced technologies and sustainable practices requires an adequate response in terms of financing, so that the sector can continue its growth trajectory and contribute significantly to the national economy. Therefore, it is imperative to explore new sources of credit and implement more effective policies to sustain the development of Brazilian agribusiness in the long term.

References and recommended readings:
BRAZILIAN ASSOCIATION OF FINANCIAL AND CAPITAL MARKETS ENTITIES (ANBIMA). Anbima Portal – Capital Markets. Accessed on: November 28, 2024.
CENTRAL BANK OF BRAZIL. MCR – Rural Credit Manual. Accessed on: 28 Nov. 2024.
BRAZIL. Ministry of Agriculture, Livestock and Food Supply. 2023/2024 Harvest Plan encourages sustainability and has 13 investment programs. Accessed on: 28 Nov. 2024.
CHAMBER OF DEPUTIES. Equalization of interest rates. Accessed on: 28 Nov. 2024.
BRAZIL. Ministry of Agriculture, Livestock and Food Supply. Rural Insurance Program. Accessed on: 28 Nov. 2024.

* Use this material as a reference freely.
All Agro in Data graphs and data are available for use. You have permission to use, distribute and reproduce these contents in any medium (graphs and data are open to embedding), as long as sources and authors are credited.
Data produced by third parties and made available on Agro in Data are subject to the license terms of the original authors. We will always indicate the original source of the data in the documents made available, and it is the user's responsibility to always verify and cite the original sources.

Are you already following our official channels? Click and follow our whatsapp channel, follow us on LinkedIn and sign up to receive our biweekly Newsletter. Stay up to date with research and knowledge on global agribusiness issues.