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Who finances agribusiness in Brazil? The truth will surprise you! Despite the myth of state support, it is the producers themselves and private credit that sustain the sector. With extremely high interest rates and little government support, rural production faces serious challenges.
O Brazilian agribusiness, recognized as one of the pillars of the national economy, moves billions and generates a significant portion of the country's GDP.
However, contrary to the popular narrative, which suggests great government support, the reality is quite different.
Who really finances rural production in Brazil are the producers themselves and private credit, a truth that is far from being perceived by a large part of the population.
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The scarcity of public resources directed towards Brazilian agriculture is directly linked to the impact this has on consumers’ pockets. But why does this happen and how does it affect the country's economy?
Little government support: Brazil is at the bottom of agricultural subsidies
According to an article published by Jean Gonçalves and Kamila Souza, from the João Domingos Advogados law firm, on the portal Buy Rural, data from the Organization for Economic Cooperation and Development (OECD) show that Brazil occupies the last position in a list of 20 countries with regard to percentage of government subsidies directed to agriculture.
Countries such as Iceland, Norway, South Korea and Japan allocated large percentages of their budgets to the agricultural sector, ranging from 37% to 58%.
In Brazil, this figure is only 3%, which shows the lack of incentives from the federal government for agriculture.
This data is crucial to understanding the basis of Brazilian agricultural financing: private resources.
This means that producers, on their own, are responsible for raising most of the money needed to sustain the country's rural production.
How do rural producers finance agriculture?
According to the National Association of Distributors of Agricultural and Veterinary Inputs (ANDAV), 40% of agricultural financing in Brazil comes from input suppliers.
Only 7% comes from public banks, which represents a paltry amount compared to the sector's needs.
To make up for this deficit, farmers resort to alternatives such as Rural Producer's Certificate (CPR)The Agribusiness Letters of Credit (LCA), the Agribusiness Credit Rights Certificates (CDCA) and the Investment Funds in Agro-Industrial Chains (Fiagros).
These tools are essential to ensure the economic viability of the sector, although they also represent a high financial burden.
One of the main issues that permeates this scenario is the high cost of private financing.
Producers face interest rates ranging from 25% to 35% per year, which considerably increases the cost of crops and harms the sector's competitiveness in the global market.
The Safra Plan and its limitations
Although Brazil has a program focused on agricultural financing, the Crop Plan, the reality is that it only covers a fraction of the total cost of the harvest.
Only 25% of the amount needed for a harvest in Brazil is covered by the Safra Plan, which leaves the rest of the financing in the hands of rural producers and private credit.
In 2020, the rural credit market moved around R$700 billion, but only a third of this amount came from public and private sources, with the remainder being funded directly by farmers and the input industry.
High-interest loans: a challenge for producers
This high cost of financing has a direct impact on the country's agricultural production, making the activity less profitable and more risky.
With exorbitant interest rates, many rural producers face difficulties in remaining competitive in the market, especially when compared to other countries that receive more substantial government support.
Furthermore, another recurring problem is abusive practices in the sector, such as tie sale.
In many cases, producers are required to purchase additional products or services as a condition of obtaining financing, which further aggravates farmers' financial situation.
Bureaucracy and challenges in accessing rural credit
A excessive bureaucracy It is also one of the biggest obstacles for rural producers in Brazil.
According to a survey carried out by the Brazilian Agriculture and Livestock Confederation (CNA) and the National Rural Learning Service (Senar), more than 38% of producers have never taken out rural credit, with the majority facing difficulties in accessing available credit lines.
The main obstacles include the delay in releasing credit, the guarantees required and the rigorous assessment of debt capacity.
The reality of rural credit in Brazil
It's much more complex than many people imagine., and the current financing system has not been effective in ensuring the sustainability of the sector.
With the drop in the number of credit operations and the decrease in amounts released, the situation is becoming increasingly difficult for those who depend on agribusiness to generate wealth and jobs in the country.
Brazilian agriculture: resilient, but for how long?
Despite this challenging scenario, agribusiness continues to be the locomotive of the Brazilian economy, sustaining a trade surplus and guaranteeing internal supply.
However, the cost of private financing and the lack of government support mean that producers are becoming increasingly overburdened.
The competitiveness of the sector is at stake, and the capacity for sustainable growth is being compromised.
If Brazil wants to remain competitive in the global market
Agricultural financing policies need to be rethought.
The country needs a structured and urgent reform of its agricultural subsidy policies, so that producers can truly count on the support of the State.
Brazilian agriculture survives, but how long will it be able to continue carrying alone a sector that represents almost 25% of the national GDP?
The answer to this question will depend on the choices governments make regarding the future of agricultural finance.
